Section: C
Category: Legal Essay
Paper Code: LE-HT-17
Page Number: 441 - 446
Date of Publication: February 10, 2021
Citation: Hunseng Tungkhang, Arrest of Tax Evaders under the Central Goods and Service Tax Act 2017, 1, AIJACLA, 441, 441-446, (2021), https://www.aequivic.in/post/aijacla-arrest-of-tax-evaders-under-the-central-goods-and-service-tax-act-2017.
Details Of Author(s):
Hunseng Tungkhang, Student, NERIM Law College
ABSTRACT Tax is an important tool for government administration to manage the welfare of the citizens of a particular nation. Payment of tax therefore becomes a liability of all citizens for maintaining the economic growth and development of the concerned nation. The Rule of Law demands every citizen to responsibly pay their respective tax amounts on time and if any citizen by any illicit means intends to escape such liabilities might become a tax evader under the eyes of the law. In India, the Central Goods and Service Tax Act (CGST) provides several provisions for dealing with such tax evaders and one category of such provisions also provide for arrest. This essay will focus on the aspect that whether such provisions of arrest are sufficient enough to do good the loss suffered by the nation at large due to tax evasion by a defaulter. KEYWORDS Arrest, CGST, Tax, Evasion, and Evaders
INTRODUCTION The History of the GST Act can be traced back to 1954 where France became the first country to implement it. Since then more than 160 countries have implemented the GST system.[1] The journey of implementing a system of single domestic tax law for the entire country took almost two decades which was conceptualized during Atal Bihari Vajpayee Government in 2000.[2] However, finally the GST framework was rolled out and enforced from 1st July 2017. “The enforcement of this Act has replaced a plethora of indirect taxes such as sales tax, service tax, etc. with a single central tax regime applied uniformly on all products and facilitate Indian businesses to be globally competitive.”[3] The primary object and purpose of CGST law is not penal but to recover the dues payable under the Act. Needless to mention, the arrest of an individual under the GST Act directly deprives him of his Right to Liberty, which is guaranteed by the Constitution as a Fundamental Right under Article 21.[4] Personal Liberty being largely a concept associated with the Rule of Law which means that a person’s liberty cannot be stripped away except with the procedure established under Law. The Rule of Law is the soul of a democratic setup and no one is allowed to breach or even shake the golden thread of the same.[5]
ARREST UNDER THE CENTRAL GOODS AND SERVICE TAX ACT Under the new CGST Law, there has been a tremendous rise in Arrest under the Act. The theme of this article covers subject matter related to Arrest, Procedures, and Bail. The power of Arrest given under the Act must be exercised with deliberation and discretion and must be done on exceptional cases that too with due process of Law. The extant GST law sanctions liberal use of arrest provisions where an individual can be put behind bars merely on reasons to believe that he or she must have escaped tax accountability before an investigation on the matter could become to an end.[6]The Reason to believe is a rather subjective phrase and may vary in the circumstances of each case. However such belief shall always be in good faith and cannot be merely a pretense. It is commendable the manner with which the Central and State Government has dealt with efficient tax collection, reduction in corruption, easy inter-state movement of goods etc.[7] however, there are legal issues relating to arrest and procedures which has to be followed, which is not anywhere mentioned under the Act. It may be noted that there are 21 offenses under the GST Act. Broadly, the offenses under Indirect taxes are categorized into two types one being the Fiscal penalties where the proceedings are Quasi-judicial and mostly carried out by department officers, and the other being the Offences attracting Prosecution which are judicial and hence dealt with by Courts.