DHRUV KRISHAN MAGGU Vs UNION OF INDIA & ORS.
WPs (C) 5454/2020 & 10130/2020 Page 1 of 29
$~
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ W.P. (C) 5454/2020
DHRUV KRISHAN MAGGU ….. Petitioner
Through: Mr. Jagmohan Bans al, Advocate with
Mr. Akhil Krishan Maggu,
Advocate.
versus
UNION OF INDIA & ORS. …… Respondents
Through: Mr. S.V. Raju, ASG with Mr. Ravi
Prakash, Mr. Aditya Shekhar,
Mr. Shahan Ulla, Mr. Farman Ali,
Mr. Guntur Pramod Kumar, Mr. Annam
Venkatesh, Ms. Sairica S. Raju,
Mr. Shaurya R Rai, Ms. Zeal Shah,
Advocates for R-4/DGGI.
Mr. Chetan Sharma, ASG with
Mr. Akshay Gadeock and Mr. Sahaj
Garg, Advocates for UOI.
AND
+ W.P.(C) 1013 0/2020
K P AND SONS & ORS. ….. Petitioner s
Through: Mr. J.K Mittal, Advocate.
versus
UNION OF INDIA & ORS. ….. Respondents
Through: Mr. S.V. Raju, Ld. ASG with
Mr. Ravi Prakash, Mr. Aditya Shekhar,
Mr. Shahan Ulla, Mr. Farman Ali,
Mr. Guntur Pramod Kumar, Mr. Annam
Venkatesh, Ms. Sairica S. Raju,
Mr. Shaurya R Rai, Ms. Zeal Shah,
Advocates for R -3.
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 2 of 29
Reserved on : 21st December , 2020
% Date of Decision: 08th January, 2021
CORAM:
HON’BLE MR. JUSTICE MANMOHAN
HON’BLE MR. JUSTICE SANJEEV NARULA
J U D G M E N T
MANMOHAN , J:
CM No. 28105 /2020 in WP(C) 5454/2020
CM No. 32276 /2020 in WP (C) 10130/2020
1. While the CM No. 32276/2020 has been filed b y the Petitioner in
W.P.(C.) No. 10130/2020 seeking interim protection , CM No. 28105 /2020 has
been filed by Respondent nos. 2 and 3 in W .P.(C.) No. 5454/2020 seeking
vacation of interim protection granted vide order dated 20th August, 2020 .
2. It is pertinen t to point out that w hen W.P.(C.) No. 5454/2020 was listed
before this Court for the first time on 20th August, 2020 , Mr. Chetan Sharma,
learned Additional Solicitor General had fairly stated that in a similar matter
the Supreme Court had directed that no coercive action be taken against the
petitioner therein . On the basis of the said statement, this Court had granted
interim protection to the petitioner . The relevant portion of the order dated 20th
August, 2020 passed by this Court in W .P.(C.) No. 5454/20 20 is reproduced
hereinbelow: –
“Present writ petition has been filed seeking a declaration that
Sections 69 and 132 of the CGST Act, 2017 are arbitrary,
unreasonable and being beyond the legislative competence of the
Parliament are ultra vires the Constitu tion.
xxxx xxxx xxxx xxxx
Mr.Chetan Sharma, learned ASG candidly states that the Supreme
Court in a similar case being W.P.(Crl.) No.184/2020 has issued
notice and directed that no coercive action be taken against the
petitioner therein.
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 3 of 29
Keeping in vi ew the aforesaid order, it is directed that, till further
orders, bail of the petitioner shall not be cancelled in the present
case.”
3. Subsequently upon an application being filed by the respondents for
vacation of the interim protection on the ground that the interim order in
W.P.(Crl.) No. 184/2020 had been vacated by the Supreme Court vide order
dated 31st August, 2020 , this Court had issued notice vide order dated 06th
November, 2020 .
4. This Court vide this order is deciding the common issue s pertaining to
interim protection in both the applications in the respective writ petitions .
5. Further, CM No. 344/2021 in W.P.(C.) No. 10130/2020 was filed by the
Petitioner seeking permission to bring on record the rejoinder to the counter –
affidavit filed by Responde nt Nos. 2 and 3 in the interim application being CM
No. 32276/2020. The aforementioned application was allowed vide order dated
06.01.2021 and the matter was re-heard in light of the rejoinder filed.
ARGUMENTS ON BEHALF OF THE PETITIONERS
6. Mr. Jagmohan Bansal and Mr. J.K. Mittal learned counsel for the
Petitioners submit ted that Sections 69 and 132 of the Central Goods and
Services Tax Act, 2017 (for short ‘CGST Act ’) are unconstitutional as being
provisions of criminal nature, they could not have been e nacted under Ar ticle
246A of the Constitution of India, 1950 . They emphasized that the power to
arrest and prosecute are not ancillary and/or incidental to the power to levy and
collect goods and services tax.
7. They further submitted that since power to l evy Goods and Services Tax
is provided under Article 246A, power in relation thereto could not be traced to
Article 246 or any of entries in Seventh Schedule .
8. In the alternative, t hey submit ted that Entry 93 of List 1 confers
jurisdiction upon the Parliam ent to make criminal laws only with respect to
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 4 of 29
matters in List 1 and not CGST . Therefore, according to them, Sections 69 and
132 are beyond the legislative competence of the Parliament .
9. They also submit ted that the procedure prescribed under the CGST Act
is not just, fair and reasonable . They stated that there had been many cases
where an assessee had been arrested at initial stage of investigation but the
department had subsequently failed to establish its case in adjudication
proceedings and in the proces s, the assessee had suffered irreparable loss on
account of arrest. They emphasized that in the present cases no Show Cause
Notice had been issued to the Petitioners either under Section 73 or Section 74
of the CGST Act by the Respondents for any unpaid ta x, short paid tax, or
erroneous refunds or where input tax credit had been wrongly availed or
utilized.
10. They stated that the Respondents have erroneously claimed that since
they are not the police officers and CGST Act is a special act containing
provisio ns for arrest, search and seizure etc, Respondents are not bound by
Chapter XII or any provision of the Code of Criminal Procedure , 1973 (for
short ‘ Cr.P.C .’) governing commencement of investigation, maintaining case
diary, etc. They submitted that despite the CGST officers being vested with
powers of police officers as well as those of a c ivil court while investigating an
offence, still the proceedings are termed as an ‘inquiry’ and the person
summoned is not an ‘accused’. They pointed out that as CGST off icers are not
police officers, no protection under Article 20(3) is available to the summoned
persons – thereby causing them immense prejudice.
11. Learned counsel for Petitioners also contended that the Apex Court in a
number of cases , where investigation was being conducted under CGST Act,
has ordered that no coercive steps be taken against the assessee. In suppo rt of
their contention , they relied upon the orders passed by the Apex Court in W.P.
