Jagdishbhai Popatbhai Thakor vs State Of Gujarat on 20 October, 2020

Judgment Summary: Jagdishbhai Popatbhai Thakor vs State Of Gujarat

Date: 20 October, 2020

1. Outcome

The petitions seeking protection from arrest under Section 69 read with Section 132 of the Central Goods and Service Tax Act, 2017 (CGST Act) were rejected. The ad-interim relief previously granted, protecting the petitioners from coercive steps of arrest, was vacated.

2. Core Issue

The central issue was whether the Commissioner's power to arrest under Section 69 read with Section 132 of the CGST Act could be invoked only after the completion of the adjudication process, assessment, and final determination of tax liability. Ancillary questions included:
* Whether the Commissioner is obliged to record "reasons to believe" for arrest and furnish them to the arrestee.
* The applicability of various provisions of the Code of Criminal Procedure, 1973 (CrPC) (e.g., FIR, warrant requirements) to arrests under the CGST Act.
* Whether GST officers are "police officers in charge of a police station" as defined under the CrPC.
* The extent to which constitutional safeguards laid down in D.K. Basu's case apply to arrests under the GST Act.

3. Key Facts

The petitioners, including Jagdishbhai Popatbhai Thakor, proprietor of M/s Heugo Metal, were under investigation by the Gujarat Goods and Service Tax (GGGST) Department for alleged business transaction irregularities. Searches were conducted at the petitioner's residential premises, and documents, mobile phones, and laptops were seized. Summonses were issued under Section 70(1) of the CGST Act, requiring the petitioners to appear and provide statements. The petitioners sought adjournments, expressing apprehension of immediate arrest without prior adjudication or determination of tax liability. The petitioners contended that no formal assessment or adjudication had been initiated or completed by the authorities under the CGST Act.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Petitioners):
* The petitions for pre-arrest protection under Article 226 of the Constitution are maintainable, citing P.V. Ramana Reddy (Telangana HC, upheld by SC).
* For arrest under Section 69 read with Section 132, two conditions must be cumulatively satisfied: (1) "reasons to believe" (honest, reasonable grounds, not mere suspicion, supported by material) and (2) the offence must be "committed" (established after post-determination of demand through adjudication/assessment processes under Sections 61, 73, 74 of the CGST Act).
* The word "commits" in Section 132 implies that an offence must be fixed before punishment/arrest.
* Arrest powers under Section 69 should be exercised with circumspection, normally after adjudication, as held in MakeMyTrip (Delhi HC, affirmed by SC) and Jayachandran Alloys (Madras HC).
* Section 135 (presumption of culpable mental state) is applicable only at the prosecution stage (before a court) and not at the arrest stage.
* For non-cognizable and bailable offences, arrest without a Magistrate's warrant, or prior intervention, is impermissible under CrPC.
* Invoking arrest powers without adjudication violates constitutional rights (Articles 21, 22) and D.K. Basu safeguards.
* In penal statutes, if two interpretations are possible, the one favorable to the taxpayer should be adopted.

Revenue (Respondents):
* The petitions are premature as no arrest has occurred, and therefore not maintainable. Gujarat has Section 438 of CrPC for anticipatory bail, unlike Uttar Pradesh (Hema Mishra case).
* Arrest under Section 69 is not dependent on prior adjudication/assessment. Sections 69 and 132 operate in independent fields.
* The phrase "reasons to believe" in Section 69 explicitly allows for arrest based on a belief of offence commission, before formal adjudication, otherwise Section 69 would be rendered otiose. Section 69 only borrows the classification of offences from Section 132.
* Section 135 (culpable mental state presumption) read with Section 69(1) supports arrest.
* P.V. Ramana Reddy (Telangana HC, upheld by SC) correctly held that prosecution can be launched even before assessment, as Section 132 offences have no correlation with assessment, and distinguished MakeMyTrip due to differences in statutory schemes.
* GST officers are not "police officers." Therefore, CrPC provisions like FIR (Sections 154-157, 172) for investigation are not strictly applicable to their arrest powers. The non-obstante clause in Section 132(4) explicitly overrides CrPC for non-cognizable and bailable offences under CGST.
* The object of arrest is not solely to facilitate further investigation but also to prevent further offences, tampering with evidence, or dissuading witnesses.

