GST Caselaw

#GSTCase-56-Cognizable Offences under CGST Act-Whether Section 132(4)/(5) are pari materia to Section 9A of Central Excise Act, 1944

#GSTCase-56-Cognizable Offences under CGST Act-Whether Section 132(4)/(5) are pari materia to Section 9A of Central Excise Act, 1944

 

Avinash Aradhya v. Commissioner of Central Tax [2019] 103 taxmann.com 50 (Karnataka)

 

  1. Issue

Two petitions were filed by petitioners – accused under Section 438 of Cr.P.C to release them on anticipatory bail in the event of their arrest in O.R.No.40/2018-19 for offence punishable under Section 137 of Goods and Services Tax Act, 2017.

  1. Facts

Companies of Aradhya group along with M/s. Spiegel Enterprises Pvt. Ltd., M/s Bhavasteel Metalalloys Pvt. Ltd., M/s Infocert Enterprises, M/s Bhavani Steel Corporation, M/s Vijayalakshmi Industries were indulged in continuous issuance of fake invoices without actual supply of goods with an intention to enable them fraudulently avail the input tax credit.

It was further case of prosecution that invoices were issued and circulated among the companies M/s Spiegel Enterprises Pvt. Ltd., M/s Bhavasteel Metalalloys Pvt. Ltd., M/s Infocert Enterprises, M/s Bhavani Steel Corporation, M/s Vijayalakshmi Industries till they reach back to the originating companies i.e., M/s Aradhya Groups without actual movement of goods, thereby transferring the irregular input credit to the originating companies for payment of GST and sales tax. It is further alleged that the act is an offence and it is criminal in nature. On the basis of the same, complaint was registered.

 

  1. Contention of the Petitioner

As per the GST Act, maximum punishment which is liable to be imposed even if an offence has been made out and convicted is five years and even as per Section 138 of the GST Act, the said offence is compoundable before the Commissioner on payment. He further submitted that even there is no irregularity no loss of revenue has been caused to the State or Central Government. He further submitted that they have paid the GST by creating invoice. It is further submitted that the only allegations which has been alleged as against the petitioners – accused is that they have given only inflated transaction, therefore, he submitted that input tax credit and the sale is not an offence under the said Act.

  1. Contention by the Respondent

a) If entire case is looked into without there being any movement of goods, petitioners have claimed input tax credit and thereby without payment of any tax by them, they claimed input tax credit. He further submitted that though it is the contention of the petitioner – accused that the input tax credit has been paid, but actually, no tax has been paid to anybody. It is only a paper transaction and it is going to affect the trade transfer of the nation and in the State.

b) He further submitted that still investigation is in progress and if the petitioners – accused are released on bail, it is going to affect the entire investigation and they may tamper with the prosecution case. On these grounds, he prays to dismiss the petition.

 

  1. Observation by High Court:

Observation-1: Question regarding cognizable and non-cognizable offences arose before Apex Court in the matter of Om Prakash & Anr. v. Union of India & Anr. reported in AIR 2012 SC 545 wherein it was held that Sub-section (1) of Section 9A of Central Excise Act, 1944 states in completely unambiguous terms that notwithstanding anything contained in the Code of Criminal Procedure, offences under Section 9 shall be deemed to be non-cognizable within the meaning of that Code. First Schedule to Code of Criminal Procedure consists of Part I and Part II. While Part I deals with offences under Indian Penal Code, Part II deals with offences under other laws. Accordingly, if provisions of Part 2 of the First Schedule are to be applied, an offence punishable with imprisonment for three years and upwards, but not more than seven years, has been shown to be cognizable and non-bailable. If, however, all offences under Section 9 of the 1944 Act are deemed to be non-cognizable, then, in such event, even the second item of offences in Part II could be attracted for the purpose of granting bail since, as indicated above, all offences under Section 9 of the 1944 Act are deemed to be non-cognizable.

Definition of “non-cognizable offence” in Section 2(1) of the Code makes it clear that a non-cognizable offence is an offence for which a police officer has no authority to arrest without warrant. The expression “cognizable offence” in Section 2(c) of the Code means an offence for which a police officer may, in accordance with the First Schedule or under any other law for the time being in force, arrest without warrant.

In other words, on a construction of the definitions of the different expressions used in the Code and also in connected enactments in respect of a non-cognizable offence, a police officer, and, in the instant case an Excise Officer, will have no authority to make an arrest without obtaining a warrant for the said purpose. The same provision is contained in Section 41 of the Code which specifies when a police officer may arrest without order from a Magistrate or without warrant.

