Saurabh Mukundbhai Kathvadia vs State Of Gujarat on 20 October, 2020

1. Outcome
The High Court of Gujarat rejected the petitions, vacated the interim relief against arrest, and discharged the rule.

2. Core Issue
The central issue was "whether the power to arrest as provided under Section 69 read with Section 132 of the CGST Act can be invoked by the Commissioner only upon completion of the adjudication process of finalising the assessment and determination of liability as per the provisions of the CGST Act?"

Ancillary issues included:
* Whether the Commissioner is obliged to record "reasons to believe" and furnish them to the person sought to be arrested.
* Whether provisions of the Code of Criminal Procedure, 1973 (CrPC) regarding investigation and warrant are applicable to arrests under Section 69 of the CGST Act.
* Whether officers of the GST department can be considered "police officers in charge of a police station" as defined under Section 2(o) of the CrPC for the purpose of Section 69(3) of the CGST Act.
* Whether the constitutional safeguards laid out in D.K. Basu v. State of West Bengal are applicable to the exercise of powers under Section 69 of the GST Act.

3. Key Facts
* Petitioners are proprietors of proprietary concerns engaged in trading, primarily in stainless steel and scrap, and apprehend arrest by GST authorities.
* GST officials visited the lead petitioner's premises for investigation, sealed a drawer, and later seized documents, mobile, and laptop during a subsequent search.
* Summons were issued to the petitioner under Section 70(1) of the CGST/GGST Act for statement recording and document production. The petitioner sought extensions, citing inability to appear with documents.
* No formal adjudication or assessment proceedings for alleged GST evasion had been completed, nor had any notices been issued under relevant assessment sections (e.g., 61, 73, 74).
* The petitioners filed writ petitions under Article 226 of the Constitution, seeking protection from arrest under Section 69 read with Section 132 of the CGST Act, fearing arbitrary arrest without prior adjudication.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Petitioners):
* Maintainability: The petitions under Article 226 are maintainable against the apprehension of arrest, even if anticipatory bail is available, as they concern fundamental rights, citing P.V. Ramana Reddy v. Union of India.
* Pre-Adjudication Requirement: The power to arrest under Section 69 read with Section 132 can only be invoked after the "committal" of an offence is "determined" through the due process of assessment and adjudication (Sections 61, 65, 66, 73, 74 of CGST Act). Arrest before this is premature and "puts the cart before the horse," as held in Make My Trip (India) Pvt. Ltd. (Delhi HC) and Jayachandran Alloys (P) Ltd. (Madras HC).
* "Reasons to Believe": The Commissioner must have "reasons to believe" based on honest and reasonable grounds, not mere suspicion. These reasons should be recorded and furnished to the person if challenged.
* Presumption of Culpable Mental State (Section 135): Section 135 (presumption of culpable mental state) is applicable only at the prosecution stage before a court, not at the time of arrest.
* Constitutional Safeguards: Arrest without prior adjudication violates Articles 21 and 22, contravening principles laid down in D.K. Basu v. State of West Bengal.
* Interpretation of Penal Statutes: Ambiguities in penal statutes should be resolved in favor of the taxpayer.
* Pari Materia: Provisions of the Service Tax Act (under Finance Act, 1994), interpreted in Make My Trip, are pari materia with the CGST Act.

Revenue (Respondents):
* Maintainability & Prematurity: The petitions are premature as arrest powers have not been exercised. Petitioners have an adequate alternative remedy of anticipatory bail under Section 438 of the CrPC, rendering Article 226 petitions unnecessary.
* Scope of Arrest Power: The power to arrest under Section 69 is independent of adjudication/assessment. Section 69 merely refers to Section 132 to categorize offences for which arrest is permissible; it does not require prior determination of guilt or tax liability.
* "Reasons to Believe": The phrase "reasons to believe" in Section 69(1) implies a belief formed before final adjudication. Requiring prior adjudication would make the power to arrest redundant.
* Presumption of Culpable Mental State (Section 135): Section 69 can be read along with Section 135 (presumption of culpable mental state), enabling arrest based on belief of an offence.
* Distinguishing Precedents: Make My Trip is distinguishable as it pertained to the Finance Act, 1994, which had specific pre-arrest procedures (Section 73A(3) & (4)) and lacked a provision similar to CGST Section 135 (presumption of culpable mental state). The Telangana High Court in P.V. Ramana Reddy (affirmed by SC on maintainability) correctly observed that Section 132 offences have no correlation with assessment.
* CrPC Inapplicability: The non-obstante clause in Section 132(4) of the CGST Act means that CrPC provisions related to cognizable/non-cognizable offences and warrants are not strictly applicable. GST officers are not "police officers."

