Background:

The print and social media in the last few days have focused on Apex Court’s decisions in the context of arrest with reference to GST, anticipatory bail, etc.  GST is the biggest tax reform and has eliminated multiple levies by the State and the Centre.  Fake invoice racket is a menace and there cannot be two views on the subject that the said practice should be eliminated as it is not only a fraud on the exchequer but also a fraud on the honest tax assessees.

Concept of arrest in GST

Section 69(1) of the CGST Act provides that where the Commissioner has reasons to believe that the person had committed any offence specified in Section 132(1)(a) or (b) or (c) or (d) which is punishable under Section 132(1)(i) or (ii) or under Section 132(2), he may by order authorise any officer of central tax to arrest such person.

The offence referred to above should be punishable in terms of Section 132(1) and as per Section 132(1)(i), punishment is contemplated where the amount of tax evaded or amount of ITC wrongly availed or utilized or amount of refund wrongly taken exceeds Rs.5 crores, imprisonment is for a term which may extend to 5 years and with fine.  In terms of Section 132(5), offences punishable under this category are cognizable and non-bailable.

In case the amount exceeds Rs.2.5 crores but does not exceed Rs.5 crores, imprisonment is for a term which may extend to 1 year and with fine.

P.V. Ramana Reddy case

The Supreme Court on 27.05.2019 in SLP (CRL) 4430/2019 dismissed the SLP against the judgment of the Telangana High Court in W.P. No.4764/2019.

Sapna Jain & Others case

The Supreme Court on 29.05.2019 in SLP (CRL) 4322-4324/2019 issued Notice in the SLP and held as under:

As different High Courts of the country have taken divergent view in the matter, we are of the view that the position in law should be clarified by this Court.  Hence this notice.  As the accused – Respondents have been granted the privilege of pre-arrest bail by the High Court by the impugned orders, at this stage we are not inclined to interfere with the same.  However, we make it clear that the High Courts while entertaining such request in future will keep in mind that this Court by order dated 27.05.2019 in SLP (CRL) No.4430/2019 had dismissed the Special Leave Petition filed against the judgment and order of the Telangana High Court in the similar matter wherein the High Court of Telangana had taken a view contrary to what has been held by the High Court in the present case.

The Supreme Court directed that the present matters along with other connected matters shall be listed before the Bench of Three Judges.

The law would be well laid down by the Supreme Court after taking into account various aspects.  However, interesting issues arise for debate in the context of certain past precedents.

Dismissal of SLP - Effect

When an SLP is dismissed, the question that arises is whether it can be said that the law has been laid down by the Supreme Court.  The Supreme Court in the case of Gangadhara Palo Vs. Revenue Divisional Officer (2012) 25 STR 273 in para 9 has held that

The situation is totally different where a special leave petition is dismissed without giving any reasons whatsoever.  It is well settled that special leave under “Article 136” of the Constitution of India is a discretionary remedy, not necessarily on merits.  We cannot say what was in the mind of the Court when a special leave petition is dismissed without giving any reasons, there is no merger of the judgment of the High Court with the order of this Court.  Hence, the judgment of the High Court can be reviewed since it continues to exist, though the scope of the review petition is limited to errors apparent on the face of the record.  If, on the other hand, a special leave petition is dismissed with reasons, however meagre (it can be even of just one sentence), there is a merger of the judgment of the High Court in the order of the Supreme Court.

A Three Member Bench of the Supreme Court in the case of Kunhayammed Vs. State of Kerala (2001) 129 ELT 11 set out the legal position with reference to SLP as under:

(i)      While hearing such petition, the Court is not exercising its appellate jurisdiction; it is merely exercising its discretionary jurisdiction to grant or not to grant leave to appeal.  The petitioner is still outside the gate of entry though aspiring to enter the appellate arena of the Supreme Court.  Whether he enters or not would depend upon the fate of his petition for special leave.

(ii)     If the SLP is dismissed, it is an expression of opinion by the Court that a case for invoking appellate jurisdiction of the Court was not made out.

(iii)    If leave to appeal is granted, the appellate jurisdiction of the Court stands invoked; the gate for entry in appellate arena is opened.  The petitioner is in and the respondent may also be called upon to face him though in an appropriate case, the Court may dismiss the appeal without noticing the respondent.

(iv)    Once the leave to appeal has been granted, the finality of the judgment or decree or order appealed against is put in jeopardy though it continues to be binding between the party unless it is a nullity or unless the Court may pass a specific order staying or suspending the operation or execution of the judgment, decree or order under challenge.

(v)     A petition for leave to appeal to this Court may be dismissed by a non-speaking order or by a speaking order.  Whatever be the phraseology employed in the order of dismissal, if it is a non-speaking order, i.e. it does not assign reasons for dismissing the special leave petition, it would neither attract the doctrine of merger so as to stand substituted in place of the order put in issue before it nor would it be a declaration of law by the Supreme Court under Article 141 of the Constitution for there is no law which has been declared.

(vi)    If the order refusing leave to appeal is a speaking order that gives reasons for refusing the grant of leave then the order has two implications.  Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution.  Secondly, other than the declaration of law whatever is stated in the order are the findings recorded by the Supreme Court which would binding the parties thereto and also the Court, Tribunal, Authorities in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country.  But this does not amount to saying that the order of the Court, Tribunal or Authority below has stood merged in the order of the Supreme Court rejecting the SLP or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.