5. Court’s Reasoning

1. Maintainability: The Court held that petitions seeking pre-arrest protection under Article 226 are maintainable, especially given the strong apprehension of arrest, citing the Supreme Court's affirmation of the Telangana High Court's decision in P.V. Ramana Reddy.
2. Arrest Before Adjudication: The Court rejected the petitioners' argument that arrest under Section 69 requires prior completion of adjudication.
   • Sections 69 (power to arrest) and 132 (punishment for offences) operate in "totally different fields." Section 69 is a measure for investigation, inspection, search, and seizure, while Section 132 defines punishable offences.
   • The reference to Section 132 in Section 69 is solely to identify the nature of the offences (e.g., cognizable/non-bailable or non-cognizable/bailable) that warrant arrest, not to imply prior adjudication of guilt.
   • The term "reasons to believe" in Section 69 implies forming a prima facie opinion based on credible material, not a conclusive determination of guilt after adjudication. Requiring adjudication first would render "reasons to believe" redundant.
   • Adjudication proceedings and criminal prosecution can be launched simultaneously and are independent of each other, with findings in one not binding on the other, unless exoneration in adjudication is on merits and not technical grounds (Radheshyam Kejriwal).
   • The Court largely agreed with the Telangana High Court's reasoning in P.V. Ramana Reddy on this aspect.
3. "Reasons to Believe":
   • The Commissioner must record "reasons to believe" based on credible material and supervening factors, not vague suspicion. This belief must be an objective determination, though its sufficiency is not for the court to scrutinize.
   • The power to arrest is drastic and should be used sparingly, not for harassment, and must be justified beyond merely possessing the power. Arrest entails serious harm to reputation and liberty.
   • For cognizable and non-bailable offences, the officer must inform the grounds of arrest and produce the person before a Magistrate within 24 hours. For non-cognizable and bailable offences, the person is entitled to bail, and the Deputy/Assistant Commissioner acts like an officer-in-charge of a police station solely for granting bail.
4. GST Officers as "Police Officers" / CrPC Applicability:
   • The Court unequivocally held that GST officers are not "police officers" for the purpose of the CrPC.
   • Therefore, CrPC provisions related to FIR, investigation, and charge-sheeting (Sections 154-157, 172) are not applicable to GST officers exercising arrest powers under Section 69.
   • The Court relied on its own co-ordinate bench decision in Sundeep Mahendrakumar Sangahavi (in context of Customs Act, 1962, which is pari materia) and Supreme Court precedents (Soni Vallabhdas Liladhar, Ramesh Chandra Mehta, Deepak Mahajan).
   • The reference in Section 69(3)(b) to "officer-in-charge of a police station" is a limited conferment of power specifically for releasing an arrested person on bail or otherwise, not for broader investigative powers.
   • Statements recorded by GST officers during inquiry are admissible in evidence (not hit by Section 25 of the Evidence Act) because they are not police officers.
   • The Supreme Court's decision in Om Prakash (supra), regarding bailability under old Excise/Customs laws, was distinguished as having no bearing on the current GST framework, which has specific provisions for bailable/non-bailable offences.
5. D.K. Basu Safeguards:
   • The constitutional safeguards and guidelines laid down in D.K. Basu (e.g., requirement to prepare an arrest memo, inform next of kin, medical examination) are fully applicable to GST officers exercising arrest powers under Section 69, as these safeguards relate to fundamental rights under Articles 21 and 22.
   • The Court emphasized the need for "transparency and accountability." It directed that the arrest memo must be detailed, incorporating prima facie material showing the accused's complicity, not just a mere reference to Section 132.
   • Magistrates have a duty to ensure that an arrest memo is properly prepared and can decline production of an arrested person if the memo is absent, improper, or lacks necessary particulars.
   • The Court distinguished its position from Poolpandi (SC) regarding the right to a lawyer during interrogation, emphasizing that while Article 21's protection against torture is absolute, the extent of Article 22's right to counsel during interrogation might vary from police investigations to inquiries by revenue authorities.

6. Statutory References

• Central Goods and Service Tax Act, 2017: Sections 2(o), 50, 59-67, 69, 70, 73, 74, 132 (including its sub-sections), 134, 135.
• Gujarat Goods and Service Tax Act, 2017
• Code of Criminal Procedure, 1973: Sections 2(a), 2(o), 4(2), 26, 41, 41A, 49, 50, 50A, 51, 87, 88, 154, 155(1)-(3), 156, 157, 161, 165, 167(2), 172, 173, 174, 175, 190, 200, 204, 436, 438.
• Constitution of India: Articles 20(2), 20(3), 21, 22, 141, 226.
• Finance Act, 1994: Sections 73A(3), 73A(4), 83, 90, 91.
• Central Excise Act, 1944: Sections 9, 9A, 9C, 21(2).
• Customs Act, 1962: Sections 104, 107, 108, 123, 133, 135, 137, 138A.
• Indian Evidence Act, 1872: Section 25.
• Indian Penal Code
• Income Tax Act, 1961: Sections 132, 147.
• Companies Act, 1956: Section 237.
• Foreign Exchange Regulation Act, 1973 (FERA): Section 35.

7. Precedents Cited

• P.V. Ramana Reddy v. Union of India (Telangana HC), affirmed by Supreme Court: Cited by both parties on maintainability of writ petitions for pre-arrest protection and the issue of arrest before adjudication; Court largely agreed with its reasoning.
• MakeMyTrip (India) Pvt. Ltd. v. Union of India (Delhi HC), affirmed by Supreme Court: Cited by petitioners for requiring adjudication before arrest; Revenue distinguished it based on different statutory schemes; Court agreed with the distinction.
• D.K. Basu v. State of West Bengal (SC): Cited by petitioners for constitutional safeguards; Court held its guidelines apply to GST officers.
• Radheshyam Kejriwal v. State of West Bengal and another (SC): Cited by Court for the principle that adjudication and criminal prosecution can run simultaneously and are independent.
• Sundeep Mahendrakumar Sangahavi v. Union Of India (Gujarat HC): A co-ordinate bench decision (authored by J.B. Pardiwala, J.) holding Customs/DRI officers are not police officers, which the Court followed for GST officers.
• Barium Chemicals Ltd. vs. Company Law Board (SC), Income-tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das (SC), Bhikhubhai Vithalabhai Patel (SC): Cited by Court on the interpretation and application of "reasons to believe" and "is of opinion."
• Smt. S.R. Venkatraman vs. Union of India (SC): Cited by Court on malice in law.
• Joginder Kumar v. State of U.P. (SC): Cited by Court on the necessity and justification for arrest.
• Om Prakash & Anr. vs. Union of India & Ors. (SC): Cited by Revenue, but distinguished by the Court as having no bearing on the current GST framework regarding bailability.
• C.B. Gautam v. Union of India & Ors. (SC): Cited by Court on the importance of recording and communicating reasons in writing for administrative orders.
• Union of India v. Ashok Kumar Sharma & Ors. (SC): Cited by Court on the importance of details in the arrest memo for statutory safeguards.
• Poolpandi and others v. Superintendent, Central Excise and others (SC): Clarified by the Court in relation to D.K. Basu on the right to counsel during interrogation by revenue authorities.