(Criminal) No. 221/2020, Shyam Khemani Vs. State of M.P. & Ors. , dated
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 5 of 29
31st August, 2020; W.P. (Criminal) No. 118/2019, Mukesh Manackchand
Kothari Vs. Union of India & Anr., dated 26th April, 2019; W.P. (Criminal)
212/2019, Gaj Raj Singh Baid Vs. Union of India & Anr. dated 09th August,
2019; W.P. (Criminal) No. 336/2 018, Radhika Agarwal Vs. Union of India &
Ors., dated 08th January, 2019; and W.P. (Criminal) No. 267/2019, Namrata
Jain & Anr., dated 30th September, 2019 .
12. Mr. J.K. Mittal, learned counsel for the Petition er in WP(C) No.
10130/2020 prayed for a declarat ion that Central Tax Officers have no
jurisdiction over petitioner No.1 in the said petition as the jurisdiction had been
assigned to the State Tax officers in view of the decisions taken by the Goods
and Services Tax Council vide Circular dated 20th Septe mber, 201 7. He relied
upon the Circular at pages 97 and 98 of the paper book in W.P.(C.) No.
10130/2020 to contend that the jurisdiction to investigate in the said case vests
with the State, Delhi Zone, Zone -2 Ward -16.
13. He also pointed out that vide Notific ation dated 19th June, 2017 issued
by Respondent No.1 (in W .P.(C) No. 10130/2020 ), the jurisdictional
Commissionerate for petitioner No.1 had been specified as Delhi North
Commissionerate and not Delhi East Commissionerate.
ARGUMENTS ON BEHALF OF THE RESP ONDENTS
14. Per contra , Mr. S.V. Raju, l earned ASG for the Respondents submitted
that Article 246A contains special provisions for making laws with respect to
goods and services tax. According to him, Sections 69 and 132 are in respect of
goods and services t ax and the power to legislate on this subject is conferred by
Article 246A . He emphasized that Article 246A contains the subject matter as
well as the distribution of powers between the Parliament and the State
legislatures. Therefore, he submitted that i t was not necessary to ascertain the
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 6 of 29
source of power to enact the offences under the CGST Act within any of the
legislative entries in the seventh schedule .
15. In the alternative, he submitted that Article 246 distributes the law –
making power between the Parl iament and the State Legislatures. He further
submitted that Article 246 does not enumerate the subject matter of the laws to
be made by Parli ament or the State Legislatures as the same have been
enumer ated in the three lists in the S eventh Schedule . He also submitted that
the expression „make laws‟ in Article 246 pr ovide s plenary powers of
legislation to the Parliament and the State Legislatures includes the power to
make laws with respect to offences with regard to the subject matters. In
supp ort of his s ubmission, he relied upon the judgment of the Supreme Court
in UOI v. Mohit Minerals, (2019) 2 SCC 599 .
16. Learned ASG submitted that if the power to enact Sections 69 and 132
of the CGST Act is not provided by Article 246A of the Constitution of India,
then the said power to legislate would be deemed to have been conferred upon
the Parliament by virtue of Entries 1 and 2 of List III read with Article 246(2) .
He pointed out that parliament’s power to make offences is not limited to Entry
93 of List I as othe rwise no offences can be provided in enactments made
under the concurrent list.
17. Learned ASG further submitted that CGST Act is a special enactment
and in the absence of a specific provision to the contrary in the said Act,
general provisions as laid down i n the Cr.P. C. have to be followed. In support
of his submission , he relied upon the judgment of the Supreme Court in
Directorate of Enforcement vs. Deepak Mahajan, (1994) 3 SCC 440 .
18. He pointed out that upon grant of sanction , a criminal complaint is filed
by a CGST officer before the Judicial Magistrate by following general criminal
procedure under the Cr.P.C. He emphasised that under Cr .P.C. there is no
provision regarding the manner of, format or the person eligible to make a
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 7 of 29
complaint. According to him, the absence of a provision for making a
complaint under the CGST Act cannot be a ground for challenging the vires of
Sections 69 and 132 of the CGST Act.
19. He also stated that under Section 190 of the Cr .P.C, a magistrate is
competent to take cognizance of a n offence on a complaint or a police report or
upon any information regarding commission of an offence. He submitted that if
the Cr .P.C. does not restrict the power of a magistrate to take cognizance of an
offence, there is no reason why the impugned provi sions can be held ultra vires
for not providing a specific manner for lodging of complaints.
20. He stated that a person under the CGST Act can only be arrested , if the
amount of tax evasion is more than Rs. 2 crores. He further stated that all
offences wherei n tax evasion is less than Rs. 5 crores are bailable and only
grave offences involving tax evasion of Rs. 5 crores and above are non -bailable
and cognizable.
21. Learned ASG stated that the issue of jurisdiction raised by the Petitioner
in WP(C) 10130/2020 was contrary to facts and untenable in law. He submitted
that under Section 6(2) of the CGST Act, proper officers of the Central tax are
authorized to conduct proceedings under the Act if parallel proceedings had not
been initiated by the officers of the Stat e tax or Union Territory tax.
22. He pointed out that as the petitioner in WP(C) No.10130/2020 was
situated within the jurisdiction of CGST – Delhi North, the Additional
Commissioner, CGST -Delhi East had requested his counterpart in CGST -Delhi
North to depute an office r from CGST -Delhi North to conduct the search at the
said premises along with the officers of CGST -Delhi East. He emphasized that
the search warrant dated 23rd November, 2020 was issued by the Additional
Commissioner, CGST -Delhi North vide DIN No : 20201151ZI000041414B in
the name of Inspector of CGST -Delhi North to search the registered office
premises of the petitioner at Shop No. 313, 3rd Floor, 1170, Kucha Mahajani,
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 8 of 29
Chandani Chowk, Delhi -110006 on 23rd November, 2020. The said warrant
was also served on the petitioner at the time of search. Therefore, according to
him, the claim of the petitioner in WP(C) No.10130/2020 that the searches
were conducted by non -jurisdictional officers was completely false.
23. He emphasized that the present cases invol ve several non -functional and
bogus firms that ha d fraudulently avail ed IGST refunds and/or ITC credits and
had caused substantial loss to the Union of India. He stated that as per the
investigation conducted till date, the fraudulent IGST refund was more than
Rs.63 crores in the case of WP(C) 5454/2020 and the fraudulent ITC claimed
in the case of WP(C) 10130/2020 was more tha n Rs 6.35 crores. He further
stated that in W.P.(C) 10130/2020 , the investigation has revealed that the
petitioner therein has raise d sale invoices of Rs. 211.89 crores while having
stock worth only Rs. 2.95 crores, which indicates tha t the petitioner has been
indulging in circular trading by raising fraudulent invoices. In view of the said
facts, he prayed that no interim protection be granted to the Petitioners .
REJOINDER SUBMISSIONS IN W.P.(C) 10130/2020
24. Mr. J.K. Mittal, the learned counsel for the Petitioner argued that it is an
admitted fact that the Petitioner fell within the territorial jurisdiction of the
CGST -Delhi North and that the officers from CGST -Delhi East could not
exercise jurisdiction over the Petitioner’s premises. Mr. Mittal urge d that when
the search authorization wa s issued by CGST -Delhi North to an officer of that
division, it w as not permissible for an officer belonging to CGST -Delhi East to
conduct the actual search at the premises of the Petitioner, that too in the
absence of any officer from the CGS T-Delhi North. Furthermore, it wa s
contended by Mr. Mittal that while the search authorization was only for the
office premises of the Petitioner, the officers from CGST -Delhi East ha d
conducted search at the residential premises as well. This, per Mr. Mittal wa s
patently illegal and malafide.
