Offences and Prosecution under GST Laws
Section 132 provides for about 12 different types of offences which are punishable with gradation of fine and imprisonment depending on the amount of tax evaded or the amount of input credit wrongly availed or utilized or the amount of refund wrongly taken. This clause also provides for offences which shall be non-cognisable or cognizable and non-bailable. Let us analyse the legal provisions in GST relating to arrest and prosecution under the Criminal Procedure Code.
Meaning of Bailable and Cognisable Offence
The word bailable offence is defined in Section 2(a) of the Code of Criminal Procedure, 1973.
Bailable offence means an offence which is made bailable by any other law for the time being in force. Bailable offences means bail is available under the law as a matter of right. It does not mean that a person arrested for non-bailable offence cannot get bail. He can also be freed on bail by approaching a Court of Sessions or the High Court.
The word “Cognisable Offence” is defined in Section 2(c) of the Code of Criminal Procedure. It means an offence in which case a police Officer may arrest without warrant.
The word “Cognisable” stands for “a police officer may arrest without warrant” and in case of “non-cognisable offence” a police officer has no authority to arrest without warrant.
Schedule I deals with offences under the Indian Penal Code and have classified offences as under:
Cognisable or non-cognisable
Bailable or non-bailable
By what Court triable
Under Section 190 of the Code of Criminal Procedure, 1973 (Criminal Procedure Code) any Magistrate empowered may take cognizance of any offence specified in the said section.
Section 155 of Criminal Procedure Code: A police officer shall not investigate a non-cognisable case without the order of a magistrate having power to try such case or commit the case for trial. However, a police officer can investigate cognizable case without the order of the magistrate as per Criminal Procedure Code.
Offences which may warrant prosecution under Section 132 of the Central Goods & Services Tax Act, 2017:
Offences – Section 132 (1):
(a) Supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with an intention to evade tax;
(b) Issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder leading wrongful availmentor utilization of the input tax credit or refund of tax;
(c) Avails input tax credit using such invoice or bill referred to in clause (b);
(d) Collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
(e) Evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d);
(f) Falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade tax due under this Act;
(g) Obstructs or prevents any Officer in the discharge of his duties under this Act;
(h) Acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying or purchasing or in any other manner deals with any goods which he knows and or has reason to believe are liable to confiscation under this Act or rules made thereunder;
(i) Receives or is any way connected with supply of, or in any other manner deals with any supply of services which he knows or has reason to believe are in contravention of any of the provisions of this Act or the rules made thereunder;
(j) Tampers with or destroys any material evidence or documents;
(k) Fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or,
(l) Attempts to commit or abets the commission of any of the offences mentioned in clauses (a) to (k) of this section shall be punishable.
(i) in cases where the amount of tax evaded or the amount of input credit wrongly availed or utilized or the amount of refund wrongly taken exceeds ₹ 5 crores, with imprisonment for a term which may extend to five years and with fine;
(ii) in cases where the amount of tax evaded or amount of input tax credit wrongly availed or utilized or the amount of refund wrongly taxed exceed ₹ 2 crores but does not exceed ₹ 5 crores, with imprisonment for a term which may extend to 3 years and with fine;
(iii) In case of any other offence where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized or the amount of refund wrongly taken exceeds
₹ 1 crore but does not exceeds ₹ 2 crores with an imprisonment for a term which may extend to one year and with fine;
(iv) In cases where he commits or abets the commission of an offence specified in clause (f)or clause (g) or clause (j), he shall be punishable with imprisonment for a term which may extend to 6 months or with fine or with both.
Where any person convicted of any offence under this section is again convicted of an offence under this section, he shall be punishable for the second and for every subsequent offence with imprisonment for term which may extend to five years and with fine.
The imprisonment referred to in clauses (i), (ii) and (iii) of sub-section (1) and subs-section (2) shall, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, be for a term not less than six months.
All offences to be non-cognisable and bailable:
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act, except the offences referred to in sub-section(s) shall be non-cognisable and liable.
As stated earlier, non-cognisable offence means an offence wherein arrest warrant is required.
Offences under sub-section (1) clause (a), (b), (c)or (d) to be cognizable and non-bailable:
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.
As per Section 2(c) of the Code of Criminal Procedure, 1973 “Cognisable Offence” means and offence for which and “Cognisable Case” means a case in 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.
