1. Petitioner is before this court challenging validity of section 132(1)(b) and (c) of the Central Goods and Services Tax Act, 2017 (for short, ‘CGST Act’) with declaration that the same is unconstitutional and further declaration that exercise of power under Section 69 of the CST Act would be only upon determination of liability and that petitioner’s arrest is illegal and in violation of section 69 and its spirit as well as is contrary to judgments of Supreme Court of India and High Court and seeks his enlargement on bail.

2. Petitioner states that the petitioner is Chairman and Managing Director of M/s. Global Space Technologies Limited (‘GSTL’). Petitioner states that search and seizure had been carried out on its premises in October, 2020. Summons had been issued to petitioner to attend office of respondent no. 2 – Superintendent (Anti Evasion), CGST on 19.10.2020. Since the petitioner had been out of town, accountant of petitioner had been to respondent no. 2. He had furnished solicited information about it’s Directors, office location etc.. Two emails had also been issued providing details viz. tally and ledgers etc.

3. The petitioner had been summoned on various dates thereafter on 09.03.2021, 12.03.2021, 17.03.2021, 19.03.2021, 22.03.2021 and 23.03.2021. The petitioner had attended all the dates except one while he had undergone angioplasty. On 23.03.2021, he was arrested. On the next date, he was produced before the Magistrate, Belapur seeking remand. On the very day, the petitioner had filed an application for bail.

4. In the remand application by respondents before the Magistrate, several allegations had been made against petitioner, inter alia, that he had not deposited with the government tax collected to the tune of ₹ 6,30,00,000/- referring to its corroboration from the representative of Axis Bank. It has been found that M/s. VRD Retails is a bogus company which had no dealings with GSTL and the transactions had been on paper based on bogus invoices, gift boxes, food and beverages. Input Tax Credit (‘ITC’) had been availed of to the tune of ₹ 2 Crores without receipt of goods and services. There have been transactions and supplies by petitioner suppressing the same from the department. Vehicle registration numbers declared in purchase invoices and e-way bills pertaining to supplies to certain concerns were found to be fictitious and non-existent and the petitioner had been dodgy and evasive and had been giving false information. There is a tax evasion to the tune of ₹ 9.90 Crores and the petitioner being aware of the same, has pleaded ignorance despite him being sole decision maker.

5. It is the contention of the petitioner the allegations in the remand application are without any details as to the invoices, alleged illegal availment of ITC, details of calculations of GST liabilities. With reference to the application, the petitioner had been remanded to judicial custody until 07/04/2021. While the petitioner was in judicial custody, the statement of petitioner had been recorded by respondent no.2. Respondent no.2 had purportedly filed reply to the bail application on 01/04/2021 and on 06/04/2021 the Magistrate had rejected the bail application of the petitioner. The petitioner had been produced before the Magistrate and his remand had been extended and petitioner continues to be in judicial custody.

6. Mr. Ponda, learned senior advocate appearing for petitioner contends that it is well-settled that a bail would normally not refused unless there is some evidence warranting that a bail would not secure presence of convicts on judgment or if there is likelihood of interfering with witnesses for prosecution or would be polluting the process of justice. Petitioner has all along being cooperative right from the day of search and seizure and has always responded to and appeared as and when summoned. The petitioner has bona fide deposited a sum of ₹ 45 Lakhs without accepting the liability. It is submitted that the magistrate had not appreciated the purport of decision of this Court in the case of Daulat Samirmal Mehta Vs. Union of India, in Civil Writ Petition No.471 of 2020, decided on 15/02/2021, wherein, based on supreme court judgments, it has been observed that, bail and not jail is the rule in the cases not involving heinous offences like rape, murder, terrorism etc. and that the case against him was not even at pre-trial stage where there had been no formal accusation in any form viz. FIR / complaint. It is submitted that the ratio in case of Daulat (supra) squarely applies to the present matter.

7. It is submitted that search and seizure has been carried out and alleged fake invoices, balance-sheets, ledgers etc. have already been taken in possession for conducting further investigation and as such, custody of petitioner would not be required.