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 9 of 29
25. On a slightly different note, Mr. Mittal also pressed the argument th at
the Petitioner ha d been assigned to the State Tax Officers as per Circular No.
01/2017 dated 20th September, 2017 is sued by the GST Council, which wa s to
say that Central Tax Officers did not have the requisite jurisdiction to
investigate the Petitioner .
SUR REJOINDER BY RESPONDENTS
26. In sur rejoinder , Mr. S.V. Raju, the learned ASG argued that there was
no dispute regarding the fact that the search authorization dated 23rd
November, 2020 for the Petitioner’s premises was issued by the Additional
Commiss ioner, CGST -Delhi North. He explained that as the address of the
Petitioner fe ll under the jurisdiction of CGST -Delhi North therefore,
Additional Commissioner, CGST -Delhi East vide letter dated 22nd November,
2020 requested Additional Commissioner, CGST -Delhi North to issue a search
authorisation under section 67(2) of the CGST Act, 2017 and to depute an
inspector of CGST -Delhi North for the purpose of search at the said address.
The Additional Commissioner CGST -Delhi North issued search authorisation
dated 23rd November, 2020 under section 67(2) of the CGST Act, 2017, i n the
name of the Inspector of COST -Delhi North to accompany the team of COST –
Delhi East officers for search . He stated that this is the norm in cases where
search is to be conducted in other jurisdictions. Further, the learned ASG drew
our attention to page 78 of the writ petition which indicates that both CGST –
Delhi and CGST -North come under the command of the Principal Chief
Commissioner Delhi. Therefore, he submitted that it did not matter as to which
division issued the search authorization as no prejudice had been caused to the
Petitioner.
27. The second argument put forth by Mr. Mittal was countered by the
learned ASG on the ground that there was in fact, cross -empowerment of the
GST office rs in accordance with the Circular No. 01/2017 dated 20th
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 10 of 29
September, 2017. Pursuant to the aforementioned circular, the Central Board of
Excise and Customs issued a notification being No. 39/2017 – Central Tax dated
13th October, 2017 which cross -empowers S tate and Union Territory GST
officers to act as proper officers for the purpose of refund under CGST Act,
2017. This position was clarified by letter no. F. No. CBEC -20/10/07/2019 –
GST dated 22nd June, 2020 issued by the Central Board of Excise and Customs
wherein it was stated that no separate notification would be needed to cross –
empower State Tax and Central Tax officers with regard to intelligence -based
enforcement actions. Therefore, the learned ASG stated that the Central Tax
Officers are fully empower ed to conduct intelligence -based enforcement action
against taxpayers assigned to State tax administration under Section 6 of the
CGST Act, 2017 and the corresponding provisions of the SGST/UTGST Acts.
28. Lastly, it was contended by the learned ASG that thes e issues would not
be relevant at the stage of the present interim application as the application is
regarding interim protection from arrest.
COURT‟S REASONING
THERE IS ALWAYS A PRESUMPTION IN FAVOUR OF
CONSTITUTIONALITY OF AN ENACTMENT OR ANY PART THE REOF
AND THE BURDEN TO SHOW THAT THERE HAS BEEN A CLEAR
TRANSGRESSION OF CONSTITUTIONAL PRINCIPLES IS UPON THE
PERSON WHO IMPUGNS SUCH AN ENACTMENT. FURTHER, LAWS ARE
NOT TO BE DECLARED UNCONSTITUTIONAL ON THE FANCIFUL
THEORY THAT POWER WOULD BE EXERCISED IN AN UNREALISTIC
FASHION OR IN A VACUUM OR ON THE GROUND THAT THERE IS A
REMOTE POSSIBILITY OF ABUSE OF POWER.
29. Having heard the learned counsel for the parties and having perused the
material on record, including the counter -affidavit dated 22nd Decembe r, 2020
filed by Respondent no s.2 and 3 in WP(C) 10130/2020, thi s Court is of the
opinion that the principles for adjudicating the constitutionality of an
enactment or any part thereof are well settled.
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 11 of 29
30. There is always a presumption in favour of constitu tionality of an
enactment or any part thereof and the burden to show that there has been a
clear transgression of constitutional principles is upon the person who impugns
such an enactment. Also, whenever constitutionality of a provision is
challenged on t he ground that it infringes a fundamental right, the direct and
inevitable effect/ consequence of the legislation has to be taken into account.
The Supreme Court in Namit Sharma vs. Union of India, (2013) 1 SCC 745
has held as under: –
20. Dealing with the matter of closure of slaughterhouses in Hinsa
Virodhak Sangh v. Mirzapur Moti Kuresh Jamat [(2008) 5 SCC 33] ,
the Court while noticing its earlier judgment Govt. of A.P. v. P. Laxmi
Devi [(2008) 4 SCC 720] , introduced a rule for exercise of such
jurisdi ction by the courts stating that the court should exercise
judicial restraint while judging the constitutional validity of the
statute or even that of a delegated legislation and it is only when
there is clear violation of a constitutional provision beyond
reasonable doubt that the court should declare a provision to be
unconstitutional …..”
(emphasis supplied)
31. Further, laws are not to be declared unconstitutional on the fanciful
theory that power would be exercised in an unrealistic fashion or in a vacuum
or on the ground that there is a remote possibility of abuse of power. In fact, it
must be presumed, unless the contrary is proved, that administration and
application of a particular law would be done “not with an evil eye and
unequal hand” . The Supreme Court in Maganlal Chhagganlal (P) Ltd. Vs.
Municipal Corporation of Greater Bombay & Ors., (1975) 1 SCR 1 has held
as under: –
“The statute itself in the two classes of cases before us clearly lays
down the purpose behind them, that is that premises belong ing to the
Corporation and the Government should be subject to speedy
procedure in the matter of evicting unauthorized persons occupying
them. This is a sufficient guidance for the authorities on whom the
power has been conferred . With such an indication c learly given in the
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 12 of 29
statutes one expects the officers concerned to avail themselves of the
procedures prescribed by the Acts and not resort to the dilatory
procedure of the ordinary civil court. Even normally one cannot
imagine an officer having the choice of two procedures, one which
enables him to get possession of the property quickly and the other
which would be a prolonged one, to resort to the latter. Administrative
officers, no less than the courts, do not function in a vacuum. It
would be extremely unreal to hold that an administrative officer
would in taking proceedings for eviction of unauthorised occupants
of Government property or Municipal property resort to the
procedure prescribed by the two Acts in one case and to the ordinary
civil court in the other. The provisions of these two Acts cannot be
struck down on the fanciful theory that power would be exercised in
such an unrealistic fashion. In considering whether the officers
would be discriminating between one set of persons and another, one
has got to take into account normal human behaviour and not
behaviour which is abnormal. It is not every fancied possibility of
discrimination but the real risk of discrimination that we must take
into account. This is not one of those cases where discrimin ation is
writ large on the face of the statute. Discrimination may be possible
but is very improbable. And if there is discrimination in actual
practice this Court is not powerless. Furthermore, the fact that the
Legislature considered that the ordinary pr ocedure is insufficient or
ineffective in evicting unauthorised occupants of Government and
Corporation property and provided a special speedy procedure
therefore is a clear guidance for the authorities charged with the duty
of evicting unauthorised occupa nts. We, therefore, find ourselves
unable to agree with the majority in the Northern India Caterers
case.”
