1 Heard learned counsel appearing for the petitioner and respondent nos.1 and 2.

2 Petition is filed seeking direction to the respondent no.2 to follow the mandatory provisions of Code of Criminal Procedure as contained under Chapter XII of Cr.P.C before taking any further action against the petitioner in connection with CNR NO. MHCC020034062019 / Remand Application No.35/RA/2019. Petition came to be amended in terms of the liberty granted on 3rd April 2019 and the petitioner has sought his release on bail. By the amendment, ground nos.(g) to (l) are also inserted in the petition.

3. By virtue of The Constitution (One Hundred and Twenty Second Amendment) Act, 2014, Service Tax Act was repealed and it was replaced by the Central Goods and Services Tax Act 2017. The provisions of Section 73A of the Service Tax Act and Section 74 of the Central Goods and Services Tax Act are more or less identically worded. Section 132 of the Central Goods and Service Tax Act 2017 prescribes punishment for certain offences and in the present case, we are concerned with clauses (b) and (c) which reads as follows :

(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 to wrongful availment or utilization of input tax credit or refund of tax.

(c) avails input tax credit using such invoice or bill referred to in clause (b).  

Section 132 of the Central Goods and Services Tax Act, 2017 is a provision analogous to Section 91 of the Service Tax Act.

4 As stated above, Section 74 of the Central Goods and Service Tax Act, is in para materia with Section 73A of the Services Tax Act, which inter alia deals with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts. Section 74 sets out the procedure for determination of the tax interest and penalty. The Scheme of Section 74 contemplates issuance of notice on the person chargeable with tax and an opportunity to show cause as to why he should not pay the amount specified in the notice along with interest payable and a penalty specified in the notice. It contemplates issuance of notice atleast six months prior to the time limit specified in subsection (10) for issuance of order.

5. The question raised in the petition is whether without following the mandate contained in Section 74 of the Central Good and Service Tax Act, whether respondent no.4 is empowered to arrest the petitioner when the proceedings under Section 74 have not been culminated in an order and when it is not concluded. This very same issue fell for consideration before the Division Bench of Delhi High Court in Writ Petition (C) 525/2016 & C.M. 2153/2016 in Makemytrip (India) Pvt.Ltd Vs. Union of India & ors. In paragraph no.116, the Delhi High Court summarized its conclusion and we reproduce the same :

(i) The scheme of the provisions of the Finance Act 1994 (FA), do not permit the DGCEI or for that matter the Service Tax Department (ST Department) to bypass the procedure as set out in Section 73A(3) and (4) of the FA before going ahead with the arrest of a person under Sections 90 and 91 of the FA. The power of arrest is to be used with great circumspection and not casually. It is not to be straightway presumed by the DGCEI, without following the procedure under Section 73A(3) and (4) of the FA, that a person has collected service tax and retained such amount without depositing it to the credit of the Central Government.

This decision of the Delhi High Court is confirmed by the Hon’ble Apex Court in Civil Appeal No.8080 of 2018. Even the Division Bench of this Court in Civil Writ Petition No.1088 of 2018 in Cleartrip Private Ltd, Mumbai & Ors Vs. The Union of India has taken a similar view and made the following observations in paragraph no.16.

“16 We are clear in our minds and from the scheme of the Act and the Law as a whole that coercive measures, including effecting any arrest, would arise only when investigation has been completed and on launching the prosecution. If the prosecution is a criminal prosecution, then, there is no question of deviating or defeating from the Criminal Law. The Criminal Law contains several provisions including protective measures, which would enable the Petitioners to resist any arrest, as apprehended. In the scheme of the Criminal Law and particularly the Finance Act, 1994 as well, if it contains any penal provisions, it is not as merely because the investigations are underway that the arrest would be effected. Eventually, all that the respondents are presently contemplating is to investigate the matter.

The petitioners do not dispute the right to investigate and in accordance with law. That they have already attended the offices of the concerned respondents and once the statement of the Petitioners was recorded goes without saying that on further summons being issued and on called upon to attend the Officers of the Respondents, they will attend and cooperate in these investigations by producing all the documents and answering the requisite queries, subject, of course, to their rights in law. It is only when these investigations conclude that the authorities would be in a position to take a decision whether to launch any prosecution. In such a prosecution as well, if the provisions of the Criminal Law, which enable arrest in cases of cognizable offences and non-bailable, that the petitioners can have an apprehension and which also can be taken care of by approaching a competent Criminal Court. Secondly, there is no question of any recovery of tax by coercive means, unless the investigation results into issuance of a show cause notice, an opportunity to the petitioner to resist the demand, a adjudication thereof by a reasoned order and protective remedies such as appeals. We do not think that any recovery by coercive measures is straightway permissible and particularly in the given facts and circumstances of the case.

6. The argument of learned counsel for the petitioner will have to be considered in light of the proposition stated herein above. In our prima facie opinion, arguable case is made out and therefore, we grant Rule.

7. By way of interim relief, petition seeks petitioner’s release on bail. We find that petitioner was arrested on 21st February 2019. As of today, 57 days are over since his arrest and otherwise also, in view of the provisions of Section 167(2) of the Code of Criminal Procedure, he will be entitled to be released on default bail after completion of 60 days if the charge-sheet is not filed. The learned counsel for the respondent no.2 is not in a position to make any positive statement in this regard whether the charge-sheet would be filed in next three days. In such circumstances, we are of the opinion that the petitioner is entitled to be released on bail.

8 We, therefore, direct the petitioner to be released on bail in CNR NO. MHCC020034062019 in the sum of ₹ 50,000/with one surety in like amount on the condition to report to the office of respondent no.2 on every alternate day or as and when summoned for the purpose of investigation by the said authority. He would also render full assistance and cooperation in the process of investigation.

9. The applicant may deposit cash of ₹ 50,000/in lieu of surety as a temporary measure. However, this concession shall be available only for a period of four weeks within which period the applicant shall furnish a surety for the bail amount.

10. The bail bonds be executed before the Addl.Chief Metropolitan Magistrate’s 8th Court, Esplanade, Mumbai. Application is allowed in the aforesaid terms.

All concerned to act on an authenticated copy of this order.