Approval from Commissioner:
A person shall not be prosecuted for any offence under this section except with the previous sanction of the Commissioner.
For the purposes of Section 132, the term “tax” shall include the amount of tax evaded or amount of input of tax credit wrongly availed or utilized or refund wrongly taken under the provisions of this Act, the State Goods & Service Tax Act, the Integrated Goods & Services Tax Act or the Union Territory Goods and Services Tax Act and cess levied under the Good and Services Tax (Compensation to States) Act.
Arrest in case of cognizable and non-bailable offence:
No Court shall take cognizance of any offence punishable under this Act or rules made thereunder except with the previous sanction of the Commissioner. No Court inferior to that of a Magistrate of the First class, shall try any such offence.
Cognisance of offences:
Section 134 of the Act prescribes restriction to Courts to take congnisance of any offence under the Act or rules made thereunder except with the previous sanction of the Commissioner.
The Commissioner or Authorized Officer is not primarily concerned with the detection and punishment of crime committed by a person but mainly interested in prevention of evasion and recovery of tax.
A tax officer is mainly interested in safeguarding the revenue of the State and that is the main reason why he has been invested with some powers of arrest.
Presumption of culpable mental state:
Section 135 of the CGST Act, 2017 provides presumption of culpable mental State by the Court unless otherwise proved by the accused.
Prosecution under CGST Act,2017 requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state, but it shall be defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.
Explanation – For the purpose of this section,
(i) The expression “culpable mental state” includes intention, motive, knowledge of a fact, and belief in, or reason to believe, a fact;
(ii) A fact is said to be proved only when the Court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.
Section 137 deals with offences by Companies:
This Section provides that a person who committed an offence is a company, the person who,at the time of the offence was in charge of, and responsible for the conduct of business of the Company, shall be deemed to be guilty of the offence and punished accordingly.
Section 138 – Compounding of offences:
Any offence under this Act may, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or State Government, as the case may be, of such compounding amount as may be prescribed. It may be invoked by the offender either before or after the institution of prosecution but prior to conviction. After payment of such composition amount, prosecution would not be launched or if it was launched, it would be withdrawn.
Power to arrest:
Power to arrest is conferred upon Commissioner who in turn authorize any Officer of Central tax. Tax Officer would be interested in safeguarding the interest of revenue. He is primarily interested in prevention of evasion and recovery of tax. Whereas, the Police Officer is primarily concerned with detention and punishment of crime committed by a person.
In case of State of Punjab v. Barkat Ram AIR 1962 SC 276, it was held that the word “Police Officer” cannot include persons on whom certain Police Officer powers are conferred.
The Police are constituted body of persons empowered by a State to enforce the law, to protect the lives, liberty and possession of citizens and to prevent crime and civil disorder. Law enforcement is a part of police activity. Predominantly it is concerned with the preservation of order.
Under GST law, power is conferred upon the Commissioner who in turn authorises any Officer of Central Tax to prevent evasion and recover tax. Powers to arrest is given only in respect of cognizable and non-bailable offences, if the amount involved is more than ₹ 5 crores. Section does not envisage power to arrest in respect of other offences specified in Section 132. Commissioner is responsible to monitor that their Officers are not harassing and do not behave in an irresponsible manner.
Sections 41, 41-A and 57: Relate to Power of police to arrest without warrant:
Directions have been issued under these sections that they shall apply to all cases, where offence is 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. It was also held that Police officer shall not arrest the accused unnecessarily and Magistrate shall not authorise detention casually and mechanically. Failure to comply with these directions, shall, apart from rendering police officers concerned liable for departmental action, also make them liable to be punished for contempt of court – Authorising detention without recording reasons by Judicial Magistrate concerned shall be liable for departmental action by appropriate High Court. Arnesh Kumar v. State of Bihar  8 SCC 273
Section 498-A of Indian Penal Code, 1860:
It was held that due to the rampant misuse of the provisions, it would be prudent and wise for a Police Officer, that no arrest is made without reasonable satisfaction reached after some investigation as to genuineness of allegations.
Deaths in Police lock-ups and custody:
Courts have set down certain procedural requirements in case of arrest. Custodial death is perhaps one of the worst crimes in a civilised society governed by the Rule of Law. The rights inherent in Articles 21 and 22(1) of the Constitution required to be judiciously and scrupulously protected. The precious right guaranteed by Article 21 of the Constitution of India cannot be denied to convicted undertrials, detainees and other prisoners in custody, except according to the procedure established by law by placing such reasonable restrictions as are permitted by law.