(emphasis supplied)
THE GOODS AND SERVICE TAX IS A UNIQUE TAX, INASMUCH AS THE
POWER AS WELL AS FIELD OF LEGISLATION ARE TO BE FOUND IN A
SINGLE AR TICLE, I.E., ARTICLE 246A. THE SCOPE OF ARTICLE 246A IS
SIGNIFICANTLY WIDE AS IT GRANTS THE POWER TO MAKE ALL LAWS
„WITH RESPECT TO‟ GOODS AND SERVICE TAX.
32. This Court is of the prima facie opinion that the Goods and Service Tax
is a unique tax, inasmuch as the power as well as field of legislation are to be
found in a single Article, i.e., Article 246A . Further, t he scope of Article 246A
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 13 of 29
is significantly wide as it not only empowers both Parliament and State
Legislatures to levy and/or enact GST Act, but it also grants the power to make
all laws ‘with respect to ‟ Goods and Service Tax.
33. It is settled law that unless the Constitution itself expressly prohibits
legislation on the subject either absolutely or conditionally, the power of a
Legislature to enact legislation within its legislative competence is plenary.
Also , the words /expression in a constitutional enactment conferring legislative
power have to be construed as words of widest amplitude, content and
therefore the most liberal construction has to be placed upon the m.
34. In fact, the power of arrest conferred by Section 69 of the Act is not a
general power of arrest , but is restricted to certain offences which are specified
under Section 69 of the Act namely some of the offences covered under
Section 1 32 of the Act and the offences so specified are all offences relating to
goods and service tax. Consequently, this Court is of the prima facie view that
the expression „with respect to‟ goods and service s tax used in Article 246A ,
being a constitutional pr ovision , must be given its widest amplitude and would
include the power to enact criminal law with regard to goods and services tax .
35. There is also no conflict between the operation of Article 246A and
Article 246 as a non -obstante clause has been added to Article 246A to clarify
that both Parliament and the State Legislatures have simultaneous powers in
relation to Goods and Services Tax . Accordingly, this power has to be liberally
construed empowering the Parliament to make laws with respect to goods and
services tax and it remains unaffected by the distribution of legislative power
as provided in Articles 246 & 254. (See Skill Lotto Solutions Pvt. Ltd. v. UOI,
W.P.(C) No. 961/2018 dated 3rd December, 2020) .
THIS COURT IS OF THE PRIMA FACIE OPINION THAT THE PITH AND
SUBSTANCE OF THE CGST ACT IS ON A TOPIC, UPON WHICH THE
PARLIAMENT HAS POWER TO LEGISLATE AS THE POWER TO ARREST
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 14 of 29
AND PROSECUTE ARE ANCILLARY AND/OR INCIDENTAL TO THE
POWER TO LEVY AND COLLECT GOODS AND SERVICES TAX.
36. It is equally w ell settl ed that w hen a law is challenged on the ground of
being ultra vires to the powers of the legislature, the true character of the
legislation as a whole has to be ascertained. This Court is of the view that w hen
a law dealing with a subject in one list is al so touching on a subject in another
list, what has to be ascertained is the pith and substance of the enactment – the
true object of legislation. If, on examination of the statute, it is found that the
legislation is in substance on a matter assigned to th e legislature enacting that
statute, then it must be held valid, in its entirety even though it may trench
upon matters beyond its competence. Incidental encroachment is not
prohibited. “The question must be asked,” said Lord Porter in Prafulla Kumar
Vs. B ank of Commerce, AIR 1947 PC 60 “what in pith and substance is the
effect of the enactment of which complaint is made.” In ascertaining the
substance of the impugned legislation, one must have regard to the enactment
as a whole, to its object and to the sc ope and effect of its provisions.
37. The justification of the doctrine of pith and substance is that in a federal
Constitution, it is not possible to make a clear -cut distinction between the
powers of the Union and the State Legislatures. There is bound to b e an
overlap and in all such cases, it is but reasonable to ask what in whole is the
object or purpose of the law. A str ict interpretation would result in a large
number of statutes being declared invalid on the ground of overlapping. If the
legislature is to have the full scope to exercise the powers granted to it, it is
necessary to assume that the Constitution does not prevent a legislature from
dealing with a matter which may incidentally affect any matter in the domain
of the other legislature . Gwyer , C.J. in Subramanyan Chettiar v. Muttuswami
Goundan [1940] F.C.R. 188 in explaining the validity of the doctrine of pith
and substance said:
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 15 of 29
“It must inevitably happen from time to time that legislatio n though
purporting to deal with a subject in one List, touches also upon a
subject in another list, and the different provisions of the enactment
may be so closely intertwined that blind adherence to a strictly verbal
interpretation would result in a larg e number of statutes being
declared invalid because the legislature enacting them may appear to
have legislated in a forbidden sphere. ”
38. Consequently, this Court is of the prima facie opinion that the pith and
substance of the CGST Act is on a topic, upon which the Par liament has power
to legislate as the power to arrest and prosecute are ancillary and/or incidental
to the power to levy and collect Goods and Services T ax.
EVEN IF IT IS ASSUMED THAT POWER TO MAKE OFFENCE IN
RELATION TO EVASION OF GOODS A ND SERVICE TAX IS NOT TO BE
FOUND UNDER ARTICLE 246A, THEN, THE SAME CAN BE TRACED
TO ENTRY 1 OF LIST III. THE TERM „ CRIMINAL LAW‟ USED IN THE
AFORESAID ENTRY IS SIGNIFICANTLY WIDE AND INCLUDES ALL
CRIMINAL LAWS EXCEPT THE EXCLUSIONS.
39. This Court is of the prima facie opinion that e ven if it is assumed that
power to make offence in relation to evasion of goods and service tax is not to
be found under Article 246A, the n, the same can be traced to Entry 1 of List
III. The term „Criminal Law‟ used in the afore said entry is significantly wide
and includes all criminal laws except the exclusions i.e. laws made with respec t
to matters in List II .