5. Court’s Reasoning

• Maintainability: The Court held the petitions to be maintainable, agreeing with P.V. Ramana Reddy that strong apprehension of arrest impacting fundamental rights justifies Article 226 intervention, even with an alternative remedy like anticipatory bail.
• "Reason to Believe":
  • The "reason to believe" required under Section 69(1) must be based on credible material and a "supervening factor." It is an objective determination based on intelligence and deliberation, not mere suspicion or arbitrary action.
  • While the reasons need not be explicitly stated in the arrest order, they must be recorded in the file. If challenged, the authorities must disclose the underlying material.
  • The power to arrest is drastic and should be used sparingly, with due justification and not as a tool for harassment. It must be based on a reasonable belief of complicity and necessity of arrest, not mere lawfulness.
• Power to Arrest Before Adjudication:
  • The Court rejected the argument that arrest requires prior adjudication. Sections 69 (power to arrest) and 132 (punishment for offences) operate in distinct fields. Section 69 merely refers to Section 132 to identify the nature of offences for which arrest powers can be invoked.
  • Following Radheshyam Kejriwal v. State of West Bengal, the Court affirmed that adjudication proceedings and criminal prosecution can be launched simultaneously and are independent. Arrest is a measure during investigation, not a penalty.
  • The Court agreed with P.V. Ramana Reddy that the offences listed in Section 132 do not necessarily correlate with assessment completion, allowing for prosecution/arrest before final assessment.
  • The Court expressly disagreed with the contrary views in Jayachandran Alloys (P) Ltd. and Akhil Krishan Magu.
• Incongruity in Section 69 and 132: The Court clarified that Section 69(1) encompasses the power to arrest for both cognizable/non-bailable offences (specified in 132(1)(a)-(d) and punishable under 132(1)(i) and defined as cognizable/non-bailable in 132(5)) and non-cognizable/bailable offences (punishable under 132(1)(ii) or 132(2) and defined as non-cognizable/bailable in 132(4)). It clarified that the Telangana High Court's finding of incongruity on this point was mistaken.
• GST Officers as Police Officers / CrPC Applicability:
  • The Court, relying on its prior judgment in Sundeep Mahendrakumar Sangahavi (concerning Customs Act Section 104, which is pari materia), held that GST officers are not "police officers."
  • Consequently, they are not obligated to register an FIR under CrPC Sections 154-157.
  • The reference to "officer-in-charge of a police station" in Section 69(3)(b) of the CGST Act only applies to the powers related to granting bail for non-cognizable/bailable offences, not to equate GST officers with police for broader investigative powers.
  • Statements made to GST officers during inquiry are admissible and not hit by Section 25 of the Evidence Act.
• Constitutional Safeguards (D.K. Basu):
  • The Court unequivocally affirmed that the 11 guidelines laid down in D.K. Basu v. State of West Bengal for arrest and detention are applicable in equal measure to GST officers. This ensures transparency and accountability.
  • It emphasized the mandatory preparation of a valid and detailed "arrest memo" containing prima facie material of complicity. Magistrates are mandated to check such memos and decline production if they are absent, improper, or bereft of necessary particulars.
  • While acknowledging Poolpandi v. Superintendent, Central Excise regarding the right to a lawyer not being absolute during initial interrogation by non-police officers, the Court stressed that torture or third-degree methods are strictly impermissible as they violate Article 21.

