Section 132 of SGST Act, 2017 and Input Tax Credit : Are Arrests Essential ?

Section 132 of SGST Act, 2017 & Input Tax Credit: Are Arrests Essential ?

Introduction

"He who knows at the same time both Vidya and Avidya, crosses over death by Avidya and attains immortality through Vidya."

["The Upanishads", Translated by Swami Paramananda, 2nd Edition, 1919, The Plimpton Press, page 30]

GST Department acts through its employees. Sometime, the need for interpreting provisions of fiscal laws has to be done only when the employees of GST Department have acquired knowledge. Absent knowledge, anarchy prevails. Can GST Department employees ignore the principles that govern S.132 as laid down by Hon'ble Courts ? The question attains more importance because when a principle is laid down by Hon'ble High Courts / Supreme Court, can Department act in a way that the person has to again approach High Courts / Supreme Court because Department acted opposite to what the HCs/SC had directed ?

In one of the case, the effect of S.132 of SGST Act, 2017 has emerged and whether there is any need for effect arrests in all such cases ? While reaching its conclusion references were also made to Sushila Agarwal v. State NCTD [2020] GCtR 816 (SC) ; Nathu Singh v. State of UP [2021] GCtR 966 (SC) ; Arnab Manoranjan Goswami v. State of Maharashtra [2020] GCtR 956 (SC). 

Section 132 of SGST Act, 2017

S.132 of the Act provides for punishment ; the punishment can be imprisonment as well. This section therefore curtails liberty of a person. 

The Narration of Allegation

The facts were this : Chamunda Bullion availed the ITC which is matched with GSTR 2A and so also the payment of tax amount paid to the supplier.

On 16/04/2022 the Officers of the first Respondent [Tax Departmnt] visited the office of the Applicant and conducted search and enquiry and verified the stock of 13.2 kg of gold bullian. The Officers thereafter issued summons to the Applicant as per Section 70 of the MGST Act.

The crux of the allegation against the Applicant is that the Applicant has availed inadmissible input tax credit to the extent of Rs.11,34,98,066/- from two non-existent suppliers viz. M/s. Yash Bullion (ITC at Rs.4.37 Crores) and M/s. Malishka Gold and Jewellery Pvt. Ltd. (ITC at Rs.6.91 Crores) by issuing of invoices without actual supply of goods. 

The Categories under S.132 of SGST Act

Section 132 of the GST Act provides for punishment for certain offences identified in 12 categories. In this case, only Clauses (b) and (c) of Section 132 were discussed. Clause (b) of Section 132 provides for prosecution and punishment if any person issues any invoice or bill without actual supply of goods or services or both, leading to wrongful input tax credit or refund of tax. Clause (c) of Section 132 prescribes punishment if any person avails input tax credit using invoice or bill without the supply of goods or services or both, in violation of the GST Act, using invoice referred to in clause (b) of the Section.

The Power to Arrest

Section 69 of the GST Act empowers the Commissioner to authorise any officer to arrest any person where he has reason to believe that such person has committed an offence under Section 132 (1) Clauses (a), (b), (c) or (d) of the GST Act, which is punishable under Section 132(1) (i) (ii) or 132(2) of the CGST Act. It is well settled that power to arrest cannot be exercised arbitrarily or on mere suspicion or on purely subjective satisfaction of the concerned officer. Suffice it to say that satisfaction of the officer must be based on material on record.

Satisfaction and Reasons to Believe

When it comes to S.132, S.41 of Code of Criminal Procedure, 1973 was also discussed.  It is held that sub clause (1)(b)(i) of section 41 of Code of Criminal Procedure, 1973 has to be read along with sub-clause (ii) and therefore both the elements of ‘reason to believe’ and ‘satisfaction qua an arrest’ are mandated and accordingly are to be recorded by the police officer.

Tax Evasion and Pre-Arrest Bail

It is true that economic offences such as tax evasion affect the economy of the country and are considered to be grave in nature. However, the gravity of such offence cannot per se be a reason to decline pre-arrest bail and deprive a person of his personal liberty. 

Factors for Not Effecting Arrest

High Court noted that the investigation is based mainly on documents. All the documents are in custody of the Department. The Applicant who is on interim bail has co-operated with the investigation. Considering the fact that the offence is punishable with imprisonment for five years, discretion under S.438 of Code of Criminal Procedure, 1973 is exercised to grant protection. 

Case Reference is Chetankumar Jasraj Palgota v. Assistant Commissioner of State Tax [2023] GCtR 1673 (Bombay).