Vinodpari Navalpari Gosai vs State Of Gujarat on 20 October, 2020

Outcome**
The Gujarat High Court rejected the petitions seeking pre-arrest protection under Article 226 of the Constitution of India. However, the Court laid down detailed guidelines and clarifications regarding the exercise of the power of arrest under Section 69 read with Section 132 of the CGST Act, emphasizing the need for 'reason to believe' based on credible material and strict adherence to constitutional safeguards.

2. Core Issue
The core issue was whether the power to arrest under Section 69 read with Section 132 of the Central Goods and Services Tax Act, 2017 (CGST Act) can be invoked only after the completion of adjudication proceedings (assessment and determination of tax liability), and whether GST officers are considered "police officers" requiring compliance with the Code of Criminal Procedure, 1973 (CrPC) and the constitutional safeguards akin to those for police arrests.

3. Key Facts
The petitioners, proprietors of a concern engaged in trading stainless steel and scrap, apprehended arrest by GST officials. Investigations were ongoing, during which officials visited premises, sealed drawers, and seized documents/electronic devices. Summons under Section 70(1) of the CGST Act were issued to the petitioners to appear and provide statements/documents. The petitioners, despite filing GST returns, had not received any formal notice for tax evasion assessment under the CGST Act but feared immediate arrest if they complied with the summons.

4. Arguments (Taxpayer vs Revenue)

• Taxpayer's Arguments:
  • Petitions for pre-arrest protection under Article 226 are maintainable (relying on P.V. Ramana Reddy v. Union of India).
  • Arrest under Section 69 read with 132 requires two cumulative conditions: (1) Commissioner has "reasons to believe" an offense is committed, and (2) the offense is "committed," which implies a post-adjudication determination of liability.
  • "Reasons to believe" must be objective, based on reasonable grounds, not suspicion, and must be disclosed to the arrestee.
  • The term "commits" in Section 132 necessitates the completion of the assessment and adjudication process (Sections 61, 73, 74 CGST Act) before an offense can be established and punishment or arrest initiated.
  • Reliance on Jayachandran Alloys (P) Ltd. v. Superintendent of GST (Madras HC) and Akhil Krishan Magu v. DGGI (P&H HC) which held that punishment is triggered only after the determination of demand.
  • Section 135 (presumption of culpable mental state) is applicable only during prosecution before a court, not at the arrest stage.
  • The Make My Trip (India) Pvt. Ltd. v. Union of India (Delhi HC) judgment, dealing with similar provisions under Service Tax and affirmed by the Supreme Court, emphasizes safeguards and prior adjudication.
  • In case of ambiguity in penal statutes, the interpretation more favorable to the taxpayer should be adopted.
  • GST officers are "police officers" for certain purposes, requiring adherence to CrPC provisions like warrants for non-cognizable offenses.
• Revenue's Arguments:
  • Petitions are premature as no arrest has occurred, and petitioners have an alternate remedy under Section 438 CrPC (anticipatory bail).
  • The writ of prohibition cannot be issued against an authority acting within its statutory jurisdiction to arrest.
  • Section 69 (power to arrest) and Section 132 (punishment) operate independently. Section 69 allows arrest based on "reason to believe" that an offense has been committed, not after conviction or final assessment.
  • Interpreting "commits" as requiring prior adjudication would render Section 69 otiose/redundant, as a person would only be arrested after conviction, which is not the scheme of the Act.
  • Section 135 (presumption of culpable mental state) supports pre-adjudication arrest.
  • Make My Trip is distinguishable as it pertained to the Finance Act, 1994, which had different provisions (e.g., Section 73A(3)&(4) for notice before action) and lacked a provision like Section 135 CGST Act.
  • The dismissal of the SLP against P.V. Ramana Reddy (Telangana HC) by the Supreme Court effectively upheld that prosecution can be launched before assessment.
  • GST officers are not "police officers"; hence, CrPC provisions like FIR registration (Sections 154-157) or warrants for non-cognizable offenses are not applicable. The non-obstante clause in Section 132(4) overrides CrPC.
  • The reference to "officer-in-charge of a police station" in Section 69(3)(b) only relates to bail-granting powers, not overall police powers.