6. Statutory References
* Central Goods and Service Tax Act, 2017 (CGST Act): Sections 13, 16(2), 20, 21, 37, 38, 39, 50, 59, 60, 61, 62, 63, 64, 65, 66, 67, 67(10), 69, 69(1), 69(2), 69(3)(a), 69(3)(b), 70, 70(1), 70(2), 73, 74, 87, 88, 122, 125, 129, 130, 132, 132(1)(a)-(l), 132(1)(i)-(iv), 132(2), 132(3), 132(4), 132(5), 132(6), 134, 135, 138.
* Code of Criminal Procedure, 1973 (CrPC): Sections 2(a), 2(o), 4(2), 41, 41A, 41A(1), 41A(3), 49, 50, 50A, 51, 87, 88, 109, 110, 145, 154, 155, 155(1), 155(2), 155(3), 156, 157, 161, 165(5), 167, 167(2), 172, 173, 175, 190, 190(1)(a), 190(1)(b), 200, 204, 228, 300, 356(5), 436, 438.
* Constitution of India: Articles 21, 22, 22(1), 20(3), 141, 226.
* Finance Act, 1994: Sections 73A(3), 73A(4), 83, 83A, 90, 91.
* Central Excise Act, 1944: Sections 9, 9-A, 9C, 13, 21.
* Customs Act, 1962: Sections 104, 104(1), 104(2), 104(3), 107, 108, 123, 133, 135, 135A, 136, 137, 138A, 173 (old Act), 174 (old Act), 175 (old Act).
* Indian Evidence Act, 1872: Sections 25, 145, 161.
* Indian Penal Code: Sections 26, 193, 228.
* Companies Act, 1956: Sections 237, 637(1)(a).
* Foreign Exchange Regulation Act, 1973 (FERA): Sections 35, 35(1), 35(2).
* Drugs and Cosmetics Act, 1940: Chapter IV, Section 32.