40. The Supreme Court in Kartar Singh v. State of Punjab, (1994) 3
SCC 569 has emphasized that the language used in the aforesaid entry is
couched in very wide terms and the scope of the term ‘criminal law’ has been
enlarged to include any matter that could be criminal in nature . The Supreme
Court held that the exercise of power under this entry has to be construed
liberally so as to give full play to the legislative intent. The relevant portion of
the said judgment is reproduced hereinbelow: –
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 16 of 29
“445. From the language used it is apparent that the entry is couched
in very wide terms. The words following the expression „criminal law‟
enlarge the scope to any matter which can validly be considered to be
criminal in nature. The exercise of power under this entry, therefore,
has to be construed liberally so as to give full play to the legislative
activity. The width of the entry, ho wever, is controlled by the latter
expression which takes away the power of either legislature to
legislate in respect of offences against laws with respect to any of the
matters specified in List I or List II. Since this part restricts and
narrows the amb it of the entry it has to be construed strictly. Since
under the federal structure the law made by the Parliament has
supremacy (See Union of India v. H.S. Dhillon [(1971) 2 SCC 779 :
AIR 1972 SC 1061] ) any enactment made in exercise of power under
entry in Concurrent List shall have overriding effect subject to
restrictions that may be spelt out from the entry itself. A legislation by
Union Parliament to be valid under this entry must satisfy two
requirements; one, that it must relate to criminal law and the offence
should not be such as has been or could be provided against laws with
respect to any of the matters specified in List II. What is a criminal
law? Any Act or rule dealing with crime, “(The) criminal justice
system is a firmly societal defensive reaction to intolerable behavior.
From the beginning it was considered as a tool designed to protect an
established order of values attuned to the political organisation of the
community. Transgression of some important norms reflecting these
values was se en as a crime and, as such, demanded punishment.”
446. What is a crime in a given society at a particular time has a wide
connotation as the concept of crime keeps on changing with change in
political, economic and social set -up of the country. Various
legislations dealing with economic offences or offences dealing with
violation of industrial activity or breach of taxing provision are ample
proof of it. The Constitution -makers foresaw the eventuality, therefore
they conferred such powers both on Central a nd State Legislatures to
make laws in this regard. Such right includes power to define a crime
and provide for its punishment. Use of the expression, “including all
matters included in the Penal Code, 1860 at the commencement of the
Constitution” is unequi vocal indication of comprehensive nature of
this entry. It further empowers the legislature to make laws not only in
respect of matters covered by the Penal Code, 1860 but any other
matter which could reasonably and justifiably be considered to be
criminal in nature. …”
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 17 of 29
41. Accordingly, this Court is of the prima facie opinion that even if
Section s 69 and 132 of the Act could not have been enacted in pursuance to
power under Article 246A, they could have been enacted under E ntry 1 of List
III, as laying down of a crime and providing for its punishment is „criminal
law‟. Consequently, this Court is of the prima facie view that in either option
both Sections 69 and 132 of the Act are constitutional and fall within the
legislative competence of Parliament.
THIS COURT, AT THE INTERIM STAGE, CANNOT IGNORE THE VIEW IS
TAKEN BY THE GUJARAT HIGH COURT WITH REGARD TO
APPLICATION OF CHAPTER XII CR.P.C. TO THE CGST ACT .
42. As far as the issue of application of Chapter XII of the Cr.P.C. to the
CGST Act is concerned the G ujarat High Court in Vimal Yashwantgiri
Goswami Vs. State Of Gujarat, R/Special Civil Application No. 13679 of
2019 , has recently held as under: –
“(3) Q. (i) Whether the provisions of sections 154, 155(1), 155(2),
155(3), 157, 172 of the Code of Criminal Procedure, 1973 are
applicable or should be made applicable for the purpose of invoking
the power to arrest under section 69 of the CGST Act? In other words,
whether the authorised officer can arrest a person alleged to have
committed non cognizable and ba ilable offences without a warrant of
arrest issued by the Magistrate under the provisions of the Code of
Criminal Procedure, 1973?
xxxx xxxx xxxx xxxx
(ii)When any person is arrested by the authorised officer, in exercise of
his powers under Section 69 of the CGST Act, the authorised officer
effecting the arrest is not obliged in law to comply with the provisions
of Sections 154 to 157 of the Code of Criminal Procedure, 1973. The
authorised officer, after arresting such person, has to inform that
person of the grounds for such arrest, and the person arrested will
have to be taken to a Magistrate without unnecessary delay, if the
offences are cognizable and non bailable. However, the provisions of
Sections 154 to 157 of the Code will have no application a t that point
of time. Otherwise, sub -section (3) of section 69 provides for granting
bail as the provision does not confer upon the GST officers, the powers
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 18 of 29
of the officer in charge of a police station in respect of the
investigation and report. Instead of defining the power to grant bail in
detail, saying as to what they should do or what they should not do, the
short and expedient way of referring to the powers of another officer
when placed in somewhat similar circumstances, has been adopted. By
its lang uage, the sub -section (3) does not equate the officers of the
GST with an officer in charge of a police station, nor does it make him
one by implication. It only, therefore, means that he has got the powers
as defined in the Code of Criminal Procedure for the purpose of
releasing such person on bail or otherwise. This does not necessarily
mean that a person alleged to have committed a non cognizable and
bailable offence cannot be arrested without a warrant issued by the
Magistrate.
(iii)The authorised off icer exercising power to arrest under section 69
of the CGST Act, is not a Police Officer and, therefore, is not obliged
in law to register FIR against the person arrested in respect of an
offence under Sections 132 of the CGST Act.
(iv) The decision of t he Supreme Court in the case of Om Prakash
(supra) has no bearing in the case on hand.
(v) An authorised Officer is a ‘proper officer’ for the purposes of the
CGST Act. As the authorised Officers are not Police Officers, the
statements made before them i n the course of inquiry are not
inadmissible under Section 25 of the Evidence Act.
(vi)The power to arrest a person by an authorised Officer is statutory
in character and should not be interfered with. Section 69 of the CGST
Act does not contemplate any M agisterial intervention.
(vii) The main thrust of the decision in the case of Om Prakash (supra)
to ascertain whether the offence was bailable or non -bailable, was on
the point that the offence being noncognizable, it had to be bailable. In
other words, O m Prakash (supra) deals with the question, “whether
the offences under the Customs Act, 1962, and the Central Excise Act,
1944, are bailable or not?” However, provisions of the subsections (2)
and (3) of the Section 69 of the CGST Act, provides in built me chanism
and procedure in case of arrest for non -bailable offences and bailable
offences.”
43. Further, a Coordinate Bench of this Court in a similar matter being
Gautam Khaitan vs. Union of India & Anr. WP(C) 2658/2018 , vide order
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 19 of 29
dated 30th October, 2019, has adjourned the matter sine die without any interim
order as the said issue is pending consideration before the Supreme Court. The
order of this Co urt in Gautam Khaitan (supra) is reproduced hereinbelow: –
“Counsel appearing for both the sides jointly submi t that the issue
involved in this writ petition is also pending before the Hon’ble
Supreme Court in several matters. One of such matter is Crl.
Miscellaneous Petition Nos. 168 -169/2014; hence, this writ petition is
adjourned sine die.”
44. Consequently, this Court at the interim stage , cannot ignore that another
High court has taken a view contrary to the contention raised by the Petitioner.
At this interim stage, therefore, we cannot ignore the view of the Gujarat High
Court .