 

Observation-2: The maximum punishment imposed in GST Act for the offence is five years and therefore the alleged offences are non-cognizable offences. The said offences are compoundable by commissioner on payment and maximum punishment of five years with fine and they are not punishable with death or imprisonment for life. When the maximum punishment which can be imposed is only up to five years with fine, will throw light on the seriousness of the offence.

 

Observation-3: The court is dealing with only anticipatory bail application and parameters to be taken into consideration have been elaborately discussed by the Hon’ble Apex Court in the case of Siddharam Satlingappa Mhetre v. State of Maharashtra and others, reported in (2011) 1 SCC 694. At paragraph-112 of the said decision, it has been observed as to what are the parameters that can be considered into while dealing with the bail application, which read thus:-

 

“112. The following factors and parameters can be taken into consideration while dealing with the anticipatory bail:

  • The nature and gravity of the accusation and the exact role of the accused must be properly comprehended before arrest is made;
  • The antecedents of the applicant including the fact as to whether the accused has previously undergone imprisonment on conviction by a court in respect of any cognizable offence;
  • The possibility of the applicant to flee from justice;
  • The possibility of the accused’s likelihood to repeat similar or other offences;
  • Where the accusations have been made only with the object of injuring or humiliating the applicant by arresting him or her;
  • Impact of grant of anticipatory bail particularly in cases of large magnitude affecting a very large number of people;
  • The courts must evaluate the entire available material against the accused very carefully. The court must also clearly comprehend the exact role of the accused in the case. The cases in which the accused is implicated with the help of Sections 34 and 149 of the Penal Code, 1860 the court should consider with even greater care and caution because over implication in the cases is a matter of common knowledge and concern;
  • While considering the prayer for grant of anticipatory bail, a balance has to be struck between two factors, namely, no prejudice should be caused to the free, fair and full investigation and there should be prevention of harassment, humiliation and unjustified detention of the accused;
  • The court to consider reasonable apprehension of tampering of the witness or apprehension of threat to the complainant;
  • Frivolity in prosecution should always be considered and it is only the element of genuineness that shall have to be considered in the matter of grant of bail and in the event of there being some doubt as to the genuineness of the prosecution, in the normal course of events, the accused is entitled to an order of bail.

 

  1. Held

In the light of the above proposition of law, by taking into consideration the gravity of the offence and punishment which is liable to be involved, I am of the considered opinion that by imposing some stringent conditions, if accused – petitioners are ordered to be released on bail, it will meet the ends of justice. In that light, petitions are allowed and the petitioners/accused are ordered to be enlarged on anticipatory bail in the event of their arrest in O.R. No.40/2018-19 for the offence punishable under Section 137 of GST Act, 2017 subject to conditions.

 

  1. Analysis

a) Whether all offences under the CGST Act, 2017 are Non-cognizable similar to Central Excise Act, 1944:

High Court has referred decision of Apex Court in the matter of Om Prakash & Anr. v. Union of India & Anr. regarding cognizable and non-cognizable offences. The said decision was based upon Section 9A of the Central Excise At, which is being reproduced below:

 

Certain offences to be non-cognizable. – (1) Notwithstanding anything contained in the Code of Criminal Procedure, 1898 (5 of 1898), offences under section 9 shall be deemed to be non-cognizable within the meaning of that Code.

 

Offences covered by clauses (a) and (b) of section 9(1) of Central Excise Act related to any excisable goods, where the duty leviable thereon under the Act exceed one lakh of rupees. Such offences were punishable with imprisonment for a term which may extend to seven years and with fine, whereas under Section 9(1)(d)(ii), in any other case, the offences were punishable with imprisonment for a term which may extend to three years or with fine or with both.

As per Part 2 of Schedule I of the Code of Criminal Procedure, offences punishable with of the first imprisonment for 3 years, and upwards but not more than 7 years are cognizable and non-bailable offences. However, due to non-obstinate clause in Section 9A of the Central Excise Act, all offences under the Central Excise Act were held to be non-cognizable.

The issue under the present case was issuance of fake invoices without actual supply of goods with an intention to enable recipient to fraudulently avail the input tax credit. Therefore, the said offence was covered under clause (b) and (c) of sub-section (1) of section 132 of CGST Act, 2017. Section 132(4) of the CGST Act, 2017 is parametria to Section 9A of Central Excise Act, 1944. However, Section 9A did not carved out any exception for any of the offences under the Central Excise Act, Sub-Section (4) of Section 132 read with Sub-Section (5) of Section 132 provides that  all offences under this Act, shall be non-cognizable and bailable except for the offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.

