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Paradox over Constitutionality of Arrest provision in GST

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Paradox over Constitutionality of Arrest provision in GST
By: Kashish Gupta
September 14, 2021
All Articles by: Kashish Gupta       View Profile
  • Contents

The dispute on constitutionality of arrest provisions in GST is not a new one these days. All it goes on, is as a primary ground before courts praying to enlarge the accused on bail. And given the growing ubiquity of the economic offences, and the taxpayer’s increasingly whimsical use across India of loopholes in the system, the judgements are being pronounced at an economic front following a very strict approach. For the purposes of examining the judicial view involved in the subject matter, one needs to go through the labyrinth of decisions.

Power to arrest pending adjudication

  1. All it started with the dispute over power to arrest pending adjudication wherein Hon’ble Telangana HC, on 18.04.2019, upheld the same[1]. A SLP filed against this decision was dismissed by Hon’ble Supreme Court on 27.05.2019[2]. On 29.05.2019, taking a note of the contrary views passed by different High Courts while enlarging the petitioners on pre-arrest bail[3], Hon’ble SC issued an order stating that all HCs shall keep in mind its order dated 27.05.2019 wherein the SLP filed against decision of Telangana HC was dismissed. Therefore, in nutshell, Hon’ble SC also appears to be of the view that pre-arrest bail cannot be granted merely on the ground that investigating officer has proceeded against the accused prior to adjudication of offence.
  1. Despite the afore-mentioned settled proposition on this subject matter, Hon’ble P&H High Court[4] on 15.11.2019 upheld that power to arrest shall be resorted in special circumstances and in the process resiled the decision of Hon’ble Telangana HC (it appears that SC Order dated 27.05.2019 and 29.05.2019 was not brought to the knowledge of P&H HC). The relevant conclusions read as under:

“7.5 ……………..

The opinion expressed by Telangana High Court cannot be made applicable to each and every case and cannot be treated an authority to conclude that DGGI has power to arrest in every case during investigation and that too without determination of tax evaded as well finding that accused has committed an offence described under Section 132 of the CGST Act, 2017.


10.  ………………… we are of the opinion that power of arrest should not be exercised at the whims and caprices of any officer or for the sake of recovery or terrorising any businessman or create an atmosphere of fear, whereas it should be exercised in exceptional circumstances during investigation, which illustratively may be: 

(i) a person is involved in evasion of huge amount of tax and is having no permanent place of business, 

(ii) a person is not appearing inspite of repeated summons and is involved in huge amount of evasion of tax, 

(iii) a person is a habitual offender and he has been prosecuted or convicted on earlier occasion, 

(iv) a person is likely to flee from country, 

(v) a person is originator of fake invoices i.e. invoices without payment of tax, 

(vi) when direct documentary or otherwise concrete evidence is available on file/record of active involvement of a person in tax evasion.”

Subsequently, decisions[5] by Hon’ble P&H High Court came to be issued following the decision in case of Akhil Krishan Maggu (supra) wherein the decisions were given by categorizing the offences under any of the six above-mentioned categories. To quote:

[26] It was held that power to arrest under Sections 69 and 132 of the Act should not be exercised for terrorizing or creating atmosphere of fear. Illustrative circumstances where arrest be made were mentioned. It is rightly stated by learned counsel for Union of India that case of the petitioner is covered under example (vi).

  1. On 20.10.2020, Hon’ble Gujarat High Court[6] distinguished the decision of Hon’ble P&H High Court (Akhil Krishan Maggu) and recapitulate the decision of Hon’ble Telangana High Court (P.V. Ramana Rao). Gujarat HC also corrected the interpretational error made for section 69(1) and 69(3) by Hon’ble Telangana HC. In author’s view, this decision is very important and has laid out complete facets of interpretation on section 69 and 132 of the CGST Act. To quote:

“69. We are in complete agreement with the above dictum of law except with regard to the findings of the Telangana High Court that there is incongruity within section 69(1) and section 69(3) of the Act………………

72. ………….We do not subscribe to the view of the Punjab and Haryana High Court that the Commissioner has no power to arrest in every case during the investigation and that too without determination of the tax evaded as well as finding that the accused has committed an offence described under section 132 of the CGST Act as explained herein above.”

The ironical part is that findings of the Gujarat HC in this case was followed by Hon’ble P&H High Court on 28.01.2021 in the case of Rakesh Arora (supra) wherein the court also relied upon on the decision of Akhil Krishan Maggu (supra) and categorized the case of the petitioner in one of the categories illustrated by the court in the said case. In author’s view, said reliance ought not to be placed when the court followed decision of Hon’ble Gujarat HC which distinguished Akhil Krishan Maggu case. Later, Hon’ble Gauhati High Court[7] and Delhi High Court[8] subscribed to the views of Hon’ble Gujarat HC.

  1. Though the views of Hon’ble P&H High Court in the case of Akhil Krishan Maggu has now been distinguished by various courts[9] on various occasions, however, it is worthy to take a note that Hon’ble Allahabad HC[10] has followed the same on 05.01.2021 and Hon’ble Delhi High Court[11] has followed the same on 04.06.2021. In decision dated 04.06.2021, though Hon’ble Delhi HC did not take a note that said decision has already been distinguished on 19.01.2021 in the case of Sartaj Ali but it appears to be a correct approach because law related to enlarging an accused on bail also hails its jurisprudence from various apex court decisions. In the said case (Pawan Goel, supra, dated 04.06.2021), petitioner duly appeared before investigating authorities, had submitted all records, deposited a substantial amount, and made the submissions as and when required. Reference can also made to the decision by Session Court, Karnal wherein the court discussed decisions of Akhil Krishan Maggu as well as Dhruv Krishan Maggu and observed as under:

“31. …………….. In view of the law laid down in Akhil Krishan Maggu (supra), the Court was required to look into the entire facts and circumstances to find out if there was credible material to justify arrest of the applicant. In Dhruv Krishan Maggu versus Union of India decided by the Hon'ble Delhi High Court on January 8, 2021 on which reliance has been placed by the respondent also, it was held that though it was not inclined to interfere with investigation at that stage and that too, in writ proceedings, but at the same time innocent persons cannot be arrested or harassed. ………………… It follows that a bail application in a case under CGST Act has to be treated differently from a bail application in oridnary matter in which merits are not to be dwelt upon.”

