Goods and Services Tax

Sanjay Kumar Bhuwalka, Neeraj Jain Versus Union of India

2018 (7) TMI 589 – CALCUTTA HIGH COURT – TMI – Fraudulent issuance of tax invoices under GST – allegation of business of generating and selling of fake tax invoices to various entities without supplying the underlying goods or services – Arrest of persons – Grant of Bail – “reasons to believe” – Based on such reasonable belief, the Additional Director General directed the officers concerned to arrest the petitioners in terms of the provisions stipulated under Section 69 of the said Act and they were arrested on 12.05.2018 – Held that:- ‘Reasonable belief’ or reason to believe as a standard to arrest requires that arresting officer subjectively believe that the suspect has committed the offence and that objectively reasonable person would reach the same conclusion. Reasonable grounds do not require as much evidence as a prima facie case but do require that thing believed to be more likely than not.

It is settled position of law that grant of bail is a rule and rejection of bail i

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Mehorotra For the Opposite Party : Mr. K.K. Maity ORDER Shivakant Prasad, J. The above two cases under provision of Section 439 Cr.P.C. have been filed by two separate petitioners under the same Memo of Arrest by the opposite party, Union of India whereunder petitioners have prayed for enlarging them on bail, inter alia, on the grounds stated in the petitions. Both the cases were heard analogously as the legal issue and the factual aspects of the case are common. So they can be disposed of by a common judgment. To speak precisely, the applications are directed against the order dated 28.05.2018 passed by the Additional Chief Judicial Magistrate, Sealdah in connection with Case No. C 216 of 2018 arising out of DGCEI F. No. 29/KZU/KOL/GR.D/2018 dated 12.5.2018 under Section 132(1)(a), (b) and (c) of the Central Goods and Services Tax Act, 2017 whereby prayer of the petitioners to enlarge them on bail was turned down. Mr. K.K. Maity learned Advocate for Union of India opposite party herei

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is contended that the investigation revealed that all the above fake companies were being controlled and run by a group of persons including Shri Sanjay Kumar Bhuwalka and Shri Neeraj Jain being the petitioners herein. Summons were issued to the petitioners under Section 70 of the CGST Act, 2017 read with Section 174(2) of the said Act and in their statements, they have admitted that they were looking after and controlling the business activities of the companies. It was further revealed that various companies were controlled by them who have passed on fake input GST credit to the tune of ₹ 27 crore and ₹ 12 crore respectively to the recipient entities. Accordingly, it is submitted by Mr. Maity that in view of such fraudulent activities by the petitioners, the Additional Director General had reasons to believe that the petitioners have committed the offences stipulated under Section 132 sub-section (1)(a), (b) and (c) of the said Act for having evaded payment of tax in exc

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fied under subsection (5) of section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours. (3) Subject to the provisions of the Code of Criminal Procedure, 1973 (2 of 174),- (a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate; (b) Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station." Mr. Sekhar Basu, learned senior counsel for the petitioners stressed on the word reasons to believe appearing in section 69(1) of the Act contending that a Statute, be it of any nature, civil, criminal, quasi criminal or quasi civil has a definite destination to reach whi

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on of law which seeks to apply will lead to deprivation of liberty of a citizen, ought to be construed strictly regard being had to the mandate of Article 21 of the Constitution of India, namely, the observance of "procedure established by law . Under Section 69 of the Act the functionary is the Commissioner as defined in Section 2(24) of the Act, Commissioner means the Commissioner of central tax and includes the Principal Commissioner of central tax appointed under section 3 and the Commissioner of integrated tax appointed under the Integrated Goods and Services Tax Act. My attention is invited to the said provision contending that there has been a delegation of the power of the Commissioner or Additional Director General Goods and Service Tax Intelligence and that delegatee has exercised the power of the delegator under Section 69 of the Act. Common law principles which are in vogue in our country accepts and in law enumerates the concept of "right implies duty". Whoe

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me Court Cases 497 at paragraph 4 of extract of the observation in the cited judgment which reads thus- 4. Under the Indian penal law, guilt in respect of almost all the offences is fastened either on the ground of "intention" or "knowledge" or "reason to believe". We are now concerned with the expressions "knowledge" and "reason to believe". "Knowledge" is an awareness on the part of the person concerned indicating his state of mind. "Reason to believe'" is another facet of the state of mind. "Reason to believe" is not the same thing as "suspicion" or "doubt" and mere seeing also cannot be equated to believing. "Reason to believe" is a higher level of state of mind. Likewise "knowledge" will be slightly on higher plane than "reason to believe". A person can be supposed to know where there is a direct appeal to his senses and a person is presumed to have

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id in the said observation, it is suffice to say such "reasons to believe" has to be formed by the Commissioner after the records of such inspection and search are communicated to him under sub-section 10 of section 67 of the Act or in any other manner the materials are placed before him for the formation of his "reason to believe". When the Commissioner or the delegatee has reason to believe that the person concerned has committed an offence which necessitates arrest, an order has to be passed and such order logically, reasonably and prudentially must be informed by reasons or must contain the reasons which have emanated from "reasons to believe" entertained by the authority concerned. Adverting to the Memo of Arrest and the order endorsed thereon it is urged by Mr. Basu that in unmistakable terms the Additional Director General Goods and Service Tax Intelligence has merely exercised his authority and was completely oblivious of and irresponsible in the d

