Narinder Chugh vs. Union of India and Others

The petitioner has filed a writ petition challenging the constitutionality of Sections 69 and 132 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017). These sections concern the power to arrest for GST offences and the penalties associated with tax evasion, respectively. The petitioner seeks interim relief, fearing arrest due to non-bailable warrants issued by the competent authority. He argues that appearing before the authority might result in his immediate custody.

Mr. Rohatgi, the learned Senior Counsel for the petitioner, draws attention to a previous order in a similar case (CWP-13995-2020: M/s Stalwart Alloys India Pvt. Ltd. & Ors. vs. Union of India & Ors.), dated September 9, 2020. In that instance, the court directed the competent authority to refrain from taking coercive action during the petition’s pendency. Rohatgi contends that this precedent should apply to the petitioner’s case as well. He raises several legal issues, particularly focusing on the legislative powers under Article 246-A of the Constitution of India, which grants special provisions regarding Goods & Services Tax. He argues that the CGST Act must align with constitutional mandates and procedural laws.

Additionally, Rohatgi references Sections 4 and 5, and provisions of Chapter XII of the Code of Criminal Procedure (Cr.P.C.), asserting that offences under the CGST Act should be investigated, inquired into, tried, and otherwise dealt with according to Cr.P.C. provisions, unless the CGST Act specifies otherwise. This argument suggests that any deviation from Cr.P.C. must be explicitly stated in the CGST Act to be valid.

Conversely, the respondents’ counsel argues that the precedent cited by the petitioner (M/s Stalwart Alloys case) does not support his claims. They highlight another Supreme Court case (W.P. (Crl.) No.184-2020: Aditya Gupta vs. Union of India & Others), where the court initially directed no coercive action against the petitioner. However, this order was later revoked on August 31, 2020, allowing the petitioner to apply for bail before the appropriate court. The respondents assert that this subsequent order demonstrates the court’s stance against blanket protection from coercive actions during investigations.

The respondents also present a sealed status report dated March 4, 2021, which the court has reviewed. They allege that the petitioner is attempting to obstruct the investigation through illegal means, such as destroying evidence, to evade the stringent penalties under Section 132 of the CGST Act. This section deals with significant GST evasion and prescribes severe punishments, including imprisonment.

The respondents claim that the petitioner’s actions amount to evasion of GST totaling ₹7,83,15,309. They emphasize that this substantial amount categorizes the offence as cognizable and non-bailable, thereby justifying punitive action. They argue that the petitioner’s attempts to circumvent the legal process undermine the investigation’s integrity and warrant strict enforcement of the law.

In summary, the petitioner’s challenge to Sections 69 and 132 of the CGST Act, 2017, hinges on constitutional and procedural grounds, seeking protection from immediate arrest. The respondents counter that legal precedents and the petitioner’s alleged misconduct justify the enforcement actions, underscoring the significant GST evasion involved in this case.

We have heard the learned counsel for the parties. Initially, it is pertinent to refer to the order dated April 18, 2019, passed by the Telangana High Court in the case of P.V. Ramana Reddy vs. Union of India. The operative part of this judgment states:

“61. In view of the above, despite our finding that the writ petitions are maintainable and despite our finding that the protection under Sections 41 and 41-A of Cr.P.C., may be available to persons said to have committed cognizable and non-bailable offences under this Act and despite our finding that there are incongruities within Section 69 and between Sections 69 and 132 of the CGST Act, 2017, we do not wish to grant relief to the petitioners against arrest, in view of the special circumstances which we have indicated above.”

Upon appeal, the Hon’ble Supreme Court upheld the Telangana High Court’s judgment, and the Special Leave Petition (SLP) was dismissed on May 27, 2019. This decision is further reinforced by a relevant Supreme Court order dated May 29, 2019, in Union of India vs. Sapna Jain, which reads:

“3. As different High Courts of the country have taken divergent views in the matter, we are of the view that the position in law should be clarified by this Court. Hence, the notice.
4. 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 requests in the 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 High Court in a 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.
5. Beyond the above, we do not consider it necessary to observe anything further.”

In the aforesaid order dated May 29, 2019, the Hon’ble Supreme Court clarified that High Courts, while entertaining requests for pre-arrest bail, should consider that the Apex Court, by its order dated May 27, 2019, dismissed the SLP against the judgment and order of the Telangana High Court in P.V. Ramana Reddy’s case.

Regarding the petitioner’s plea, interim protection orders against arrest in Writ Petition (criminal) No.221-2020, Shyam Khemani vs. State of Madhya Pradesh and Others dated August 31, 2020, and Writ Petition (civil) No.56/2021 Ram Prakash Malpani vs. S.C. Sinha and Others dated February 1, 2021, were passed after the Supreme Court’s orders in Sapna Jain’s case. Thus, the petitioner argues that similar relief should be granted. However, we do not find merit in this plea. This is because the subsequent orders passed after Sapna Jain’s case were issued by the Hon’ble Supreme Court itself, and the High Courts have been instructed to keep in mind that the SLP against the Telangana High Court’s order was dismissed.

Further, it is relevant to mention the sealed status report No.3 dated March 4, 2021, which we have reviewed. This report indicates that the petitioner has made efforts to obstruct the investigation by illegal means, including attempting to destroy evidence to avoid the consequences of Section 132 of the CGST Act, which pertains to significant GST evasion. The counsel for the respondents has emphasized that this report reveals a total GST evasion amounting to ₹7,83,15,309, categorizing the offense as cognizable and non-bailable, warranting stringent punitive actions.

