No Embargo Under The CGST Act Restraining Pre-Arrest Bail: Kerala High Court

Finding that there was no embargo to a person's applying for pre-arrest bail under the legislation, Justice Ashok Menon stated,

"There is no embargo under the CGST Act restraining the applicant from seeking pre-arrest bail. There is no analogous provision under Sections 18 and 18A of the SC/ST( Prevention of Atrocities) Act, 1989, preventing grant of anticipatory bail."

In finding that a grant of anticipatory bail under GST law was permissible, the Court analysed sections of the CGST legislation that provided for arrest against provisions of the Code of Criminal Procedure and the Constitution.

For this, the Court discussed Sections 132 and 69 of the CGST Act. Section 132 lists twelve offences punishable with imprisonment or fine and Section 69 allows a Commissioner of Tax to authorise a person to make arrests.

In his Order, Justice Menon culls these principles concerning offences, their penalties, and safeguards against arrest under GST law -

• Certain safeguards against abuse of the powers to arrest have been inserted under the CGST Act itself. The power to arrest has been granted only in respect of certain specific offences.

• Offences where arrest is permitted include those where the act in question is committed with an intention to evade tax or where it results in monetary loss to the Government exchequer.

• There is an additional layer of restriction on the power to arrest most 'first time offenders'. Arrest of such offenders can only be exercised when the aforementioned offences involve an amount exceeding Rupees one hundred lakh or more.

• The aforementioned monetary threshold is not applicable to all offences. In certain cases, the amount involved in the offence is not relevant.

• Power of arrest under the CGST Act have been allowed based on the combined assessment of the severity of the offence and the amount involved therein. The safeguards in the form of pre-arrest authorisation have also been inserted in the text of the CGST Act itself.

• Section 69 of the CGST Act permits the Commissioner of GST to authorise arrests in certain cases, based on the seriousness and the amount involved, but in all other cases, arrests are to be conducted according to provisions of the Code of Criminal Procedure.

• There appears to be an inversely proportional relationship between the gravity of the offence in question and the safeguards applicable thereon.

• However, the provisions still appear to comply with basic standards as even in cases of the grave offences under the Act, the Commissioner who is a Senior GST official is permitted to authorise arrest only if he has reason to believe that a person has committed an offence. The Senior Intelligence Officer is not permitted to conduct arrests under the CGST Act till the Commissioner records his satisfaction on 'reasons to believe' authorizing him to arrest the assessee.

• The insertion of the phrase 'reason to believe' demonstrates the legislature's intention to make an affirmative attempt to circumscribe the discretionary powers and permit their exercise only in a bona fide manner, to further the interest of revenue.

• The discretion of the Commissioner to authorise arrest is in the most serious offences listed under the CGST Act.

• The CGST Act also provides the process to be followed once arrests are conducted by a central tax officer on the authorisation of the Commissioner. The officer in question is required to inform the arrested person of the grounds of his arrest and must produce such person before the Magistrate within twenty-four hours of arrest.

Explaining the expression 'reason to believe', the Court prescribed that it must not be purely subjective satisfaction and must have a rational connection with, or a relevant bearing on the formation of the belief. After analysing the provisions for arrest and culling the safeguards provided against the same, the Court remarked that they were in consonance with Section 49 of the Code of Criminal Procedure and Article 22 of the Constitution.

Application to the facts

On the facts of the case, the Court found the applicant's apprehension was well-founded. The case involved a person which involved a person apprehending arrest for one AR Agencies' failure to pay GST to the tune of Rs. 17.53 Crore.

The proprietor of the agency, Rajoob P.A, and his primary colluder, Abdul Saleem of Ittonam, Palakkad were proceeded against and their business and residential premises searched. While the investigation against them progressed, it was stated that the applicant had filed the GSTR-I returns for A.R Agencies and prepared GST invoices valued at Rs. 348.7 crores using the credentials of the Agency. The applicant's house was searched and 'incriminating evidence' recovered, as per the GST officials' statements. The applicant was thereafter issued a summons.

The applicant averred that he did not know of the agency or Rajoob though he was acquainted with Abdul Saleem. Moving court apprehending arrest, the applicant asserted his innocence.

Finding that objections filed by GST officials to the writ petition did not disclose any material that could implicate him as an accused, the Court opined that Rajoob ought to have been made answerable for anything done by the agency. Additionally, he had not been arrayed as an accused.

The Court highlighted,

"It is settled position that the applicant apprehending arrest need not be made an accused in a crime to seek the relief of anticipatory bail. Its is sufficient in case he succeeds in establishing that his apprehension of arrest is reasonable."

It was also stated,

"The fact that they have not arraigned him as an accused indicates lack of material. The applicant's apprehension of arrest is reasonable, because

Abdul Saleem, who is also not a proprietor, has been arrested. In the objections filed by the respondents before this court in the Writ Petition also do not disclose any incriminating material against the applicant. Merely by stating that they recovered incriminating materials may not suffice."

Therefore, the Court deemed that anticipatory bail could be allowed and directed the applicant to cooperate with the investigation. In the event of his arrest, he was to be released on bail after executing a bond for Rs 5,00,000.

CASE: Abdul Shaji v. Commissioner of Central Tax and Central Excise and Anr.

COUNSEL: Advocates K Seena and VK Sunil for the applicant, Standing Counsel Sreelal N Warrier for the Tax officials.

Click here to download the Order