Supreme Court Upholds GST Summons, Limits High Court Interference: State of Gujarat vs. Choodamani Parmeshwaran Iyer (2023)

Date of the Judgment: July 17, 2023
Citation: 2023 INSC 649
Judges: Hon’ble Mr. Justice J.B. Pardiwala and Hon’ble Mr. Justice Prashant Kumar Mishra

Can a High Court direct tax authorities to complete an investigation within a specific timeframe and prevent arrest of individuals summoned for questioning? The Supreme Court of India recently addressed this question in a case concerning the Goods and Services Tax (GST) Act. The Court clarified the extent to which High Courts can intervene in the statutory powers of arrest granted to tax authorities. The judgment was delivered by a two-judge bench comprising of Justice J.B. Pardiwala and Justice Prashant Kumar Mishra.

Case Background

The case involves an inquiry against M/s. Iyer Enterprise Mundra Kutch, concerning alleged evasion of Goods and Service Tax (GST) and contravention of the Finance Act, 1994, and the CGST Act, 2017. The respondents, Choodamani Parmeshwaran Iyer and another individual, were issued summons on 31st October 2018, under Section 145 of the Central Excise Act, 1944, (as applicable to service tax via Section 83 of the Finance Act, 1994) and Section 70 of the CGST Act, 2017. These summons required their presence for interrogation.

Apprehending arrest by the concerned tax officials, the respondents filed two writ applications before the High Court of Gujarat. They sought protection from arrest during the inquiry.

Timeline

Course of Proceedings

The High Court of Gujarat disposed of the writ applications filed by the respondents through a common order dated 24th December 2018. The High Court directed the tax authority to complete the inquiry within eight weeks. It also granted an additional two weeks to the respondents to comply with their obligations, if required, after the completion of the inquiry. The High Court also directed the respondents to appear before the concerned Police Station on or before 11th January 2019.

The State of Gujarat, dissatisfied with this order, appealed to the Supreme Court. The Supreme Court, on 29th April 2019, issued a notice and stayed the High Court’s direction to complete the adjudicatory process within eight weeks.

Legal Framework

The case revolves around the interpretation of the following key legal provisions:

• Section 145 of the Central Excise Act, 1944: This section empowers authorities to issue summons for the purpose of inquiry.
• Section 83 of the Finance Act, 1994: This section extends the provisions of the Central Excise Act, 1944, to service tax matters.
• Section 70 of the Central Goods and Services Tax Act, 2017: This section deals with the power to summon persons to give evidence and produce documents. It states, “The proper officer under this Act shall have power to summon any person whose attendance he considers necessary either to give evidence or to produce a document or any other thing in any inquiry in the same manner, as provided in the case of a civil court under the provisions of the Code of Civil Procedure, 1908.”
• Section 69 of the CGST Act, 2017: This section outlines the power to arrest. Sub-section (1) states, “Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.”
• Section 132 of the CGST Act, 2017: This section specifies the offences and penalties under the Act.
• Section 438 of the Code of Criminal Procedure, 1973: This section deals with the grant of anticipatory bail.
• Article 226 of the Constitution of India: This article empowers High Courts to issue writs for the enforcement of fundamental rights and for other purposes.

The court also considered the interplay between the powers of arrest under the CGST Act, 2017 and the safeguards provided under the Code of Criminal Procedure, 1973.

Arguments

Arguments by the State of Gujarat:

• The State argued that the High Court should not have interfered with the statutory powers of the tax authorities to conduct inquiries and make arrests under the CGST Act, 2017.
• The State contended that the High Court’s direction to complete the inquiry within a specific timeframe was unwarranted and hindered the investigation process.
• The State submitted that the respondents had not cooperated with the investigation, despite multiple summons being issued. The State emphasized that interrogation was essential to ascertain if there was any tax evasion and to decide the future course of action.
• The State relied on the judgment in Union of India vs. Padam Narain Aggarwal [(2008) 13 SCC 305], which held that statutory powers of arrest should not be curtailed by imposing conditions such as prior notice.

Arguments by the Respondents:

• The respondents, through their counsel, initially sought protection from arrest. However, the counsel later stated that they were unable to assist the court as they were not in contact with their clients for six months.

The court noted that the respondents had sought protection from arrest by filing writ applications under Article 226 of the Constitution of India, which was essentially a plea for anticipatory bail, which is not permissible at the stage of summons under Section 69 of the CGST Act, 2017.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the High Court was justified in interfering with the statutory powers of the tax authorities under the CGST Act, 2017, by directing them to complete the inquiry within a specific time frame and by seemingly granting pre-arrest protection.