[8] The provisions relating to penalty have been provided in Section 122 to Section 131 whereas provisions related to prosecution and compounding are provided in Section 132 to 138 of the Act. It may be noted that many non-compliance are also covered under both categories that are penalties as well as prosecution and compounding.[9] The provisions related to Arrest under the Act is prescribed under Section 69 (1) of the Central Goods and Service Tax Act, 2017 (hereinafter referred as CGST, Act) that grants power to arrest. This section empowers the Central Tax officer to arrest, subject to the approval of the Commissioner, a person who has committed any offense stated in Clause (a) or clause (b) or Clause (c) or clause (d) of Subsection (1) of Section 132 of the Act.[10] However, the power of arrest under the act is dependent upon Section 132 of the CGST Act 2017. Here there arises a legal issue under the CGST Act as under the Central Excise and Customs Act, the only officer who is not below the rank of Superintendent could be authorized to arrest by the commissioner but under the CGST Act, there is grey area regarding the arrest of a person. There is no clarity and at present any central tax officer can be authorized by the commissioner to arrest under the GST Law. As procedural law is absent, Arrests under the act will apply the provisions stated under the Cr. P.C. Thus, provisions of Cr. P.C shall specifically apply in the procedures for investigation, inquiry, or trial of an offense under Section 132. There is no procedure laid down in the CGST Act 2017 regarding arrest under section 69(1) so they will further follow procedures envisaged under Cr. P.C and the arrested person will be presented to the magistrate for further action.[11] For an authorized officer to arrest a person under Section 69 of the Act and to exercises the power of arrest like Police officers it would be presumed that all the provisions about arrest as envisaged in Section 41 of Cr. P.C has to be followed by the officer. It is also pertinent to note a judgment of the Apex Court in the case of Arnesh Kumar versus State of Bihar & Another[12], where it laid down “protection and safeguard accessible under Section 41 and Section 41-A of Cr.P.C. will be available to the person apprehending arrest and the authorized officers under the CGST Act before the arrest is bound to follow the procedure and protections as mentioned in Section 41 and Section 41-A of Cr.P.C.” The Hon'ble Court further held that failure to comply with these directions, shall apart from rendering police officers concerned accountable for department action and also make them responsible to be punished for Contempt of Court. The guidelines provided in the above-referred case shall apply to CGST Act, 2017 since the maximum punishment prescribed under Section 132 of the Act is imprisonment for five years, and it is a settled provision that where the offense is punishable with imprisonment for a term which may be less than seven years or which may extend to seven years[13] shall observe the guidelines of the given judgment. Further, two landmark decisions of the Apex Court is worth mentioning which must be followed by the authorized officers under the CGST Act while exercising the power of arrest and is bound to follow the mandatory guidelines with regards to arrest issued by the Hon’ble Supreme Court in the case of Joginder Sharma versus State of UP[14] and D K Basu versus State of West Bengal.[15] Another landmark judgment of Telangana High Court in the case of P V Ramana Reddy versus Union of India[16] which was confirmed and upheld by the Apex Court regarding not granting relief to the taxpayers involved in circular trading with a turnover on the tune of about Rs. 1289 crores and a benefit of ITC to the tune of Rs. 225 crores against Arrest. “The Telangana High Court held the maintainability of the Writ petitions and despite their finding that the protection under Sections 41 and Section 41-A of Cr.P.C. may be available to persons said to have carried out cognizable and non-bailable offenses under this Act and despite their finding that there are incongruities within Section 69 and between Sections 69 and 132 of the CGST Act, 2017, they have not accord relief to the petitioners against arrest, given the special circumstances.”