8. Mr.Ponda submits that the statements made by the petitioner or appearing against the petitioner, would not be per se admissible in evidence and in the case of Daulat (supra), it has been observed that section 136 of the CGST Act would roll in to play when trial would commence further highlighting that an admission of a person before revenue officials under CGST Act would not be ipso facto admissible in evidence unless it receives acceptance from the court.

9. He submits that there is no rationale and intelligible nexus between ‘reasons to believe’ that petitioner has committed alleged offence and the arrest and as to his custody. There is no material placed on record in support of reasons to believe against the petitioner. It is contended that reasons to believe must be recorded in writing with application of mind by the commissioner.

10. The decision of Delhi High Court in Makemytrip (India) Private Limited Vs. Union of India, 2016 (44) STR 481 is pressed into service to emphasize that a decision to arrest must not be taken on whimsical grounds and reasons must be based on credible material. It is further referred to even reasons to believe and its depiction is not a formality, it should be coupled with need to arrest.

11. Section 138 has been referred to contending that offences under CGST Act are compoundable and thus arrest of petitioner has been absolutely unnecessary. The object of purpose of CGST Act basically is to levy, secure and recover tax and its purpose is economic and is not to penalize a person. Collection of revenue being the central objective, the arrest is incidental to achieve the said purpose. Referring to section 138(3), it has been contended that the same prohibits further proceedings against the accused in respect of same offence and any criminal proceedings initiated would stand abated.

12. Mr.Ponda, learned senior advocate contends, despite cooperation and payment, the petitioner has been put under arrest for alleged non-payment of GST and alleged illegal availment of ITC. It has been contended that the government has no authority to take extra-legal steps to collect tax and cannot resort to coercion for payment of amount not legally payable and such resort is deprecated and exactly the government is doing the same thing by putting petitioner under arrest using the power as a tool to coerce the petitioner to pay the amount not legally due. It is submitted that the allegations and statements in the remand application and reply to the bail application about conduct of the petitioner are with a view to create prejudice against the petitioner. It is contended that mere allegation that the accused is not cooperating or he may tamper with evidence or he may influence witnesses, is not sufficient to arrest a person.

13. It is contended that the petitioner has been illegally arrested and remanded without taking into consideration observations of this court in the cases involving similar factual aspects.

14. On the other hand, Mr. Mishra, learned Counsel for revenue refers to and relies on the application for remand contending that the petitioner is engaged in evasion of goods and services tax by collecting taxes and not paying the same to the government, is suppressing taxable value of supply for payment of tax and is availing Input Tax Credit (‘ITC’) on purchase of goods and services not received by him and in using ineligible credit for payment of taxes on their outward taxable supply. Premises of GSTL were searched on 15/10/2020 and incriminating documents were seized under panchanama and it has been unearthed that the company has collected tax to the tune of ₹ 6.3 Crore but has not deposited with the government. During the investigation, it has been gathered that GSTL is engaged in clandestine supply of goods and services without payment of taxes and without accounting the same in the returns filed with the department. From the documents retrieved, it has surfaced that GSTL has supplied goods and services to the tune of ₹ 35 Crores and the same fact has been confirmed from one of the recipients. On the same ₹ 6.3 Crore goods and service tax is payable. It is also being seen that M/s.VRD Retail is a bogus company having a bogus director and his statement shows he is ignorant about GSTL and as such transactions of GSTL with said concern are fictitious. The investigation also revealed that GSTL is engaged in availing ineligible ITC on the invoices without receipt of goods or services and has evaded payment of tax.

15. He submits, on verification of vehicle number in purchase invoices and the vehicle registration number in e-way bill pertaining to certain suppliers, it has transpired that the vehicles were non-existent or fictitious resulting in commission of offence under section 132(1)(c). The petitioner had given evasive replies in the statements during investigation and was giving false information about the transactions. It is alleged that the petitioner has evaded tax in excess of ₹ 9.90 Crores as per the investigation carried out so far and there are indications of finding more evasion of tax. It is alleged that the modus operandi has been conspired at the instance of the petitioner. Investigation is at crucial stage. If petitioner is released, he will tamper with evidence, influence witnesses and derail / tamper the investigation proceedings. Government revenue is at stake. As such, the petition is opposed.

