The main legal point established in the judgment is the requirement of 'reasons to believe' for arrest under section 69 of the CGST Act and the need to balance custodial interrogation with personal liberty.

JUDGMENT :

Ujjal Bhuyan, J.

1. Heard Mr. Batra, learned counsel for the petitioner and Mr. Pradeep S. Jetly, learned senior counsel along with Mr. Mishra, learned counsel for the respondents on the prayer for bail.

2. This petition under Article 226 of the Constitution of India challenges constitutional validity of section 132(1) (b) of the Central Goods and Services Tax Act, 2017 (briefly “the CGST Act” hereinafter) and seeks a declaration that the power under section 69 of the CGST Act can only be exercised upon determination of the liability. A further prayer has been made to restrain respondent No.4 from filing any criminal complaint against the petitioner for alleged violation of the provisions of the CGST Act which are compoundable offences. Additionally, petitioner seeks a direction to respondent Nos.2 and 3 to take a decision by passing a speaking order on the compounding applications dated 28.01.2021 filed by the petitioner and the two companies of which he is a director. An interim prayer has been made for enlarging the petitioner on bail since he is under judicial custody with effect from 21.01.2021.

3. Though facts lie within a very narrow compass, to have a proper perspective it would be apposite to briefly advert to the relevant facts as averred in the writ petition.

4. It is stated that petitioner is a senior citizen aged about 65 years. He is the Director of two companies by the name of Twinstar Industries Limited and Originet Technologies Limited.

5. In the year 2018, respondent No.4 initiated an investigation on the basis of intelligence inputs regarding alleged fraudulent availment and utilization of input tax credit (ITC) by one M/s. Al Fara’s Infra projects Private Limited on the basis of bogus invoices without actual receipt of goods or services. During the course of the investigation, statements of various persons including certain officials of M/s. Al Fara’s Infra projects Private Limited were recorded. In so far petitioner is concerned, on several occasions, summons were issued to him by the office of respondent No.4 under section 70 of the CGST Act and in response to the summons, petitioner had appeared before the investigating officer in the office of respondent No.4 whereafter his statements were recorded on 05.12.2018, 12.12.2018, 04.01.2019, 15.02.2019 and 21.01.2021.

6. After recording his last statement on 21.01.2021, petitioner was arrested by officials working in the office of respondent No.4 whereafter he was produced before the Additional Chief Metropolitan Magistrate, 8th Court, Esplanade, Mumbai along with remand application. Remand application disclosed that petitioner is accused of committing offence under section 132(1)(c) of the CGST Act as his companies had fraudulently availed and utilized ineligible input tax credit (ITC) amounting to Rs.122.59 crores approximately on the strength of bogus invoices without actual receipt of goods or services as mentioned in the respective invoices; besides committing an offence under section 132(1) (b) as it was alleged that companies of the petitioner had fraudulently issued bogus invoices and passed on ineligible ITC to various companies without actual supply of goods or services mentioned in the respective invoices thereby leading to wrongful passing on of ITC amounting to approximately Rs.191.66 crores to the recipient companies. By the said remand application, the arresting authority sought for judicial custody of the petitioner for a period of 14 days seeking liberty to interrogate the petitioner in jail custody.

7. It is stated that following his arrest, petitioner has been lodged in judicial custody as on today.

8. In the meanwhile, on behalf of the petitioner and the two companies of which he is the director, three separate compounding applications dated 28.01.2021 were filed under section 138 of the CGST Act before respondent Nos.2 and 3 for compounding of the offences and to prevent further infringement of the personal liberty of the petitioner.

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