IN VIEW OF THE SUPREME COURT J UDGMENT IN DIRECTORATE OF
ENFORCEMENT VS. DEEPAK MAHAJAN (SUPRA) AND THE AFORESAID
GUJARAT HIGH COURT JUDGMENT , THE ARGUMENT S THAT
PREJUDICE IS CAUSED TO THE PETITIONERS AS THEY ARE NOT ABLE
TO AVAIL PROTECTION UNDER ARTICLE 20(3) OF THE CONSTITUTION
AND/O R THE PROVISIONS OF CR. P.C. DO NOT APPLY EVEN WHEN
CGST ACT IS SILENT, ARE UNTENABLE IN LAW.
45. It is relevant to note that when any person is arrested under Section
132(5) of the CGST Act, the said person has to be informed of the grounds of
arrest and mus t necessarily be produced before a Magistrate under Section 69
(2) within a period of twenty -four hours. This ensures judicial scrutiny over the
acts of executive and it cannot be termed as unreasonable and/or excessive , as
sought to be contended by the pe titioners .
46. Further, t he argument that prejudice is caused to the Petitioners as they
are not able to avail protection under Article 20(3) of the Constitution and/or
the provisions of Cr.P.C. do not apply even when CGST Act is silent, are
untenable in law. The Supreme Court in Directorate of Enforcement vs.
Deepak Mahajan (supra) has held as under: –
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 20 of 29
“87. In Ramesh Chandra Mehta v. State of W.B. [AIR 1970 SC 940 :
(1969) 2 SCR 461 : 1970 Cri LJ 863] a Constitution Bench of this
Court while examining the admis sibility of a statement recorded under
Section 171 -A of the Sea Customs Act of 1878 (which Act is now
repealed) corresponding to Section 108 of the Customs Act of 1962
has held that a person arrested by a Customs Officer is not a person
accused of an offen ce within the meaning of Article 20(3) of the
Constitution or within the meaning of Section 25 of the Evidence Act.
88. In Veera Ibrahim v. State of Maharashtra [(1976) 2 SCC 302:
1976 SCC (Cri) 278] a Division Bench of this Court following the
dictum lai d down in Ramesh Chandra Mehta [AIR 1970 SC 940 :
(1969) 2 SCR 461 : 1970 Cri LJ 863] observed that in order to claim
the benefit of the guarantee against testimonial compulsion embodied
in clause (3) of Article 20 it must be shown, firstly that the person who
made the statement was “accused of any offence”; secondly that he
made the statement under compulsion. It has been further held that
when the statement of a person is recorded by the Customs Officer
under Section 108, he is not a person “accused of an offence under the
Customs Act” and that an accusation which would stamp a person
with the character of an accused of any offence is levelled only when
the complaint is filed against that person by the Customs Officer
complaining of the commission of any o ffence under the provisions of
the Customs Act.
89. In a recent decision, this Court in Poolpandi v. Superintendent,
Central Excise [(1992) 3 SCC 259 : 1992 SCC (Cri) 620] has
reiterated the same view and held that a person being interrogated
during inves tigation under Customs Act or FERA is not a person
accused of any offence within the meaning of Article 20(3) of the
Constitution. See also Percy Rustomji Basta v. State of
Maharashtra [(1971) 1 SCC 847] .
xxxx xxxx xxxx xxxx
122. ……The combined operat ion of Sections 4(2) and 26(b) of the
Code is that the offence complained of should be investigated or
inquired into or tried according to the provisions of the Code where
the enactment which creates the offence indicates no special
procedure.
xxxx xxxx xxxx xxxx
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 21 of 29
128. ……In short, the provisions of this Code would be applicable to
the extent in the absence of any contrary provision in the Special Act
or any special provision excluding the jurisdiction or applicability of
the Code. In fact, the second lim b of Section 4(2) itself limits the
application of the provisions of the Code reading, “… but subject to
any enactment for the time being in force regulating the manner or
place of investigating, inquiring into, trying or otherwise dealing with
such offenc es.”
xxxx xxxx xxxx xxxx
132. For the aforementioned reasons, we hold that the operation of
Section 4(2) of the Code is straightaway attracted to the area of
investigation, inquiry and trial of the offences under the special laws
including the FERA and Customs Act and consequently Section 167 of
the Code can be made applicable during the investigation or inquiry of
an offence under the special Acts also inasmuch as there is no specific
provision contrary to that excluding the operation of Section 167. ”
47. Also just because CGST Act provides for both adjudication of civil
liability and criminal prosecution doesn’t mean that the said Act is unfair or
unreasonable.
RELIANCE ON “NO COERCIVE ORDERS” BY COUNSEL FOR THE
PETITIONERS ARE UNTENABLE AS THE SUPREME C OURT IN UNION
OF INDIA VS. SAPNA JAIN & ORS., SLP (CRL.) 4322 -4324/2019 DATED
29TH MAY, 2019 HAS „SPOKEN ITS MIND‟.
48. The “no coercive orders” relied upon by learned counsel for the
Petitioner s are ad -interim orders. It is relevant to point out that t he Sup reme
Court in Union of India Vs. Sapna Jain & Ors., SLP (Crl.) 4322 -4324/2019
dated 29th May, 2019 has „spoken its mind‟ and clarified that the High Courts
while entertaining request for grant of pre -arrest bail shall keep in view that the
fact that the Apex Court vide order dated 27th May, 2019 passed in SLP (Crl.)
4430/2019 has dismissed the SLP filed against the judgment and order of the
Telangana High Court. The relevant portion of the Supreme Court order in
Union of India Vs. Sapna Jain & Ors (supra) a s well as the judgment and
order dated 18th April, 2019 passed by the Telangana High Court in W.P s. No.
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 22 of 29
4764, 4769, 4892, 5074, 5130, 5329, 6952 and 7583 of 2019 are reproduced
hereinbelow: –
A) Union of India Vs. Sapna Jain & Ors (supra): –
“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.
As the accused -respondents have been granted the privilege of pre –
arrest bail by the Hig h 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 request in future, will
keep in mind that this Court 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.
Beyond the above, we do not consider it necessary to observe anything
further.”
B) Judgment and order dated 18th April, 2019 passed by the Telangana
High Court in W.P s. No. 4764, 4769, 4892, 5074, 5130, 5329, 6952 and 7583
of 2019: –
“13. However, the propositions of law that could be culled out from
the aforesaid decisions , can be summed up in brief as follows: AIR
1966 SC 1746 AIR 1970 SC 940 AIR 1970 SC 1065 1970 (1) SCC
847 1976 (2) SCC 302 1992 (3) SCC 259 21 .
i) that officers und er various tax laws such as the Central Excise
Act etc., are not police officers to whom Section 25 of the Indian
Evidence Act 1872 would apply,
ii) that the power conferred upon the officers appointed under various
tax enactments for search and arrest ar e actually intended to aid and
support their main function of levy and collection of taxes and duties,
iii) that a person against whom an enquiry is undertaken under the
relevant provisions of the tax laws, does not automatically become a
person accused o f an offence, until prosecution is launched,
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 23 of 29
iv) that the statements made by persons in the course of enquiries
under the tax laws, cannot be equated to statements made by persons
accused of an offence, and
v) that as a consequence, there is no protectio n for such persons
under Article 20(3) of the Constitution of India, as the persons
summoned for enquiry are not persons accused of any offence within
the meaning of Article 20(3) of the Constitution of India.
xxxx xxxx xxxx xxxx
58. Therefore, all th e technical objections raised by the petitioners, to
the entitlement as well as the necessity for the respondents to arrest
them are liable to rejected. Once this is done, we will have to examine
whether, in the facts and circumstances of these cases, the petitioners
are entitled to protection against arrest. It must be remembered that
the petitioners cannot be placed in a higher pedestal than those
seeking anticipatory bail. On the other hand, the jurisdiction
under Article 226 has to be sparingly used, as cautioned by the
Supreme Court in Km.Hema Misra (cited supra).