16. Learned Counsel for petitioner, Mr. Ponda submits that in the case of Sunil Kumar Jha Vs Union of India & Ors. (Civil Writ Petition No.5484 of 2021) and Akshay Chhabra Vs Union of India & Ors. (Civil Writ Petition No.5486 of 2021) in the order dated 11th March, 2021, the court has taken stock of the situation and relevant facts therein are also similar to the ones in present matter. In said case as well, the petitioners therein had responded to the summons and duly attended the office of the respondent. As such, while the petitioner has been cooperating with the respondents and has been responding, there is no justification for keeping petitioner in custody. It is contended that the maximum penalty for the alleged offences is five years and fine and as such, the judgment of Hon’ble Supreme Court in the case of Arnesh Kumar Vs. State of Bihar, (2014) 8 SCC 273 and that of this court in the case of Daulat Mehta (supra) would squarely apply to present matter. It is submitted that the respondents would have to justify and give reasons as to why the petitioner is required in custody, when the petitioner had attended the office of the respondent as and when he had been summoned. It is being submitted that it is not the case that there had been any custodial interrogation worth reference. It has been referred to that the custody sanctioned under remand, no significant progress has taken place and having regard to decision in Arnab Manoranjan Goswami Vs. State of Maharashtra & Ors., SCCOnline SC 964 and of this court in Daulat Mehta (supra), continued detention of petitioner is illegal. Moreover, arrest itself is illegal. There is no justification for keeping petitioner in custody any longer.

17. Aforesaid submissions are being countered on behalf of respondents submitting that detention of the petitioner is necessary looking at the magnitude of evaded tax as well as likelihood of unearthing much more evasion. Custody of petitioner is required not only for the purpose of interrogation, but with a view to ensure that petitioner does not tamper with documents and influence the witnesses. The submission on behalf of the petitioner that the petitioner is cooperating with the investigation is disputed contending that the statements recorded would show that the petitioner is dodging the answers and the investigating authority could not proceed further. This would not be a case where it can be said that there is a cooperation in the investigation. He also places reliance on decision of Telangana High Court in P. V. Ramana Reddy Vs. Union of India 2019 (25) G.S.T.L. 185 (Telangana) and the order of this court dated 31/07/2019 (in Criminal Writ Petition No.3804 of 2019).

18. It appears on 15/10/2020, office of M/s. Global Space Technologies Limited (‘GSTL’), a concern of which petitioner is Chairman and Managing Director, was visited for conducting search and seizure. On same day summons had been issued to petitioner by Superintendent (Anti Evasion), CGST – respondent no. 2 – to appear before him on 19/10/2020. While the same had not been possible the petitioner being out of town, Accountant of GSTL, had attended the office of respondent no. 2. He had been interrogated and information had been solicited from him about the company, its directors, office locations etc. which had been duly provided. Even two emails had been issued providing various details viz. tally and ledgers etc. GSTL had, in the meantime, deposited a sum of ₹ 45 lakhs.

19. Thereafter, petitioner had been summoned on various dates viz. 09/03/2021, 12/03/2021, 17/03/2021, 19/03/2021, 22/03/2021 and 23/03/2021 and barring a day while petitioner had undergone angioplasty, he had attended rest of the dates between 9/03/2021 to 23/03/2021. When petitioner attended the office of respondent no. 2 on 23/03/2021, he was arrested purportedly in exercise of powers under section 69 of the CGST Act imputing commission of offences under sections 132(1)(a),(c),(d) and (f) punishable under clause (i) of section 132(1). On the next day, he was produced before the Magistrate at Belapur seeking remand of petitioner in judicial custody. In Daulat Mehta’s case (supra), the Division Bench has taken stock of bail jurisprudence evolved over the years. The court has also considered that case of P.V.Ramana Reddy is distinguishable, in which pre-arrest bail was involved and in the peculiar circumstances therein, it was refused. The court had considered observations of Supreme Court in its ruling in Arnab Goswami’s case (supra).