Therefore, by virtue of Para 2 of Schedule I, offences under the CGST Act, 2017 which provide imprisonment more than 3 Years are cognizable and non-bailable. However, by virtue of a non-obstinate provision under Section 132(4) of CGST Act, 2017 all provisions have been made non-cognizable except for offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of Section 132(1) of CGST Act, 2017 shall be cognizable and non-bailable.

Therefore, it seems that the provision under CGST Act, 2017 are not exactly same to provisions of Section 9A of Central Excise Act, 1944. Hence, decision of Hon’ble Apex Court would not be squarely applicable under CGST Act, 2017 to the extent certain offences have been cognizable and non-bailable.

 

b) Procedure to be followed in case wherein offences are cognizable but punishable with imprisonment for a term which may be less than seven years or which may extend to seven years whether with or without fine

The maximum punishment prescribed under clause (i) of Section 132 where amount of tax evaded the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees is imprisonment for a term which may extend to five years and with fine. However, even though such offence might be cognizable still provisions of Section 41 of Code of Criminal Procedure would have to be followed. Section 41(1)(b) of the Code of Criminal Procedure provides that for cognizable offence punishable with imprisonment for a term which may be less than seven years or which may extend to seven years whether with or without fine certain conditions have to be satisfied. Conditions as set out under Section 41 of Code of Criminal Procedure is being reproduced herewith:

 

  1. When police may arrest without warrant .- (1) Any police officer may without an order from a Magistrate and without a warrant, arrest any person—


(a) who commits, in the presence of a police officer, a cognizable offence;

(b) against whom a reasonable complaint has been made, or credible information has been received, or a reasonable suspicion exists that he has committed a cognizable offence punishable with imprisonment for a term which may be less than seven years or which may extend to seven years whether with or without fine, if the following conditions are satisfied, namely:-

(i) the police officer has reason to believe on the basis of such complaint, information, or suspicion that such person has committed the said offence;

(ii) the police officer is satisfied that such arrest is necessary- (a) to prevent such person from committing any further offence; or (b) for proper investigation of the offence; or (c) to prevent such person from causing the evidence of the offence to disappear or tampering with such evidence in any manner; or (d) to prevent such person from making any inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or to the police officer; or (e) as unless such person is arrested, his presence in the Court whenever required cannot be ensured, and the police officer shall record while making such arrest, his reasons in writing. 

Provided that a police officer shall, in all cases where the arrest of a person is not Required under the provisions of this sub-section, record the reasons in writing for not making the arrest.

 

Hon’ble Apex Court in the matter of Arnesh Kumar vs State Of Bihar & Anr on 2 July, 2014 on the applicability of provisions of Section 41 of Code of Criminal Procedure for cognizable offence punishable with imprisonment for a term which may be less than seven years or which may extend to seven years whether with or without fine held that

“From a plain reading of the aforesaid provision, it is evident that a person accused of offence punishable with imprisonment for a term which may be less than seven years or which may extend to seven years with or without fine, cannot be arrested by the police officer only on its satisfaction that such person had committed the offence punishable as aforesaid. Police officer before arrest, in such cases has to be further satisfied that such arrest is necessary to prevent such person from committing any further offence; or for proper investigation of the case; or to prevent the accused from causing the evidence of the offence to disappear; or tampering with such evidence in any manner; or to prevent such person from making any inducement, threat or promise to a witness so as to dissuade him from disclosing such facts to the Court or the police officer; or unless such accused person is arrested, his presence in the court whenever required cannot be ensured. These are the conclusions, which one may reach based on facts. Law mandates the police officer to state the facts and record the reasons in writing which led him to come to a conclusion covered by any of the provisions aforesaid, while making such arrest. Law further requires the police officers to record the reasons in writing for not making the arrest. In pith and core, the police office before arrest must put a question to himself, why arrest? Is it really required? What purpose it will serve? What object it will achieve? It is only after these questions are addressed and one or the other conditions as enumerated above is satisfied, the power of arrest needs to be exercised. In fine, before arrest first the police officers should have reason to believe on the basis of information and material that the accused has committed the offence. Apart from this, the police officer has to be satisfied further that the arrest is necessary for one or the more purposes envisaged by sub-clauses (a) to (e) of clause (1) of Section 41 of Cr.PC.”

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