5. Court’s Reasoning

• Maintainability: The petitions are maintainable despite no actual arrest due to the apprehension of arrest, following P.V. Ramana Reddy.
• Arrest before Adjudication:
  • The Court rejected the argument that arrest can only occur after adjudication. Sections 69 and 132 operate in "separate fields." Section 69 refers to Section 132 solely to define the nature and severity of offenses that warrant arrest, not to imply a concluded finding of guilt.
  • Adjudication proceedings and criminal prosecution can run simultaneously, and one is not a prerequisite for the other (Radheshyam Kejriwal).
  • The "reason to believe" under Section 69(1) implies an initial assessment based on credible material and information, not a final determination of guilt.
  • The purpose of arrest is not just to further investigation but also to prevent further offenses, evidence tampering, and dissuading witnesses.
  • The argument regarding compoundability of offenses (Section 138) was rejected because petitioners had not offered to compound by paying tax, interest, and penalty.
• "Reason to Believe" and Safeguards:
  • "Reason to believe" requires objective determination based on intelligence, care, and deliberation, not mere suspicion. It must be founded on cogent, credible material, though its sufficiency is not for the court to re-evaluate.
  • The power to arrest is "drastic and far-reaching" and must be used "sparingly" and only when necessary and justified, not in a routine or harassing manner (Joginder Kumar).
  • The Commissioner must record reasons for belief in the file, but it's not mandatory to include them in the arrest authorization.
• GST Officers as Police Officers / CrPC Applicability:
  • Following a catena of Supreme Court judgments (Soni Vallabhdas Liladhar, Ramesh Chandra Mehta, Illias, Badaku Joti Savant, Deepak Mahajan, Padam Narain Aggarwal, Sundeep Mahendrakumar Sangahavi), the Court held that GST officers are not "police officers."
  • Therefore, they are not obligated to register an FIR under Section 154 CrPC or follow CrPC procedures for investigation.
  • The reference to "officer-in-charge of a police station" in Section 69(3)(b) only applies to their powers to grant bail for non-cognizable and bailable offenses, not to equate them with police for all purposes.
  • An arrest without a warrant by a GST officer for non-cognizable and bailable offenses is permissible under the special law.
• D.K. Basu Guidelines:
  • The constitutional safeguards articulated in D.K. Basu v. State of West Bengal (1997) regarding arrest and detention are fully applicable to GST officers, as they are to any governmental authority with powers of arrest.
  • This includes preparing a detailed arrest memo (containing prima facie material, time, date, witness details, countersignature, and grounds of arrest), informing the arrestee of the grounds, allowing a relative/friend to be informed, and producing the arrestee before a Magistrate within 24 hours.
  • Magistrates have a duty to ensure these safeguards are met when presented with an arrested person and can decline production if the arrest memo is improper or absent.
  • While D.K. Basu principles generally apply, the Court clarified (referring to Poolpandi) that some specific rights, like consulting a lawyer throughout interrogation, might differ for persons interrogated under fiscal laws who are not yet formally accused, so long as Article 21 rights (against torture) are protected.

6. Statutory References
* Central Goods and Service Tax Act, 2017 (CGST Act): Sections 61, 65, 66, 67, 69, 70, 73, 74, 132, 135, 138.
* Gujarat Goods and Service Tax Act, 2017 (GGST Act): (Mentioned as pari materia with CGST Act).
* Code of Criminal Procedure, 1973 (CrPC): Sections 2(a), 2(o), 41, 41A, 49, 50, 50A, 51, 154, 155, 156, 157, 161, 167(2), 172, 173, 190, 200, 438.
* Constitution of India: Articles 21, 22, 141, 226.
* Finance Act, 1994: Sections 73, 73A(3), 73A(4), 83, 90, 91.
* Central Excise Act, 1944: Sections 9, 9A, 9C, 21.
* Customs Act, 1962: Sections 104, 107, 108, 123, 133, 135, 135A, 136, 137, 138A, 173, 174, 175.
* Indian Evidence Act, 1872: Section 25.
* Indian Penal Code: Section 26.
* Foreign Exchange Regulation Act, 1973 (FERA): Section 35.

7. Precedents Cited
* P.V. Ramana Reddy v. Union of India (Telangana High Court & SC dismissal of SLP)
* D.K. Basu v. State of West Bengal (Supreme Court)
* Radheshyam Kejriwal v. State of West Bengal and another (Supreme Court)
* Joginder Kumar v. State of U.P. (Supreme Court)
* MAKEMYTRIP (INDIA) PVT. LTD. vs. UNION OF INDIA (Delhi High Court)
* M/s. Jayachandran Alloys (P) Ltd. vs. The Superintendent of GST and Central Excise and Others (Madras High Court)
* Akhil Krishan Magu v. Deputy Director, Directorate General of GST Intelligence (Punjab and Haryana High Court)
* Desai Brothers v. DCIT (Gujarat High Court)
* Sheth Brothers v JCIT (Gujarat High Court)
* GKN Driveshafts (India) Ltd. v. ITO (Supreme Court)
* Barium Chemicals Ltd. vs. Company Law Board (Supreme Court)
* Income-tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das (Supreme Court)
* Smt. S.R. Venkatraman vs. Union of India (Supreme Court)
* Sundeep Mahendrakumar Sangahavi Versus Union Of India (Gujarat High Court)
* Soni Vallabhdas Liladhar and another v. The Assistant Collector of Customs, Jamnagar (Supreme Court)
* Ramesh Chandra Mehta v. The State of West Bengal (Supreme Court)
* Illias v. The Collector of Customs, Madras (Supreme Court)
* Badaku Joti Savant v. State of Mysore (Supreme Court)
* Percy Rustomji Basta v. The State of Maharashtra (Supreme Court)
* Veera Ibrahim v. The State of Maharashtra (Supreme Court)
* Directorate of Enforcement v. Deepak Mahajan and another (Supreme Court)
* Union of India v. Padam Narain Aggarwal (Supreme Court)
* Bhavin Impex Pvt. Ltd. v. State of Gujarat (Gujarat High Court)
* Om Prakash v. Union of India (Supreme Court)
* C.B. Gautam v. Union of India & Ors. (Supreme Court)
* Union of India v. Ashok Kumar Sharma & Ors. (Supreme Court)
* Lalitha Kumari v. Government of Uttar Pradesh and others (Supreme Court)
* Km. Hema Mishra Vs. State of Uttar Pradesh (Supreme Court)
* Poolpandi and others v. Superintendent, Central Excise and others (Supreme Court)
* CIT v. Vatika Township (P) Ltd. (Supreme Court)
* CIT v. Vegetable Products Ltd. (Supreme Court)
* Kunhayammed versus State of Kerala (Supreme Court)
* Khoday Distilleries Ltd. v. Sri Mahadeshwara Sahakarasakkare Karkhane Ltd. (Supreme Court)
* V.M. Salgacoar & Bros.(P.) Ltd. v. CIT (Supreme Court)
* Sukhdeep Singh Bhoday v. Joint Director General of Foreign Trade and others (Punjab & Haryana High Court)
* Chhagan Chandrakant Bhujbal v. Union of India and others (Bombay High Court)