The Court also implicitly considered the sub-issue of whether a person summoned under Section 69 of the CGST Act, 2017 can seek anticipatory bail under Section 438 of the Code of Criminal Procedure, 1973.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Union of India vs. Padam Narain Aggarwal [(2008) 13 SCC 305]: The Supreme Court relied on this case to emphasize that statutory powers of arrest should not be curtailed by imposing conditions.
• Kartar Singh Vs. State of Punjab [(1994) 3 SCC 569]: The Supreme Court reiterated that pre-arrest protection is not a statutory right and should be exercised sparingly by the High Court under Article 226 of the Constitution.
• P.V. Ramana Reddy Vs. Union of India (Writ Petition Nos. 4764 of 2019 and allied petitions): The Supreme Court approved the High Court’s observations regarding the incongruities between Sections 69(1) and 132 of the CGST Act, 2017.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the statutory powers of tax authorities to conduct investigations without undue interference from the High Courts. The Court emphasized the importance of allowing the authorities to exercise their powers of arrest based on objective facts and not to be constrained by conditions that could render the statutory provisions ineffective.

The Court also considered the fact that the respondents had not cooperated with the investigation and had not appeared for interrogation despite multiple summons. This lack of cooperation was a significant factor in the Court’s decision to set aside the High Court’s order.

The Court’s reasoning was heavily based on legal precedents, particularly the judgment in Union of India vs. Padam Narain Aggarwal [(2008) 13 SCC 305], which clarified that statutory powers of arrest should not be curtailed by imposing conditions such as prior notice. The Court’s reasoning also reflected its concern that the High Court’s order could set a precedent that would hinder the effective enforcement of tax laws.

Logical Reasoning

Judgment

The Supreme Court allowed the appeals filed by the State of Gujarat and set aside the common order dated 24th December 2018, passed by the High Court. The Court held that the High Court’s directions were not in consonance with the law. The Supreme Court emphasized that the High Court should not interfere with the statutory powers of arrest granted to tax authorities under the CGST Act, 2017.

The Court observed that the respondents had not appeared for interrogation despite multiple summons. It also clarified that a person summoned under Section 69 of the CGST Act, 2017 cannot invoke Section 438 of the Code of Criminal Procedure for anticipatory bail.

The Court reiterated the principle laid down in Union of India vs. Padam Narain Aggarwal [(2008) 13 SCC 305], that statutory powers of arrest should be exercised on objective facts of commission of an offence and should not be curtailed by imposing conditions. It also referred to Kartar Singh Vs. State of Punjab [(1994) 3 SCC 569], which held that the High Court should exercise its power to grant pre-arrest protection sparingly.

The Court also took note of the observations made by the High Court of Telangana in P.V. Ramana Reddy Vs. Union of India (Writ Petition Nos. 4764 of 2019 and allied petitions), regarding the incongruities between Sections 69(1) and 132 of the CGST Act, 2017. The Court agreed with the High Court’s view that the power of arrest under Section 69(1) is confined to cognizable and non-bailable offences.

The Supreme Court concluded by giving one more opportunity to the respondents to appear before the authorities for recording their statements. It clarified that if the respondents fail to appear, the authorities would be free to proceed further in accordance with the law.

Key quotes from the judgment:

• “It was expected of the respondents to honour the summons and appear before the authority for the purpose of interrogation.”
• “It is well-settled position of law that power to arrest a person by an empowered authority under the GST Act and could be termed as statutory in character and ordinarily the writ court should not interfere with exercise of such power.”
• “Thus, the position of law is that if any person is summoned under Section 69 of the CGST Act, 2017 for the purpose of recording of his statement, the provisions of Section 438 of Criminal Procedure Code, 1908 cannot be invoked.”

Key Takeaways

• High Courts should not interfere with the statutory powers of arrest granted to tax authorities under the CGST Act, 2017.
• The power of arrest should be exercised on objective facts of commission of an offence.
• A person summoned under Section 69 of the CGST Act, 2017, cannot invoke Section 438 of the Code of Criminal Procedure for anticipatory bail.
• High Courts should exercise their power to grant pre-arrest protection sparingly.
• Taxpayers are expected to cooperate with investigations and appear for interrogation when summoned.
• The judgment reinforces the importance of allowing tax authorities to conduct investigations without undue interference from the courts.

Directions

The Supreme Court directed the respondents to appear before the authorities for the purpose of recording their statements. The Court clarified that if the respondents fail to appear, the authorities would be free to proceed further in accordance with the law.

Development of Law

The ratio decidendi of this case is that High Courts should not interfere with the statutory powers of arrest granted to tax authorities under the CGST Act, 2017, and that a person summoned under Section 69 of the CGST Act, 2017 cannot invoke Section 438 of the Code of Criminal Procedure for anticipatory bail. This judgment reinforces the principle that tax authorities should have the necessary powers to conduct investigations effectively and that the courts should not unduly hinder this process. There is no change in the previous position of law, but the Supreme Court has clarified the position of law.

Conclusion

The Supreme Court’s judgment in State of Gujarat vs. Choodamani Parmeshwaran Iyer clarifies the extent to which High Courts can interfere with the statutory powers of arrest under the CGST Act, 2017. The Court has emphasized that tax authorities should be allowed to exercise their powers of arrest based on objective facts and that High Courts should not impose conditions that could render the statutory provisions ineffective. The judgment also clarifies that a person summoned for interrogation under the CGST Act, 2017 cannot seek anticipatory bail under Section 438 of the Code of Criminal Procedure, 1973. This decision underscores the importance of cooperation with tax authorities during investigations and the need for High Courts to exercise restraint in interfering with statutory powers.