20. Perusal of decision by Division Bench of this court in the case of Sunil Kumar jha (supra) would show that in paragraphs 11 and 12, the provisions of section 69 and 132 have been taken into account and it has been observed that in Daulat’s case (supra), this court has analyzed the powers conferred on the Commissioner under section 69. Recording of ‘reasons to believe’ by the Commissioner that a person has committed offence and is required to be arrested is sine qua non for exercising the powers. It has also been observed that not only recording of reasons would be that a person has committed offence as specified, but also that as to why the person needs to be arrested, the court has highlighted that CGST Act is primarily for collection of revenue and arrest is incidental to achieve said objective and the arrest is subject to provisions of the Code of Criminal Procedure, 1973, containing sections 41 and 41A. The court has found that if the amount of tax evaded or ITC wrongly availed or utilized or amount of refund wrongly taken exceeds ₹ 5 Crores, then the sentence is imprisonment for a term which may extend to 5 years and all other sentences are below 5 years. While maximum sentence that can be imposed for commission of offence under section 132(1)(b) and (c) is 5 years with fine, then having regard to the case of Arnesh Kumar (supra), wherein it has been considered that in case where punishment is 7 years or less and if the person complies with the notice under section 41A of Cr.P.C. and continues to comply with the same, he shall not be arrested unless for reasons to be recorded, the police officer is of the opinion that he ought to be arrested. The court in Daulat Mehta’s case (supra) had also taken into account under section 138(1) of CGST Act, any offence is compoundable on payment by accused, and said feature highlights primary concern of the CGST Act is collection of revenue. Further on payment of compounding amount, the proceedings abate.

21. The court, thus, having regard to factual position that the petitioners therein had responded to the summons and attended the dates, in the circumstances found that there could not have been justification to arrest the petitioner. Apart from that the court also found that there had not been any evidence about petitioner’s tampering with the documents or trying to influence the witnesses, observing that mere allegation is not sufficient. The court also went on to consider section 167 and had considered that under said provision a person cannot be kept in detention beyond a total period of 60 days where investigation relates to offence punishable with imprisonment for a term not less than 10 years and that the Magistrate is authorized to detain beyond 15 days period if satisfied that the grounds are made out. However, he would not be able to authorize detention for a total period exceeding 60 days.

22. In the present matter, petitioner has filed an affidavit dated 28.04.2021 that he has already paid an amount of ₹ 45,00,000/- and that he would deposit ₹ 5,00,00,000/- under protest towards the alleged amount of tax evasion to demonstrate bona fides and that it would be subject to, adjudication of the amounts alleged and rights and remedies of the petitioner. Another additional affidavit is filed on 06/05/2021 stating that in addition to aforesaid amount aggregating to ₹ 5.45 Crore, further amount of ₹ 55 Lakh will be deposited. Entire aggregate amount of ₹ 6 Crore would be deposited within a period of fortnight which would be under protest and subject to adjudication.

23. In the circumstances, following order.

O R D E R

(i) Let formal notice be issued to the respondents;

(ii) Petitioner – Mr. Krishna Murari Singh – shall execute a personal bond for an amount of ₹ 50,000/- (Rupees Fifty Thousand Only) before the Jail Superintendent, Taloja Jail;

(iii) The concerned Jail Superintendent is directed to ensure that this order is complied forthwith;

(iv) Upon release, petitioner shall furnish surety of 5,00,000/- (Rupees Five Lakhs Only) in Remand Application No. V/A/BEL/Gr. C (New) /12-198/Global/ 2020-21 before the Judicial Magistrate First Class, Vashi at C.B.D. Belapur.

(v) Within six weeks of his release, petitioner to furnish one solvent surety of the like amount before the said authority;

(vi) Petitioner shall cooperate in the investigation and shall not make any attempt to interfere with the ongoing investigation;

(vii) Petitioner shall not tamper with any evidence or try to influence or intimidate any witness;

(viii) Petitioner shall deposit his passport before the Judicial Magistrate First Class, Vashi at C.B.D. Belapur.

(ix) Parties to act on an authenticated copy of this order.