Section 173 of Criminal Procedure Code:
Section 173 of Criminal Procedure Code provides that every investigation shall be completed without unnecessarily delay. The investigation shall be completed within the stipulated time by the Officer-in-Charge of the police station. Further, as soon as the investigation is completed, the Officer-in-Charge of Police Station shall forward to Magistrate empowered to take cognisance of the offence on a Police Report in the form and manner prescribed by the State Government.
There is no such provision in the GST Laws. Officers who have been assigned the role of the Police Officer for prevention of evasion and recovery of tax. The provision in respect of cognizable and non-cognisable offences are not subject to provisions of Criminal Procedure Code.
Procedure for Arrest:
The procedures for arrest must be just, fair and reasonable to safeguard the rights of the assessee.
The Investigating agencies should not act in an arbitrary and indiscriminate ways to invade the privacy of the general public. The procedure must be just, fair and reasonable and not fancyfool arbitrary or oppressive.
The Investigating Agencies should not invade the privacy of individuals or trespassing into the privacy of individual and follow arbitrary and indiscriminate ways affecting the privacy of individuals.
Reasons to believe that a person has committed an offence:
It is the duty of the said authorities to satisfy themselves about the existence of conditions precedent to the exercise of the said authority. It is before the Commissioner resorts to the power of arrest, the Commissioner must have reasons to believe that a person has committed an offence under the Act.
Reasons to believe is not a reason to suspect and the Commissioner cannot substitute its own opinion. The reasons to believe must be founded on material and reasons that exists are relevant and on which a reasonable person can form a belief that a person has committed an offence under the Act.
Belief must be based on information in the possession of the Commissioner, it cannot be a mere pretence or a doubt or a suspicion.
During Investigation – Is Interrogation of a person concerned, entitled to the Assistance of a Lawyer?
There being no prohibition under the Act, to deny him assistance of a lawyer, such a right would be violative of Article 20(3) of the Constitution and that in view of the Constitutional protection of life and personal liberty guaranteed by the person concerned is entitled to a lawyer during questioning by the Department. Applying the just fair and reasonable test, it cannot be said that calling a person away from his own house and questioning him in the atmosphere of the customs office without the assistance of his lawyer or his friends either violates his constitutional right under Article 21 or amounts to mental torture. Poolpandi Etc. Etc. v. Superintendent, Central Excise [1992 AIR 1795], [1992 SCR (3) 247]
Arrest of Persons:
Chapter V of Code of Criminal Procedure Code, 1973 deals with an arrest of persons:
Section 41 of the Criminal Procedure Code provides that the police may arrest without warrant under circumstances specified in the said section. Sub-section (2) of Section 41 provides that subject to the provisions of Section 42, no person concerned in a non-cognisable offence or against whom a complaint has been made or, credible information has been received or reasonable suspicion exists of having so concerned shall be arrested except under a warrant or order of a Magistrate.
Notice of appearance before Police Officer:
Section 41A of CPC provides that Police Officer shall, issue a notice directing the person against whom a reasonable complaint has been made or credible information has been received, or a reasonable suspicion exists that a person has committed as cognizable offence to appear before him or at such other place as may be specified in the notice, when such a notice has been issued. It is the duty of that person to comply with the terms of that notice. If the person complies and continues to comply with the notice, then he will not be arrested unless for reasons to be recorded, the Police Officer is of the opinion that he ought to be arrested. Thus, under Section 132 though power is given to the Commissioner for arrest for evasion of tax, but the provisions contained in the Criminal Procedure Code has to be complied with, so that the Magistrate may take cognizance of such arrest.
Arrest in case of non-cognisable and bailable offences:
Non-cognisable offences means an offence for which, and “non-cognisable case” means a case in which Police Officer has no authority to arrest without warrant. In case of non-cognisable offences, a warrant must be obtained from Magistrate in terms of Section 155(2) of Criminal Procedure Code.
Arrest can be made by the Revenue Officer without warrant only if it is a cognizable offence. In case of non-cognisable offence, in which case no arrest can be made without warrant. So warrant has to be obtained and Commissioner through his Officer has to obtain through the Police Officers warrant from the Magistrate for arrest.
In case of bailable offence, bail can be asked, as a matter of right. In case of non-bailable offences, no bail can ever be granted.