59. We have very broadly indicated, without going deep, that the
petitioners have allegedly involved in circular trading with a turnover
on paper to the tune of about Rs.1,289.00 crores and a benefit of ITC
to the tune of Rs.225.00 crores. The GST regime is at its nascent stage.
The law is yet to reach its second anniversary. There were lot of
technical glitches in the matter of furnishing of returns, making ITC
claims etc. Any number of circu lars had to be issued by the
Government of India for removing these technical glitches.
60. If, even before the GST regime is put on tracks, some one can
exploit the law, without the actual purchase or sale of goods or hiring
or rendering of services, pro jecting a huge turnover that remained
only on paper, giving rise to a claim for input tax credit to the tune of
about Rs.225.00 crores, there is nothing wrong in the respondents
thinking that persons involved should be arrested. Generally, in all
other fis cal laws, the offences that we have traditionally known revolve
around evasion of liability. In such cases, the Government is only
deprived of what is due to them. But in fraudulent ITC claims, of the
nature allegedly made by the petitioners, a huge liabil ity is created for
the Government. Therefore, the acts complained of against the
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 24 of 29
petitioners constitute a threat to the very implementation of a law
within a short duration of its inception.
61. In view of the above, despite our finding that the writ peti tions 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 incongru ities
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.”
49. Consequently, this Court is of the view t hat this argument does not
advance the case of the Petitioners .
THIS COURT PRIMA FACIE FINDS FORCE IN THE SUBMISSIONS OF
THE LEARNED ASG THAT THE CENTRAL TAX OFFICERS ARE
EMPOWERED TO CONDUCT INTELLIGENCE -BASED ENFORCEMENT
ACTION AGAINST TAXPAYERS ASSIGNE D TO STATE TAX
ADMINISTRATION UNDER SECTION 6 OF THE CGST ACT .
50. Insofar as the jurisdictional issue raised in W .P.(C.) No. 10130/2020 is
concerned, this Court prima facie finds force in the submissions of the learned
ASG that the Central tax officers are e mpowered to conduct intelligence -based
enforcement action against taxpayers assigned to State tax administration under
Section 6 of the CGST Act. At this interim stage, we cannot vitiate the search
action on the premise that the plea that the officer carry ing out the search was
incompetent. Learned ASG has explained that the address of the Petitioner falls
under the jurisdiction of CGST -Delhi North therefore, Additional
Commissioner, CGST -Delhi East vide letter dated 22.11.2020 requested
Additional Commissi oner, CGST -Delhi North to issue a search authorisation
under section 67(2) of the CGST Act, 2017 and depute an inspector of CGST –
Delhi North for the purpose of search at the said address. This contention is
of course controverted by the Petitioner and would have to be examined in
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 25 of 29
depth at the final stage, but for now, we do not find the action of search to be
witho ut jurisdiction.
WHAT EMERGES AT THE PRIMA FACIE STAGE IS THAT IT IS THE CASE
OF THE RESPONDENTS THAT A TAX COLLECTION MECHANISM HAS
BEEN CO NVERTED INTO A DISBURSEMENT MECHANISM AS IF IT
WERE A SUBSIDY SCHEME.
51. Turning to the facts of the present cases, i n the application for vacation
of stay in W.P.(C) No. 5454/2020, it has been averred by the respondents as
under :-
“(iii) The statements of the proprietors of the said 04 firms were
recorded. In their statements, the Proprietors namely Sh. Deepak
Kumar Mishra of M/s Monal Enterprises, Mr. Santosh Prasad of M/s
Micra Overseas and Mr. Manoj Kumar of M /s Ganeshi Inc. stated that
they do not know anything about these firms, they have only provided
their IDs such as PAN Card and Aadhar Card to one Shri Mukesh
Kumar and have signed a lot of papers/documents. That the
investigations have so far revealed a total of 23 bogus/fake firms
opened in the nam e of persons who are labourers, drivers, cook,
street -hawkers etc. These 23 firms have claimed a fraudulent IGST
refund of more than Rs.63 crore. Searches/Verifications were also
conducted in relation to above firms and all the said firms have been
found t o be non -existent/non -functional.
xxxx xxxx xxxx xxxx
(v) The investigation further revealed that the Proprietors of 4 firms
are dummy people who have been enticed/coerced into signing various
documents/papers in order to avail fraudulent IGST Refund o n export
of goods. It was revealed that Sh. Deepak Kumar Mishra who has been
projected as the proprietor and beneficiary of M /s Monal Enterprises,
was actually working as a cook with M /s Dudleys Kitchen in
Gurugram, Haryana, which fact has been confirmed b y the Manager
of M/s Dudleys Kitchen vide his letter dated 15.05.2019.
(vi) That, in the present case, statements dated 27.08.2019 of Sh.
Manoj Kumar and Sh. Santosh Prasad and statement dated 04.09.2019
of Sh. Gyanender Kumar (Proprietor of M /s Cubo Ente rprises) were
recorded wherein, they have categorically pointed out that Sh. Dhruv
Maggu is actively involved in the fraudulent availment of IGST refund
racket along with Sh. Ramesh Wadhera, who is the main mastermind
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 26 of 29
of this racket, his father Sh. Sanjeev Maggu, and his brother Sh . Akhil
Krishan Maggu. It is apposite to mention here that Sh. Ramesh
Wadhera has several old cases of DRI/Customs against him and is a
habitual offender and he along with respondent’s father Sh. Sanjeev
Maggu has perpetrated simi lar racket of economic crime in the past
also, wherein the dummy proprietorship/partnership firms were
created in the name of gullible persons to defraud the government
exchequer… …
xxxx xxxx xxxx xxxx
(viii) The voluntary statement of Sh. Dhruv Maggu w as recorded under
section 70 of the C GST Act, 2017 read with Section 20 of the I GST Act,
2017, wherein he accepted that his brother Sh. Akhil Maggu and he
are business partners. That they have opened several firms and their
bank accounts in the name of var ious poor persons whose IDs have
been obtained through Sh. Mukesh Kumar, who is their manager, on
payment basis. The GST registration process and documentation is
handled by his other three partners with the assistance of Sh. Mukesh
Kumar. Parallelly, the IEC from DG FT is also obtained in respect of
these firms. Then they arrange trash or low -quality goods and then
export the same in the name of the aforesaid created firms, parallelly,
they file the GST returns of these firms and pay the GST liability
throu gh ITC in these firms. They then claim the I GST refund from the
govt. in respect of the GST paid on the exports through fake ITC. Then
the IGST refund amount received in the account of exporter firms is
transferred to other accounts by his partners and the n the money is
withdrawn as cash from these other accounts. The cash so withdrawn
is received by his partners and then distributed among the partners
after adjusting the commission or other expenses incurred during the
entire process of exports. That he lo oks after the work related to
issuance of invoices and after issuing of the invoices, he handed them
over to either his brother Sh. Akhil Maggu or his father Sh. Sanjeev
Maggu or Sh. Ramesh Wadhera who then take care of the export
related documentation for malities using the same invoices .”