Moreover, the learned counsel for the petitioner, Mr. Rohatgi, has relied on the orders passed by this Court in CWP-13995-2020 titled as M/s Stalwart Alloys India Pvt. Ltd. & Ors. vs. Union of India and Ors., dated September 9, 2020, wherein direction was given to the competent authority not to take coercive action during the pendency of the petition. He also raised several legal issues, particularly questioning the legislative powers under Article 246-A of the Constitution of India, which provides special provisions concerning Goods & Services Tax. Mr. Rohatgi further referenced Sections 4, 5, and provisions of Chapter XII of the Code of Criminal Procedure (Cr.P.C.), arguing that an offense under the CGST Act should be investigated, tried, and otherwise dealt with in accordance with the Cr.P.C., unless explicitly stated otherwise in the CGST Act.

On the other hand, the respondents’ counsel has contended that the precedent cited by the petitioner is not applicable. They pointed to a Supreme Court case (W.P. (Crl.) No.184-2020: Aditya Gupta vs. Union of India & Others) where initial protection against coercive action was later revoked on August 31, 2020, advising the petitioner to seek bail from the appropriate court. The respondents argue that this subsequent order underscores the court’s stance against blanket protection from coercive actions during investigations.

In conclusion, the petitioner’s challenge to Sections 69 and 132 of the CGST Act, 2017, is based on constitutional and procedural grounds, seeking protection from immediate arrest. The respondents counter this by highlighting legal precedents and alleging the petitioner’s misconduct in obstructing the investigation, emphasizing the significant GST evasion involved, which justifies stringent enforcement of the law. The case underscores the complex interplay between legislative powers, procedural safeguards, and the enforcement of tax laws.

The Delhi High Court’s order in Writ Petition (C) 5454-2020, titled Dhruv Krishan Maggu vs. Union of India & Ors., dated January 8, 2021, addresses a similar plea for interim protection against arrest. The petitioner sought relief in the context of allegations related to the Central Goods and Services Tax Act, 2017 (CGST Act). The operative part of the order reads:

“55. This Court is of the view that the allegation that a tax collection mechanism has been converted into a disbursement mechanism most certainly requires investigation. Accordingly, this Court is not inclined to interfere with the investigation at this stage and that too in writ proceedings. At the same time, innocent persons cannot be arrested or harassed. This Court has no doubt that the trial court, while considering the bail or remand or cancellation of bail application, ‘will separate the wheat from the chaff’ and will ensure that no innocent person against whom baseless allegations have been made is remanded to police/judicial custody.

56. Consequently, with the aforesaid observations and liberty, the CM No.32276/2020 in WP(C) 10130/2020 for interim relief as well as the prayer for interim relief in WP(C) 5454/2020 are dismissed with liberty to the petitioners to avail the statutory remedies and the CM No. 28105/2020 filed by respondent nos. 2 and 3 in WP(C) 5454/2020 is allowed and the interim order dated 20th August, 2020 passed in W.P.(C) 5454/2020 is vacated.

57. It is clarified that the observations made herein are prima facie and shall not prejudice either of the parties at the stage of final arguments of the present writ petitions or in the proceedings for interim protection. List before regular roster Bench on the date already fixed.”

The court concluded that while there is a need to investigate the alleged misuse of the tax collection mechanism, it is equally important to protect innocent individuals from wrongful arrest and harassment. The court emphasized that trial courts should meticulously evaluate the evidence and ensure that only those against whom there is substantial evidence are subjected to custodial actions. Consequently, the court dismissed the petitioner’s request for interim relief but granted liberty to pursue other statutory remedies. The interim order of August 20, 2020, was vacated.

Furthermore, the court acknowledged the constitutionality of the CGST Act, affirming that it is a special enactment empowered by Article 246-A of the Constitution for the recovery of taxes. Section 4 of the Cr.P.C. provides the enabling provisions for such special laws. The court asserted that the Parliament has the authority to establish special procedures for the levy and collection of Goods and Services Tax (GST) due to its fiscal nature.

The court also referred to the necessity of custodial interrogation in certain cases, citing the Supreme Court’s decision in State Represented through the C.B.I. vs. Anil Sharma, 1997(7) SCC 187. The court highlighted that effective interrogation of a suspect, who is not protected by a favorable order under Section 438 of the Cr.P.C., can reveal crucial information and concealed materials. While these observations were made in the context of Section 438 Cr.P.C., they are relevant for the CGST Act’s authorization for arrest in case of non-cooperation with the investigating agency.

However, the court clarified that their current decision was limited to the plea for interim relief and did not constitute a final opinion on the broader issues. They stressed that interference with the ongoing investigation through writ jurisdiction was not warranted at this stage.

In summary, the Delhi High Court’s decision in Dhruv Krishan Maggu vs. Union of India & Ors. addresses the balance between allowing investigations to proceed unimpeded and protecting individuals from unjust arrest. The court upheld the validity of the CGST Act, emphasized the importance of trial courts in discerning the merits of allegations, and reinforced the necessity of custodial interrogation in certain cases. While denying interim relief, the court left open the petitioner’s right to seek other statutory remedies.

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