[17] In cases of Arrest been made the officer arresting a person must be having a warrant as envisaged under Section 155 of the Cr.PC. But where the offense is cognizable, a warrant is not required. Furthermore, as per section 132(5) where the tax evaded is over Rs 5 Crores under the GST Act would be a non-bailable offense and will entitle the police to arrest the person without a warrant.[18] Concerning the above, reference to the Apex Court's decision in the case of Om Prakash and ChoithNanikramHarchandani v. the Union of India[19], in which it was held that no arrest could be made in the event of a non-cognizable, bailable offense. The GST Law also states a provision under Section 137 regarding the arrest of persons who committed the offense is a company, the person who is the supervising and responsible for the management of the business of the company shall be deemed to be accountable for the offense and punished accordingly. Such a person shall not, however, be liable for any offense under that act if he proves that the offense committed was unknown to him or that he exercised all due care to avoid the commission of such an offense. Under Clause (2) of the sub-section, where it is proven that the crime has been committed and proved to have been committed with the consent and due negligence of any company director, manager, or other officers, that person shall be liable for prosecution under this section and shall be punished accordingly.[20] Despite GST Law being a stringent law, it provides provisions of bail. The law for bail was frame under the umbrella of the Constitutional right, so the right to bail is not just statutory.[21]Article 21 of the Indian Constitution provides for the right to personal liberty; bail or release from jail is available as a right not punishable by death or life imprisonment for bailable offenses. The bail under bailable offense is the right as the fundamental concept is "Bail and not Jail".[22] Section 69 of Clause (3) Sub-clause (a) provides for default bail provisions if a person is arrested for any of the offenses stated in subsection (4) of Section 132 of the CGST Act, 2017. If the arrest under CGST the prosecution fails to file the final report within a stipulated time of 90 days from the date of arrest then the detenue can be released on default bail under Section 167 of the Code of Criminal Procedure.[23] Where the person arrested is subject to a non-cognizable and bailable offense, the Deputy/Assistant Commissioner of the CGST/SGST may release him on bail and shall subject to the same provisions as the officer-in-charge of the police station referred to in Section 436 of the Code of Criminal Procedure, 1973.[24] As mentioned above, Section 132(5) comes into force where a tax evasion is higher than Rs 5 Crore and offense is falling under any clauses (a) (b) (c) or (d) of Section 132 (1) of the GST Act in these cases all the offenses committed are non –bailable and cognizable. Except for the offenses referred to in sub-section (5) all offenses are bailable and non-cognizable.[25] In the case of Vikas Goel versus Deputy Director, Directorate General of Goods and Service Tax Intelligence[26], the petitioner was found with serious allegations involved in claiming false and bogus bills of Rs. 80 crore only paper transactions were done without any actual sale and adjusting the same as ITC without making any actual transportation of goods or sale of goods. Given the gravity and serious nature of crime and the economic offense of huge magnitude, the petitioner was denied regular bail by the Punjab and Haryana High Court. The case was therefore dismissed and the bail plea was rejected.[27] In another landmark judgment of the apex court in the case of State of Bihar and Another versus Amit Kumar @ Bacha Rai,[28]the Hon’ble court held that the accused was alleged to be the kingpin of crime and was charged with economic offense of huge magnitude the bail was therefore denied.
