Demystifying Anticipatory Bail for Offences under The Central Goods and Service Tax Act, 2017

Updated: Oct 20

Introduction

The Central Goods and Service Tax Act, 2017 (hereinafter “the CGST Act” or “Act”) was a novel attempt by the Indian Legislature to simplify the tax regime and deter tax evasions. However, the Act has been under constant scrutiny for its legislative vagueness and the challenges in its implementation. Although the Act was amended in 2018 to eradicate the abnormalities concerning the scope of supply and several other aspects, yet the provisions concerning arrest and procedure for grant of anticipatory bail for cognizable and non-bailable offences have seen little to no advancement.


The CGST Act completely remains silent on whether or not anticipatory bail should be granted for cognizable and non-bailable offences. As a result of which, several courts of the country have evolved extensive jurisprudence for granting anticipatory bail for such offences. The different views taken by High Courts on maintainability of anticipatory bail petition under the CGST Act has led to a legal quandary. This article attempts to unravel the legislative landscape on anticipatory bail under the CGST Act. It will also argue why anticipatory bail ought to be provided to persons arrested under the CGST Act.



Anticipatory Bail under the CrPC

To comprehend anticipatory bail petition under the CGST Act, it becomes pertinent that the general rules of criminal procedure governing it are outlined. According to Section 438 of the Code of Criminal Procedure, 1973 (hereinafter referred to as “the CrPC”) if a ‘person has reason to believe’ that they may be arrested for having committed a non-bailable offence they are eligible to file an anticipatory bail application in the court, provided the grounds forming such belief can be objectively examined by the court. Anticipatory bail under Section 438 of CrPC forms an integral part of the Indian Criminal Justice System, and time and again it has been reiterated by courts to be a statutory right available to every person apprehending arrest, except where it has been explicitly omitted by states or where it has been ousted by a provision of a special enactment.



The Legal Quandary

There is no statutory bar in the CGST Act either expressly or impliedly, for entertaining the bail petition under Section 438 of the CrPC. As a result, High Courts of the country have taken different views on it, which ultimately has led to a legal quandary for the litigants. The Telangana High Court in P.V. Ramana Reddy v. Union of India (hereinafter “Ramana Reddy”) observed that Section 438 of the CrPC cannot be invoked for arrest made under Section 69 of the Act since such power to arrest is exercised even before an FIR is registered. The court observed that “until a prosecution is launched, by way of a private complaint with the previous sanction of the Commissioner, no criminal proceedings can be taken to commence”. It was of the view that anticipatory bail cannot be granted since the power to arrest under Section 69 of the Act is exercised even before a prosecution is launched, which clearly would not amount to ‘criminal proceeding’.


The Karnataka High Court in Sri Hanumanthappa Pathrera v. State, however, took a different view than the one taken by the Telangana High Court. It observed that the Telangana HC in Ramana Reddynever declared Section 438 of CrPC to be not maintainable for cognizable offences under the CGST Act. In Ramana Reddythe issues before the court were, firstly, whether it is necessary to arrest when no adjudication has taken place under the Act, and secondly, whether the petitioners can be granted pre-arrest protection under Article 226 of the Indian Constitution. Thus, the Karnataka HC observed that “the Telangana High Court has held that writ petition under Article 226 of the Constitution of India, the pre-arrest bail is maintainable, but on the merits, the writ petitions were dismissed as huge amount of tax evaluation was involved in the said case.” The Karnataka HC held that the CGST Act does not explicitly bar application of Section 438 of CrPC, and “once a person apprehends his arrest in the hands of the Commissioner under Section 69 of the CGST Act, the assessee has statutory right to seek anticipatory bail under Section 438 of CrPC.


The Karnataka HC accepted anticipatorily bail application similarly in the case of Shravan A. Mehra and Ors. v. Superintendent of Central Tax, wherein it observed that “the only consideration which the Court has to consider while releasing the petitioners on anticipatory bail is, that whether the petitioners can be secured for the purpose of investigation or for the purpose of trial. Under such circumstances, I feel that by imposing stringent conditions if the petitioners are ordered to be released on anticipatory bail, it would meet the ends of justice.’’ The Bombay High Court on the contrary in Meghraj Moolchand Burad v. Directorate General of GST dismissed the bail petition under Section 438 of the CrPC. Which howsoever was subsequently granted by the Supreme Court.


The reasons for which the courts have refused to grant relief against arrest are diverse. Take for instance, the reason for which the Telangana HC did not award pre-arrest protection to the aggrieved was due to the crucial nature of the proceedings and the offence tried. The court was of the view that proceedings such as fraudulent ITC claims, in that case, bestow upon the government huge liabilities, all of which “constitute a threat to the very implementation of a law within a short duration of its inception”. Similarly in the case of Vimal Nayan and Ors. v. The Principal Commissioner of GST and Central Excise, the Madras HC refused to grant anticipatory bail to the aggrieved, as it believed that the offences that the accused was alleged to have committed were of national interest and henceforth warranting complete liberty for the department to investigate. The court believed that awarding anticipatory bail to the accused with stringent conditions would be limiting the power of the department to further investigate and unravel the depths of fake invoices scam.