52. Similar ly serious allegations have been made against the Petitioners in
W.P.(C .) No. 10130/2020. The relevant portion of the counter affidavit is
reproduced hereinbelow: –
“II. On perusal of the data retrieved from the system it was found
that M/s Rajdarbar Commodities Pvt. Ltd. had raised invoices worth
Rs.196.28 crores involving GST of Rs. 5.88 crores to M/s Vertical
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 27 of 29
Vyapaar Pvt. Ltd. and of Rs. 15.57 crores involving GST of Rs. 46.72
lakh to M/s N.S Software totalling to goods value of Rs. 211.86 crore
and GST of Rs. 6.35 crores, M/s N.S Software had raised invoices of
Rs. 15.57 crores involving GST of Rs. 46.72 lakh to M/s Vertical
Vyapaar Pvt. Ltd., M/s Vertical Vyapaar Pvt. Ltd. had raised invoices
of Rs. 211.81 cro res involving GST of Rs. 6.35 crores to M/s K.P. and
Sons and M/s K.P. and Sons had raised invoices of Rs. 211.89 crores
involving GST of Rs. 6.35 crores to M/s Rajdarbar Commodities Pvt.
Ltd. therein completing the whole circle.
III. The above transacti ons between these parties took place in five
months only i.e. January 2018, February 2018, March 2018, February
2019 and March 2019. Also, it was found that all these companies
have raised invoices on the same day among themselves. For example,
on 30.01.20 18, M/s K.P. and Sons raised a sale invoice of Rs.
2,70,00,000/ – involving GST of Rs. 8,10,000/ – to M/s Rajdarbar
Commodities Pvt. Ltd., M/s Raj Darbar Commodities Pvt. Ltd. then
raised a sale invoice dated 30.01.2018 of Rs. 2,69,91,000/ – involving
GST of Rs. 8,09,730/ – to M/s Vertical Vyapaar Pvt. Ltd., M/s Vertical
Vyapaar Pvt. Ltd. then raised a sale invoice dated 30.01.2018 of Rs.
2,69,95,500/ – involving GST of Rs.8,09,865/ -. This practice has been
followed by all these parties for all the invoices rais ed among
themselves.
IV. That, on 30.01.2018, the first time when M/s K.P. and Sons raised
a sale invoice to M/s Rajdarbar Commodities Pvt. Ltd. for sale of gold
bullion worth Rs. 4.5 crores as per their GSTR -2A, they only had stock
of gold bullion of Rs. 2.95 crores. Therefore, only with a stock of Rs.
2.95 crores worth of gold bullion, M/s K.P. and Sons had raised sale
invoices of Rs.211.89 crores to M/s Rajdarbar Commodities Pvt. Ltd.
and has purchased gold bullion totalling to Rs. 211.81 crores from M/ s
Vertical Vyapaar Pvt. Ltd. From the above it is clear that the goods
are traded by these above entities within themselves and all the GST
payments are made through ITC passed on by these firms to each
other. Also, from analysing the GSTR -2A of these firm s it was found
that except from the above transactions none of the above firms are
found to have purchased the gold worth Rs. 211 crores either locally
or through import.
xxxx xxxx xxxx xxxx
VII. The searches at all the above locations were conducted on
23.11.2020 and statement of Sh. Vasudev Garg, Director of M/s
Rajdarbar Commodities Pvt. Ltd. was recorded on the spot. Sh.
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Vasudev Garg informed that M/s Rajdarbar Commodities Pvt. Ltd.,
M/s Vertical Vyapaar Pvt. Ltd. and M/s N.S Software are all firm s of
Rajdarbar Group. He further stated that there was no supply of
goods i.e. gold bullion involved in the business transactions done
between M/s K.P. and Sons, M/s Rajdarbar commodities Pvt. Ltd.,
M/s N.S Software and M/s Vertical Vyapaar Pvt. Ltd. He ac cepted
his mistake and has deposited GST of Rs. 4.5 crores till date vide
DRC -03 challans dated 24.11.2020, 01.12.2020, 03.12.2020,
04.12.2020 and 08.12.2020.
VIII. Statement of Sh. Gaurav Agrawal, proprietor of M/s K.P. and
Sons was also recorded on 26.1 1.2020 in response to summons
issued under DIN No – 20201151ZK000044254A. Sh. Gaurav
Agarwal in his statement recorded voluntarily also stated that the
goods i.e. gold bullion never changed hands as they used to buy the
same quantity of gold bullion from M /s Vertical Vyapaar Pvt. Ltd.
that they have sold to M/s Rajdarbar Commodities Pvt. Ltd. on the
same day itself. Sh. Gaurav Agrawal accepted his mistake and stated
that he is ready to pay any dues or liabilities along with applicable
interest and penalty. ”
(emphasis supplied)
53. To conclude , what emerges at the prima facie stage is that it is the case
of the Respondents that a tax collection mechanism has been converted into a
disbursement mechanism as if it were a subsidy scheme.
IN VIEW OF THE SERIOUS ALL EGATIONS, 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.
CONSEQUENTLY, THE APPLICATIONS FOR INTERIM PROTECTION ARE
DISMISSED WITH LIBERTY TO THE PARTIES TO AVAIL THE STATUTORY
REMEDIES.
54. It is settled law that though the powers of constitutional courts are wide
and discretionary, yet there exist certain fetters in the exercise of such powers.
In Hema Mishra Vs. State of U.P., ( 2014) 4 SCC 453 , the Supreme Court held
that despite the fact that provision regarding pre -arrest bail, had been
2021:DHC:66-DBWPs (C) 5454/2020 & 10130/2020 Page 29 of 29
specifically omitted in Uttar Pradesh, the power under writ jurisdiction is to be
exercised extremely sparingly.
55. This Court is of the view th at 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 proceed ings. At the same
time, innocent persons cannot be arrested or harassed . This Court has no doubt
that the trial court, while consider ing the bail or remand or cancellation of bail
application , ‘will separate the wheat from the chaff‟ and will ensure that n o
innocent person against whom baseless allegations have been made is
remanded to police/judicial custody.
56. Consequently , with the aforesaid observ ations and liberty , the CM
No.32276 /2020 in WP(C) 10130/2020 for interim relief as well as the prayer
for int erim 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 argument s of the present
writ petitions or in the proceedings for interim protection.
W.P. ( C) 5454/2020 & W.P.(C) 10130/2020
List before regular roster Bench on the date already fixed.
MANMOHAN, J
SANJEEV NARULA, J
JANUARY 08, 2021
rn/js/as
2021:DHC:66-DB