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e to his own conclusion for effecting arrest unhindered, unaffected by interference from any quarter. It is further contended that the entire exercise by the officers sub-ordinate to the Additional Director General Goods and Service Tax Intelligence and the ultimate signature on the document by the Additional Director General Goods and Service Tax Intelligence are merely topsy-turvy, deplorable administrative exercise of power and a threat to the Constitutional observance of "procedure established by law". It is further submitted that despite delegation of powers of the Commissioner on officers sub-ordinate to him, the structural edifice of the statute presents the Commissioner to be at the helm of affairs. To buttress such contention, the attention of this Court has been drawn to Section 134 of the Act which is couched in a negative language and says that no cognizance of any offence punishable under the Act shall be taken without the previous sanction of the Commissioner. F

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ules made thereunder. In terms of the said Notification, the post of Additional Director General, Goods and Services Tax Intelligence, is equivalent to the post of Commissioner. Accordingly, the said Additional Director General, Directorate General of Goods and Services Tax Intelligence, has been empowered under section 69 of the Act to exercise all the powers invested in the Commissioner of Central Tax. Therefore, he was well within his jurisdiction while directing the concerned officers to arrest the said persons. In response to the interpretation as to reasonable belive Mr. Maity submitted that the office note reveals that the said Additional Director General, based on the facts brought out from the investigation conducted by the DGGI, had reasons to believe that the petitioners have committed the offence specified under clauses (a), (b) and (c) of sub- section (1) of section 132 of the said Act. Based on such reasonable belief, the said Additional Director General approved the prop

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e it is held that there was material, relevant and germen the sufficiency of the material is not open to judicial review. Having regard to rival contentions I am of the considered opinion that reasonable belief or reason to believe as a standard to arrest requires that arresting officer subjectively believe that the suspect has committed the offence and that objectively reasonable person would reach the same conclusion. Reasonable grounds do not require as much evidence as a prima facie case but do require that thing believed to be more likely than not. Therefore, in the light of the aforesaid contentions, the submission of the petitioners that no reason has been assigned for arrest has no legs to stand upon, particularly in view of the fact that the said office note itself clearly provides the reasons to believe that such arrests were warranted. In the given facts of the case as per the Memo of Arrest it is crystal clear that during the investigation, it was found that more than 40 su

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seller or unemployed aged between 20 to 30. In their statement, they stated that through agent of the accused Shri Sanjay Bhuwalka they met the accused and submitted copies of their personal documents like PAN Card, Voter Id Card etc. and signed many other documents. In exchange, the accused promised to pay them ₹ 4,000/- per month. Further, the Department has recorded statement of Bank Manager of Laxmivilas Bank on 11.05.2018, where he categorically mentioned that Bank accounts relating to the fake/shell companies were operated either by the accused themselves or by their employee and in the event petitioners are enlarged on bail, there is every probability of tampering the documents and the recipient who have received the fake tax invoices from them and wrongfully availed the input tax credit will destroy the documents resulting in loss of Government revenue to the Exchequer. It is further submitted that during investigation on 12.05.2018 Shri Sanjay Bhuwalka paid ₹ 1 Cro

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(284) E.L.T. 164 Raj it has been observed that the accused petitioner has evaded the excise duty causing a great loss to the public exchequer. Hence, the offence being of grave nature, the petitioner should not be allowed bail. The Hon'ble Court also held that the act of the petitioners may be termed as Royal Thievery' which is opposed to both democracy and society. In the case of Subhas Chandra Bal Chandra Badjata -Vs- DGCE (Intelligence) Mumbai reported in 2015(324) E.L.T 307-Born the Hon'ble Court has observed that the material collected shows that false record was created for evasion of excise duty. Thus it is case of forgery and fraud. In the case of Directorate of revenue Intelligence -Vs- Chander Prakash Verma reported in 2016 (332) E.L.T 693 Del. the Hon'ble Court has held that custody of accused person in a case like the instant one is not to be measured in days but it has to be seen whether the grant of bail would hamper the investigation and if it is found to

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tion 138 of the Act. I am fully aware of the observation of the Hon ble Supreme Court that economic offences constitute a class apart and need to be visited with a different approach in the mater of a bail. The economic offence having deep rooted conspiracy and involving huge loss of public funds needs to be viewed seriously and considerd as grave offences affecting the economy of the country as a whole and thereby posing a serious threat to the financial health of the country. While granting bail, the Court has to keep in mind the nature of the accusations, the nature of evidence in support thereof the severity of the punishment which conviction will entail, the character of the accused, reasonable apprehension of the witnesses being tampered with, the larger interest of the public/ State and others similar consideration are requied to be taken into consideration. Nevertheless, bearing in mind the evidence having been collected so far by the Investigating Agency and in consideration o

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