The Court has discretion to grant bail in a non-bailable offence. It is held that bail is a rule and committal to jail is an exception. While granting the bail, the following things should be considered, namely, severity of punishment, granting or denial of bail and subsequent remedy to police or judicial custody is entirely matter of judicial discretion. It was held that anticipatory bail is meant for a limited period and cannot take a person if charge sheet filed after investigation. Economic offences are viewed seriously and bail is not easy to obtain.
The offences which have been deeply routed involving huge loss of public funds needs to be viewed seriously and considered as a grave offence affecting the economy of the country as a whole and posing a threat to financial health of the country.
The need for caution in exercising the drastic power of arrest has been emphasised time and again by the courts but has not yielded desired result. Power to arrest greatly contributes to its arrogance so also the failure of the Magistrate to check it. Not only this, the power of arrest is one of the lucrative sources of police corruption. The attitude to arrest first and then proceed with the rest is despicable. It has become a handy tool to the police officers who lack sensitivity or act with oblique motive.”
The Court in case of Dr. Rini Johar & Anr. v. State of M.P. &Ors. in Writ Petition (Criminal) No. 30 of 2015, Judgment dated 3rd June, 2016 referred to Section 41 Criminal Procedure Code and analyzing the said provision, opined that a person accused of an 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 his satisfaction that such person had committed the offence. It has been further held that a 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.
It is further held that 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. Section 41 of Cr.PC has to be complied and shall be subject to the same scrutiny by the Magistrate.
The Hon’ble Supreme Court held that the majesty of law protects the dignity of a citizen in a society governed by law. It cannot be forgotten that the welfare State is governed by the rule of law which has paramountcy.
Bail in connection with offence:
Sandeep MaganbhaiChaniyara Versus Commissioner, Central Excise & CGST, Rajkot  (29) G.S.T.L. 621 (Guj.)
An application was filed under Section 439 of the Code of Criminal Procedure, 1973 for regular bail in connection with an offence registered with the Commissioner, CGST & Central Excise, Rajkot for the offences under Sections 132(1)(b) and 132(1)(c) of the Central Goods & Service Tax Act, 2017.
In the facts and circumstances of the case and considering the nature of allegations made against the applicant in the FIR and considering the admitted position that the Applicant is arrested and the fact that till date even after passage of 60 days, neither any complaint nor charge¬ sheet is filed and therefore, the applicant would be entitled for bail by default without going into detail at this stage, prima facie, the Court is of the opinion that this is a fit case to exercise the discretion and put the applicant on regular bail. Hence, the present application is allowed and the applicant is ordered to be released on regular bail in connection with an offence being registered with Commissioner, CGST & Central Excise, Rajkot, on executing a personal bond of ₹ 25,000/-¬ (Rupees Twenty¬-five Thousand Only) with one local surety of the like amount to the satisfaction of the learned Trial Court and subject to the conditions mentioned therein:
a) not take undue advantage of liberty or misuse liberty;
b) not act in a manner injurious to the interest of the prosecution;
c) surrender passport, if any, to the lower court within a week;
d) not leave the State of Gujarat without prior permission of the Sessions Judge concerned;
e) mark presence before the concerned Authority on any day of 1st week of each English Calender Month for a period of six months and thereafter on any day of 1st week of every three English Calendar Months till the trial is over;
f) furnish latest address of residence to the Investigating Officer and also to the Court at the time of execution of the bond and shall not change the residence without prior permission of this Court;
Further, it is held that the authorities will release the applicant only if he is not required in connection with any other offence for the time being. If breach of any of the above conditions is committed, the Sessions Judge concerned will be free to issue warrant or take appropriate action in the matter. Bail bond to be executed before the learned Lower Court having jurisdiction to try the case. It would be open for the concerned Court to delete, modify and/or relax any of the above conditions, in accordance with law. At the trial, learned Trial Court shall not be influenced by the observations of preliminary nature, qua the evidence at this stage, made by this Court while enlarging the applicant on bail. Rule is made absolute to the aforesaid extent.
The safeguards and procedures outlined in Criminal Procedure Code must be reconciled and matched with GST Laws. Further procedure for arrest under GST laws and Criminal Procedure Code are different. Both should be reconciled and procedure for both should match. Department should desist from taking coercive steps. It should be launched after adjudication is completed. In GST law act of committal to be fixed before arrest and punishment.