7. Precedents Cited
* MAKEMYTRIP (INDIA) PVT. LTD. vs. UNION OF INDIA, 2016 (44) S.T.R. 481 (Del.), affirmed by SC. (Cited by Petitioners, Distinguished by Revenue, Discussed by Court).
* M/s. Jayachandran Alloys (P) Ltd. vs. The Superintendent of GST and Central Excise and Others, 105 taxman.com 245 (Madras). (Cited by Petitioners, Distinguished by Revenue, Discussed by Court).
* P.V. Ramana Reddy v. Union of India, (2019) 104 taxmann.com 407 (Telangana), SLP dismissed by SC, 106 taxmann.com 301 (SC). (Cited by Petitioners & Revenue, Discussed by Court – Court agreed on maintainability, but differed on some interpretation of Section 69 incongruity).
* Desai Brothers v. DCIT, 204 ITR 121 (Gujarat). (Cited by Petitioners).
* Sheth Brothers v JCIT, 251 ITR 270 (Guj). (Cited by Petitioners).
* GKN Driveshafts (India) Ltd. v. ITO, 259 ITR 19 (SC). (Cited by Petitioners).
* Akhil Krishan Magu v. Deputy Director, Directorate General of GST Intelligence, (2019) 111 taxmann.com 367 (P&H). (Cited by Petitioners, Distinguished by Revenue, Discussed by Court).
* Sukhdeep Singh Bhoday v. Joint Director General of Foreign Trade and others, C.W.P. No. 208/2007 (P&H). (Cited by Petitioners).
* Kunhayammed versus State of Kerala, (2006) SCC 359. (Cited by Petitioners).
* Khoday Distilleries Ltd. (now known as Khoday India Limited) and others v. Sri Mahadeshwara Sahakarasakkare Karkhane Ltd., Kollegal (under liquidation), 2019 4 SCC 376. (Cited by Petitioners).
* V.M. Salgacoar & Bros.(P.) Ltd. v. CIT, (2000) 243 ITR 383 (SC). (Cited by Petitioners).
* G.L. Didvania and another v. Income Tax Officer and another, 1995 Supp (2) SCC 724. (Cited by Petitioners).
* Mahadev Enterprise v. State of Gujarat, 2016 SCC OnLine Gujarat 8893. (Cited by Petitioners).
* State of Punjab v. Barkatram, (1962) 3 SCR 338. (Cited by Petitioners).
* CIT v. Vatika Township (P) Ltd., (2014) 367 ITR 466 (SC). (Cited by Petitioners).
* CIT v. Vegetable Products Ltd., (1973) 88 ITR 192 (SC). (Cited by Petitioners).
* Km. Hema Mishra Vs. State of Uttar Pradesh, (2014) 4 SCC 453. (Cited by Revenue, Discussed by Court).
* Devchand Kalyan Tandel v. State of Gujarat and another, (1996) 6 SCC 255. (Cited by Revenue, Discussed by Petitioners).
* Union of India v/s Sapna Jain, order dated 29.05.2019 (SC). (Cited by Revenue, Discussed by Court).
* D.K. Basu v. State of West Bengal, 1997 (1) SCC 416. (Cited by Petitioners, Discussed extensively by Court).
* Sheonath Singh, AIR 1971 SC 2451. (Discussed by Court).
* Barium Chemicals Ltd. vs. Company Law Board, AIR 1967 SC 295. (Discussed by Court).
* Income-tax Officer, Calcutta and Ors. vs. Lakhmani Mewal Das, AIR 1976 SC 1753. (Discussed by Court).
* Bhikhubhai Vithalabhai Patel (supra). (Discussed by Court).
* Smt. S.R. Venkatraman vs. Union of India, (1979) ILLJ 25(SC). (Discussed by Court).
* Radheshyam Kejriwal v. State of West Bengal and another, (2011) 3 SCC 581. (Discussed extensively by Court).
* Joginder Kumar v. State of U.P., 1994 AIR 1349. (Discussed by Court).
* Sundeep Mahendrakumar Sangahavi Versus Union Of India, Special Civil Application No. 8669 of 2020 (Gujarat HC). (Discussed extensively by Court).
* Lalitha Kumari v. Government of Uttar Pradesh and others, (2014) 2 SCC 1. (Discussed by Court).
* Soni Vallabhdas Liladhar and another v. The Assistant Collector of Customs, Jamnagar, AIR 1965 SC 481. (Discussed by Court).
* Ramesh Chandra Mehta v. The State of West Bengal, AIR 1970 SC 940. (Discussed by Court).
* Illias v. The Collector of Customs, Madras, AIR 1970 SC 1065. (Discussed by Court).
* Badaku Joti Savant v. State of Mysore, AIR 1966 SC 1746. (Discussed by Court).
* Superintendent of Customs v. Ummerkutty & others, 1984 K.L.T. 1. (Discussed by Court).
* Percy Rustomji Basta v. The State of Maharashtra, AIR 1971 SC 1087. (Discussed by Court).
* Veera Ibrahim v. The State of Maharashtra, (1976) 2 SCC 302). (Discussed by Court).
* Directorate of Enforcement v. Deepak Mahajan and another, (1994)3 SCC 440. (Discussed by Court).
* Union of India v. Padam Narain Aggarwal, AIR 2009 SC 254. (Discussed by Court).
* Bhavin Impex Pvt. Ltd. v. State of Gujarat, 2010 (260) E.L.T. 526 (Guj.). (Discussed by Court).
* Om Prakash (supra - a Supreme Court case, full citation not in judgment body but inferred to be a case on bailable/non-bailable offences under Central Excise and Customs Acts). (Discussed by Court).
* CBI v. Tapan Kumar Singh, (2003) 6 SCC 175. (Mentioned in discussion of Om Prakash).
* Bhupinder Singh v. Jarnail Singh, (2006) 6 SCC 277. (Mentioned in discussion of Om Prakash).
* Chhagan Chandrakant Bhujbal v. Union of india and others, 2016 SCC Online Bom 9938. (Discussed by Court).
* C.B.Gautam v. Union of India & ors., 1993 (1) SCC 78. (Discussed by Court).
* Poolpandi and others v. Superintendent, Central Excise and others, (1992) 3 SCC 259. (Discussed by Court).
* Union of India v. Ashok Kumar Sharma & Ors., 2020 SCC OnLine SC 683. (Discussed by Court).