The legal standing about the maintainability of anticipatory bail petition under the CGST Act thus is highly ambiguous. Therefore, to save the litigants from the procedural inconsistencies it becomes utmost important to determine whether a person can avail anticipatory bail under the CGST ACT.



Anticipatory Bail: To be granted or not?

According to the author provisions ensuing a statutory right such as Section 438 must be allowed a wider field of operation. He argues that just as an arrest under Section 69 of the CGST Act is done if there exist sufficient reasons to believe that the arrestee committed an offence, an identical degree of liberty and relaxation must be made available to the aggrieved person based on the belief that he might face criminal proceedings.

Moreover, irrespective of Telangana HC’s observation on anticipatory bail being an obiter dictum (discussed below in detail), the author argues it to be not correct. The Telangana HC failed to appreciate the law laid down by the Apex Court on anticipatory bail. The Supreme Court in Gurbaksh Singh Sibbia Etc v. State of Punjab has held that filing/registration of FIR is not an essential condition required to be met before exercising the statutory right under Section 438 of the CrPC. The court observed that proximity and likelihood of an arrest based on a reasonable belief can exist even if there has been no FIR.


The author henceforth argues that anticipatory bail or pre-arrest protection must be made available to the aggrieved, provided that the objective grounds based on which this claim is made is demonstrated; and thus, application of Section 438 of the CrPC cannot be completely ruled out. That is further substantiated by the findings of the Telangana HC in Ramana Reddy with respect to Section 41 and Section 41A of the CrPC. The court held that ‘the safeguards before arresting a person as provided under Section 41 and Section 41A of CrPC would have to be kept in mind from the moment that the Commissioner has reasons to believe that a cognizable and non-bailable offence warranting the arrest has been committed’. Therefore, in accordance with Section 41, if a person cooperates and assist the authorities in investigation, he is not necessarily to be arrested.



Article 226: A relief against arrest?

It becomes pertinent to note that even if the application of Section 438 of the CrPC is completely ruled out, relief can be claimed via Article 226 of the Indian Constitution, as was done in Ramana Reddy which the Supreme Court upheld while dismissing the challenge to it on 27.05.2019. The petitioners in Ramana Reddymoved the HC under Article 226 of the Indian Constitution and sought directions to be issued to the respondent authorities to not proceed with their arrest under Section 69 of the CGST Act, which is nothing but akin to a petition of anticipatory bail. Against which, the argument, that the writ proceedings cannot be converted in proceedings for grant of anticipatory bail was put forward by the Additional Solicitor General on behalf of the respondent was rejected by the court. The court relied upon the landmark judgements of the Supreme Court in Kartar Singh v. State of Punjab and Km. Hema Mishra v. State of Uttar Pradesh, to conclude “that since no first information report gets registered before the power of arrest under Section 69(1) of the CGST Act, 2017 is invoked, the petitioners cannot invoke Section 438 of the Code of Criminal Procedure for anticipatory bail. Therefore, the only way they can seek protection against pre-trial arrest (actually pre-prosecution arrest) is to invoke the jurisdiction of this Court under Article 226 of the Constitution of India”.

It becomes pertinent to observe that the order of the Supreme Court on dismissing the challenge to Telangana HC’s judgment was with respect to its observation on pre-arrest protection under Article 226 and not on anticipatory bail, since it was an obiter dictum. Thus, the argument that the SC was in conjunction with Telangana HC’s observation on anticipatory bail won’t sustain.



The Way Forward: The Awaited Judgment of Sapna Jain

The Supreme Courtin Union of India v. Sapna Jain took cognizance of different views taken by the HC and passed an order to set up a three-judge bench to resolve the issue of anticipatory bail under the CGST Act. It observed that: “we make it clear that the HC(s) while entertaining such request in future, will keep in mind that this court in P.V. Ramana Reddy v. Union of India by order dated 27.5.2019 passed in SLP(CRL.) No. 4430/2019 had dismissed the special leave petition filed against the judgment and order of the Telangana HC in a similar matter, wherein the HC of Telangana had taken a view contrary to what has been held by the HC in the present case. Beyond the above, we do not consider it necessary to observe anything further”.


There is no statutory bar in the CGST Act either expressly or impliedly for entertaining a bail petition under Section 438 of the CrPC. The debate regarding anticipatory bail for cognizable and non-bailable offences under the CGST Act thus would only be resolved if there comes a dictum by way of amendment in the Act or with the decision of the Supreme Court in Union of India v. Sapna Jain. Until there comes an amendment in the Act or the Union of India v. Sapna Jain reaches its finality, the only guiding light for HC(s) and litigants seeking anticipatory bail thus will be the decision of the Supreme Court in Sapna Jain whereinit reminded courts of its order of 27.05.2019 of declining to interfere with observations of the Telangana HC in Ramana Reddy (that is even if Section 438 cannot be invoked, pre-arrest protection can be availed via Article 226).



Vidhik Kumar is a fourth year student at the National University of Study and Research in Law, Ranchi.


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