CONCLUSION The current provisions of the GST Law needs a review regarding the provisions of Arrest. The very purpose of the GST law must not be penal but to recover the financial loss. This legislation must not be harsh as the crime related to it is an economic offense and law exercise must be as tax law than not a criminal legislation. There must not be the arrest of a person on each case rather the provisions of compounding under the Act must be used to settle it to de-clog criminal courts. The provisions related to “Compounding of the offenses” envisaged under Section 138 must be utilized as a mechanism to abate criminal proceedings against tax evaders and powers of arrest must be exercised under exceptional circumstances only and must not necessary to exercise to create an environment of fear
[1] History of GST in India : Complete Detailed Events, Freshers Live, (Dec. 2020, 10, 08:14 PM), https://www.fresherslive.com/articles/history-of-gst. [2] FE Knowledge Desk, What is Goods and Service Tax (GST)? ,Financial Express, (Dec. 2020, 10, 08:32 PM), https://www.financialexpress.com/what-is/goods-and-services-tax-gst-meaning/1620322/. [3] GST in India vs GST in other countries – how India differs, Clear Tax, (Dec. 2020, 12, 08:50 PM), https://cleartax.in/s/gst-india-and-other-countries comparison#:~:text=France%20was%20the%20first%20country,(e.g.%20Brazil%2C%20Canada%20etc. [4] R P Singh, Arrest under GST is not cakewalk for department, Caclub India, (Dec. 2020, 12, 09:12 PM), https://www.caclubindia.com/articles/arrest-under-gst-is-not-cakewalk-for-department-43596.asp. [5] Prabhat Kumar, Arrest under GST: Caution Needs To Be Applied, Tax Guru, (Dec. 2020, 25, 09:32 PM), https://taxguru.in/goods-and-service-tax/arrest-gst-caution-applied.html. [6] Finance Ministry sets out to decriminalise offences under GST Laws, New Indian Express, (Dec. 2020, 26 10:42 AM), https://www.newindianexpress.com/business/2020/aug/29/finance-ministry%E2%80%8B-sets-out-to-decriminalise-offences-under-gst-laws-2189915.html. [7] Mukesh Butani, Tarun Jain, Two Years of GST – Dissecting Disputes, Bloomberg Quint, (Dec. 2020, 26, 10:57 AM), https://www.bloombergquint.com/gst/gst-second-anniversary-legal-issues-in-the-goods-and-services-tax-regime. [8] Ajay Singh, Administering GST: Offence, Penalties, Prosecution and Compounding, NJA, (Dec. 2020, 26, 11:23 AM), http://www.nja.nic.in/Concluded_Programmes/2017-18/P-1043_PPTs/6.Session-6.pdf. [9] Niranjan Mishra, Decriminalise certain offence under GST Law: ICAI CMA, Tax Guru, (Dec. 2020, 26, 11:38 AM), https://taxguru.in/goods-and-service-tax/decriminalise-certain-offences-gst-law-icai-cma.html. [10] Rakesh Singh, Arrest and Bail Under Goods and Service Tax, Tax Guru, (Dec. 2020, 26, 07:00 PM), https://taxguru.in/goods-and-service-tax/arrest-bail-goods-service-tax.html. [11] Anuj Bansal, Provisions and Procedures for Arrest under GST Law, Tax Management India, (Dec. 2020, 26, 07:22 PM), https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=8751. [12] Arnesh Kumar v. State of Bihar and Another, 2014 (8) SCC 273. [13] Id. [14] Joginder Sharma v. State of UP, AIR 1994 (SC) 1349. [15] Vishal J Dave, NipunSinghvi, Jail Over Bail Under GST: Dilemma ?, Tax Guru, (Dec.2020, 26, 07: 38 PM), https://taxguru.in/goods-and-service-tax/jail-bail-gst-dilemma.html. [16] PV Ramana Reddy v. Union of India, Writ Petition No. 4764 of 2019. [17] Circular Trading / Fraudulent ITC Claim- HC denies Bail, Tax Guru, (Dec. 2020, 26, 08:04 PM), https://taxguru.in/goods-and-service-tax/circular-trading-fraudulent-itc-claim-hc-denies-bail.html. [18]GST: Tax evasion over Rs 5 Crore a non-bailable offence, Economic Times, Dec. 2020, 26, 8:14 pm. https://economictimes.indiatimes.com/news/economy/policy/gst-tax-evasion-over-rs-5-crore-a-non-bailable-offence/articleshow/57978128.cms?from=mdr [19] Om Prakash and ChoithNanikramHarchandani v. Union of India, 2011 (9) TMI 65 SC. [20] Id. [21] Fixed time: Fundamental right to bail, Telegraph India, (Dec. 2020, 26, 08: 28 PM), https://www.telegraphindia.com/opinion/fixed-time-fundamental-right-to-bail/cid/1795965. [22] Sec. 69 of CGST Act – Power to Arrest, Faceless Compliance, (Dec. 2020, 26, 08:49 PM), https://facelesscompliance.com/tag/section-69-of-cgst-act-power-to-arrest. [23]Id. [24] Id. [25] Id. [26] Vikas Goel v. Deputy Director, Directorate General of Goods and Service Tax Intelligence, CRM No. M-45649 of 2018. [27] Id. [28] State of Bihar and Another v. Amit Kumar @ Bacha Rai, 2017 (3) R.C.R (Criminal) 690.