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IN THE HIGH COURT OF DELHI
MANMOHAN, SANJEEV NARULA, JJ.
Dhruv Krishan Maggu & Others - Petitioner
Versus
Union of India & Others - Respondent
W.P. (C). Nos. 5454, 10130 of 2020
Decided On : 08-01-2021
CENTRAL GOODS AND SERVICES TAX ACT, 2017 - SECTIONS 69 AND 132 - CONSTITUTIONALITY - SCOPE OF ARTICLE 246A - CRIMINAL LAW - LEGISLATIVE COMPETENCE - APPLICABILITY OF CHAPTER XII OF THE CODE OF CRIMINAL PROCEDURE, 1973 - PROTECTION UNDER ARTICLE 20(3) OF THE CONSTITUTION - JURISDICTION OF CENTRAL TAX OFFICERS - INTERIM PROTECTION - WRIT JURISDICTION - SCOPE AND LIMITATIONS.
Fact of the Case:
Petitioners, accused of offences under the Central Goods and Services Tax Act, 2017 (CGST Act), challenged the constitutional validity of Sections 69 and 132 of the CGST Act, arguing that they were beyond the legislative competence of Parliament and violated their fundamental rights. They also sought interim protection from arrest and harassment during the pendency of the writ petitions.
Finding of the Court:
The Court held that Sections 69 and 132 of the CGST Act were constitutional and fell within the legislative competence of Parliament. The Court found that the pith and substance of the CGST Act was on a topic upon which Parliament had power to legislate, as the power to arrest and prosecute were ancillary and incidental to the power to levy and collect Goods and Services Tax. The Court also held that even if it was assumed that the power to make offences in relation to evasion of goods and service tax was not to be found under Article 246A, it could be traced to Entry 1 of List III of the Seventh Schedule to the Constitution, which conferred power on Parliament to make laws with respect to criminal law. The Court further held that the provisions of Chapter XII of the Code of Criminal Procedure, 1973 (Cr.P.C.) were not applicable to the CGST Act, as CGST officers were not police officers. However, the Court clarified that this did not mean that persons arrested under the CGST Act were not entitled to any protection under the Constitution. The Court also held that the Central Tax Officers were empowered to conduct intelligence-based enforcement action against taxpayers assigned to State tax administration under Section 6 of the CGST Act.
Issues: 1. Whether Sections 69 and 132 of the CGST Act were constitutional and fell within the legislative competence of Parliament? 2. Whether the provisions of Chapter XII of the Cr.P.C. were applicable to the CGST Act? 3. Whether persons arrested under the CGST Act were entitled to any protection under the Constitution? 4. Whether the Central Tax Officers were empowered to conduct intelligence-based enforcement action against taxpayers assigned to State tax administration?
Ratio Decidendi: 1. The Court held that Sections 69 and 132 of the CGST Act were constitutional and fell within the legislative competence of Parliament, as the pith and substance of the CGST Act was on a topic upon which Parliament had power to legislate, and even if it was assumed that the power to make offences in relation to evasion of goods and service tax was not to be found under Article 246A, it could be traced to Entry 1 of List III of the Seventh Schedule to the Constitution. 2. The Court held that the provisions of Chapter XII of the Cr.P.C. were not applicable to the CGST Act, as CGST officers were not police officers. 3. The Court held that persons arrested under the CGST Act were entitled to protection under the Constitution, even though the provisions of Chapter XII of the Cr.P.C. were not applicable. 4. The Court held that the Central Tax Officers were empowered to conduct intelligence-based enforcement action against taxpayers assigned to State tax administration under Section 6 of the CGST Act.
Final Decision: The Court dismissed the writ petitions and vacated the interim order of protection granted earlier. However, the Court clarified that the observations made were prima facie and would not prejudice either of the parties at the stage of final arguments or in the proceedings for interim protection.
JUDGMENT :
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 by 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 pertinent to point out that when 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. 5454/2020 is reproduced hereinbelow:-
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.
Keeping in view 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 issues 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 Respondent 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 submitted 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 enacted under Article 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 levy 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, they submitted that Entry 93 of List 1 confers jurisdiction upon the Parliament to make criminal laws only with respect to 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 submitted 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 process, 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 tax, short paid tax, or e
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