Taking into account, these decisions, when the Hon’ble Supreme Court dismissed the SLP against the order of the Telangana High Court by stating that the Court is not inclined to interfere, can it be said that law has been laid down by the Apex Court or that the Telangana High Court has merged with the order of the Supreme Court?

If law has not been laid down in the dismissal of SLP and another similar matter is to be listed before a Bench of Three Judges, with due respect it cannot be said that the order of the Telangana High Court has merged with the order of the Supreme Court.  Even though there is an observation in the subsequent matter that High Courts should keep in mind the dismissal of the SLP, the impact of dismissal of SLP without reasons has been laid down in a number of decisions of the Supreme Court including the one referred to above.

Cognizable and non-bailable

Section 69(4) provides that notwithstanding anything contained in CrPC all offences under this Act except the offences referred to Section 132(5) shall be non-cognizable and bailable.

Section 69(5) of the CGST Act, 2017 provides that the offences specified in Section 132(1)(a) or (b) or (c) or (d) and punishable under clause (i) of Section 132(1) shall be cognizable and non-bailable. 

In the case of Commissioner of Customs Vs. M.M. Exports (2007) 212 ELT 165 , the Supreme Court while observing that the High Court should not interfere at summon stage except in an exceptional cases also held that the Department is at liberty to collect the material in accordance with law but it cannot proceed against the exporter without issuance of show cause notices.

The Delhi High Court in the case of Makemytrip India Pvt. Ltd. Vs. Union of India (2016) 44 STR 481 held that the power of arrest is to be used with great circumspection and not casually.  It is not to be straight away presumed by the DGCEI without following the procedure under Section 73A(3) and (4) of the Finance Act that a person has collected the amount of service tax and retained such amount without depositing to the credit of the Central Government.  The High Court also held that in the context of an offence under Section 89(1)(d) of the Finance Act, an enquiry has to be conducted by giving an opportunity to the person sought to be arrested to explain the materials.  A possible exception could be a person who is a habitual offender.  The Constitution safeguards laid down in D.K. Dasu (1997) 1 SCC 416 case in the context of powers of police officers under CrPC and office of Central Excise and Customs and Enforcement Directorate are applicable to the exercise of powers under the Finance Act in equal measure.

The Supreme Court in the case of Union of India Vs. Makemytrip India pvt. Ltd. (2019-SCConline SC 560) has held as under:

“The issue is as to whether the power to arrest under Section 91 of the Finance Act can be exercised without following the procedure as set out in Section 73A(3) and (4) of the said Act.”  The High Court has decided after detailed discussion that it is mandatory to follow the procedure contained in Section 73A(3) and (4) of the said Act before going ahead with the arrest of a person under Section 90 and 91.  We are in agreement with the aforesaid conclusion and see no reason to deviate from it.  Accordingly, these appeals are dismissed.

As can be seen from the above, the Supreme Court had made these observations while disposing the Civil Appeal filed by the Union of India against the order of the Delhi High Court.

In the case of V.M. Salgaocar & Bros.(P) Ltd. v. C.I.T., (2000) 5 SCC 373, the Supreme Court held that

“Different considerations apply when a special leave petition under Article 136 of the Constitution is simply dismissed by saying “dismissed” and an appeal provided under Article 133 is dismissed also with the words “the appeal is dismissed”. In the former case it has been laid by this Court that when a special leave petition is dismissed this Court does not comment on the correctness or otherwise of the order from which leave to appeal is sought. But what the Court means is that it does not consider it to be a fit case for exercise of its jurisdiction under Article 136 of the Constitution. That certainly could not be so when an appeal is dismissed though by a non-speaking order. Here the doctrine of merger applies. In that case, the Supreme Court upholds the decision of the High Court or of the Tribunal from which the appeal is provided under clause (3) of Article 133. This doctrine of merger does not apply in the case of dismissal of a special leave petition under Article 136.”

Conclusion

As per the direction of the Hon’ble Supreme Court, some of the SLPs are to be listed before a Bench of Three Judges and the Apex Court is likely to lay down the law on the subject.  In the meanwhile, now that the new Government has assumed office, the Government should consider amendments to the CGST Act in the context of offences, punishment, arrest by taking into account the following:

(i)      GST is no different from Central Excise or Service Tax or VAT where the concept of ITC existed and evaders including fake invoice racketeers also operated.  In GST the system is even more transparent and the authorities can issue show cause notice, adjudicate the matter and then proceed for appropriate action in cases of fake invoices.

(ii)     The GST has an elaborate system of returns, annual returns, audit and hence based on all the information appropriate show cause notices can be issued and adjudicated to ensure that bonafide claims and genuine players are not affected.

(iii)    In order to prevent similar offences from occurring the proper course of action would be to effect a speedy trial and to obtain a conviction of the offence rather than going through the route of denial of bail.  A number of swift convictions would send a much better message than denying bail.

(iv)    If bail is denied and the person suffers arrest, there is a huge potential for misuse of the provisions since the threat of arrest can turn into a powerful weapon which might aid corruption and would be contra to the interest of the exchequer.

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Published in Taxsutra