Therefore, decision of Akhil Krishan Maggu shall be referred while enlarging the accused on bail on grounds other than the ground of pendency of adjudication.

  1. From the foregoing, it can be concluded that the views expressed by Hon’ble Telangana HC (P.V. Ramana Rao) and Hon’ble Gujarat HC (Vimal Yashwantgiri) are the correct views. Also, backed by the SC Orders dated 27.05.2019 and 29.05.2019, there appears to be no reason to deviate from this settled position. All HCs must discuss these decisions while passing interim orders / final orders on matters relating to bail whenever the same is sought on the ground of pendency of adjudication.

Constitutionality of Arrest Provisions

  1. Seemingly lost the battle over power to arrest pending adjudication, a new ground resorted by accused relates to the constitutionality of arrest provisions in GST regime. The starting point of this litigation hails from decisions given by Hon’ble P&H High Court[12] on 12.06.2020 and 16.06.2020. The court found that a strong prima facie case has been made by the petitioner. The main grounds taken in these cases are as under:
  1. Power to legislate flows from two sources
  1. Schedule VII read with Article 246;
  2. A specific article for example Article 35, Article 323B, Article 369
  1. The provision for arrest or sentence for an offence against the law may be inserted in any enactment , if permitted by the Constitution. To fortify:
  1. sub clause (i) of clause 2 of Article 323-B authorizes legislature to make law for offences with respect to any matter specified in sub clause (a) to (h), whereas sub clause (j) authorises to make law with respect to any matter incidental to matters specified in sub clause (a) to (i), thereby establishing the power to legislate regarding the offences as not an incidental power.
  2. sub clause (ii) of Clause (a) of Article 35 empowers Parliament to prescribe punishment for those acts, which are declared offences under this part-III (fundamental rights).
  3. clause (b) of Article 369 empowers Parliament to make law with respect to offences against laws with respect to any of the matters mentioned in clause-(a).
  4. Entry 93 of Union List and 64 of State List specifically empowers Legislature to make law for offences against laws with respect to any of the matters in the Union/State List. Thus Union and State Legislature while introducing any enactment in exercise of powers conferred by the entries of Union/State Lists in Schedule VII gets the power to insert provisions for offences.
  1. With respect to GST, Article 246A is the only law making provision. From the foregoing, it is established that the provisions for arrest are not ancillary or incidental provision.
  1. But this ground also failed to enlarge the benefit of bail as various High Courts resisted themselves to blindly follow these contentions in the absence of no stay being given on operation of these provisions.
  2. On 08.01.2021, Hon’ble Delhi HC[13] passed a very detailed order refusing to pass any interim order on a challenge made to the constitutionality of the provisions. Though the grounds as mentioned above were taken by the petitioner, Hon’ble HC, following the decisions of Vimal Yashwantgiri (supra) and P.V. Ramana Rao (supra), inter-alia distinguished the findings based on following grounds:
  1. 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 and prosecute are ancillary and/or incidental to the power to levy and collect goods and services tax (para 36 to 38).
  2. Even 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, 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 (para 39 to 41).
  3. Supreme Court order dated 29.05.2019
  1. On 28.01.2021, Hon’ble P&H HC in the case of Rakesh Kumar Arora (supra) also stated as under:

[28] The bail cannot be granted solely on the ground that vires of Section 132 and 69 of the Act are under challenge. There is always presumption of validity of the provision. The operation of the provisions has not been stayed.

  1. Lastly, reference should also be given to the decision dated 19.01.2021 given by Hon’ble Delhi High Court in the case of Sartaj Ali (Supra) wherein court noted that there are two contrary views on the subject matter but placed reliance over decision of Dhruv Krishan Maggu.


As the operative portion of this article says, truly the author has painstakingly attempted to take the readers through the labyrinth of decisions. The author expects that Hon’ble P&H High Court in the case of  MANOJ CABLES LIMITED THROUGH ITS DIRECTOR MANOJ GARG & ANR VERSUS UNION OF INDIA & ORS. - 2020 (6) TMI 729 - PUNJAB AND HARYANA HIGH COURT may now distinguish the views taken by Hon’ble Delhi High Court in the case of Dhruv Krishan Maggu (Supra) simply because of the reason that Entry 1 of List III to the Seventh Schedule of Constitution of India i.e., Concurrent List has no role in conferring the law-making powers on matters related to GST. The interpretation that powers to specify arrest provisions hails from Concurrent List, in view of the author, is strictly against the reason why article 246A was inserted, - it was inserted because power to enact GST law cannot come from concurrent list because in GST the powers are shared by State as well as Centre whereas in the Concurrent List, the supremacy of power is with the Centre.

Authored By:

CA Kashish Gupta, Managing Partner

CA Garima Jindal, Associate Partner

Paksh Legal

+91 85108 06440;


By: Kashish Gupta - September 14, 2021



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