Facts of the Case

Three petitions involving similar facts and common questions of law were decided together by the Delhi High Court.

The petitions were filed by the Directorate General of GST Intelligence and CGST Delhi South under Section 482 Cr.P.C. against orders dated 08.07.2021 and 13.04.2022. By those orders, while dismissing the anticipatory bail applications of the respective respondents, namely Girish Sachdeva, Harish Sachdeva and Abhinav Bardhan, the learned ASJ had directed the Department to give seven days’ prior notice before taking any coercive action against them so that they could avail remedies in accordance with law.

The investigation commenced on 13.12.2018 on the basis of intelligence inputs indicating that M/s Daak International Pvt. Ltd., situated at 602, Naurang House, K.G. Marg, New Delhi, was issuing E-way Bills of substantial value but had not filed its returns.

Upon visiting the stated address, the entity was found to be non-existent at the premises. The premises were owned by another company, M/s Access India Impex Centre Pvt. Ltd. The statement of its Manager, Mr. Kundan Singh, was recorded on the spot. He stated that the company provided virtual office space to several companies, including M/s Daak International Pvt. Ltd., and supplied the telephone numbers and addresses of the three respondents, who were stated to be Directors of M/s Daak International Pvt. Ltd.

The respondents appeared before the Department and recorded statements stating that they were involved in trading textiles and minerals. They identified M/s World Window Impex Pvt. Ltd. and M/s Numero Uno Clothing Ltd. as their two main suppliers and stated that they had no storage facility. Their main customers were stated to be M/s Chrysalis Trading Pvt. Ltd. and M/s J.K.M. Craft Pvt. Ltd.

On 28.12.2018, summons were issued requiring the respondents to appear. Instead of appearing, they filed replies, furnished certain documents and sought a further date for hearing.

According to the Department, M/s Daak International Pvt. Ltd. remained active but had not filed GSTR-1, GSTR-3B and GSTR-9 from March 2019 onwards, as reflected on the GST portal. The Department alleged that the company was not discharging its GST liabilities and was suppressing material facts.

Since the respondents were allegedly neither appearing pursuant to summons nor furnishing the requisite documents necessary to bring the investigation to its logical conclusion, further summons were issued on 02.02.2022 under Sections 70 and 174 of the CGST Act, 2017.

The respondents subsequently moved anticipatory bail applications before the learned ASJ. The learned ASJ directed them to join the investigation and make their statements.

The Department alleged that the firm was incorporated in March 2018 and remained operational only until December 2018, while GST returns ceased to be filed from March 2019 onwards.

According to the investigation, more than Rs. 8 crore of tax was allegedly evaded by availing ineligible Input Tax Credit and passing it on to recipients through circular trading. The Department alleged that the firm had operated for approximately ten months and, during that period, had defrauded the Government Exchequer of more than Rs. 8 crore.

The Department opposed the anticipatory bail applications on the ground that there was no apprehension of arrest because the investigation was at an initial stage and only summons had been issued. It therefore argued that the anticipatory bail applications were premature and not maintainable.

Nevertheless, while dismissing the anticipatory bail applications, the learned ASJ directed the Department to give one week’s prior notice before taking coercive action against the respondents.

Aggrieved by that limited protective direction, the Department approached the Delhi High Court.

Issues Involved

The principal issues before the Delhi High Court were:

  1. Whether the learned ASJ, after dismissing the respondents’ anticipatory bail applications, could direct the Department to give seven days’ prior notice before taking coercive action.
  2. Whether such seven days’ advance notice amounted to impermissible blanket protection or blanket anticipatory bail.
  3. Whether the absence of an immediate proposal for arrest completely ruled out the possibility of arrest during an ongoing CGST investigation.
  4. Whether the Department’s statutory right to investigate alleged GST fraud was impermissibly restricted by the seven-day prior-notice direction.
  5. Whether the respondents’ obligation to join investigation and comply with summons could coexist with limited protection requiring advance notice before coercive action.
  6. Whether principles laid down in cases concerning blanket anticipatory bail and economic offences required the impugned orders to be set aside.
  7. Whether seven days’ prior notice was consistent with principles of natural justice by enabling the respondents to avail appropriate remedies if coercive action was proposed.

Petitioner’s Arguments – DGGI / CGST Department

The Department challenged the direction requiring one week’s advance notice before coercive action as erroneous in law.

It relied upon Union of India vs Padam Narain Aggarwal & Ors., (2008) 13 SCC 305, where the Supreme Court discussed that arrest power must be based on objective facts and “reason to believe” concerning commission of specified offences and cannot be exercised on whims, caprice or fancy.

The Department further relied upon the principle that a blanket bail order may operate as an invitation to commit offences, a passport to continue criminal activities or a shield against illegal operations.

Reliance was also placed upon Nimmagadda Prasad vs Central Bureau of Investigation, (2013) 7 SCC 466, concerning the serious nature of economic offences involving deep-rooted conspiracies and huge loss of public funds and their effect on the financial health of the country.

The Department cited Parvinderjit Singh vs State, (2008) 13 SCC 431, to contend that blanket anticipatory bail should not ordinarily be granted and that apprehension of arrest must be founded on reasonable grounds and tangible material.

It also relied upon Gurbaksh Singh Sibbia vs State of Punjab, (1980) 2 SCC 565 and Sushila Aggarwal vs State (NCT of Delhi), (2020) 5 SCC 1, particularly the principle that anticipatory bail should not operate as blanket protection extending to all future or unspecified offences.

Further reliance was placed upon State of Maharashtra vs Vishwas Shripati Patil, 1978 Crl. LJ 1403 and Percy Rustomji Basta vs State of Maharashtra, (1971) 1 SCC 847.

The Department submitted that arrest under the CGST Act required prior written approval of the Commissioner, CGST. Since no proposal had been placed before the Commissioner seeking arrest of the respondents, there was neither an intention nor an immediate apprehension of arrest.

It was further submitted that the respondents had not joined the inquiry under Section 70 of the CGST Act despite repeated summons. The investigation was at a crucial stage, substantial revenue was involved and serious fraud was alleged.

Accordingly, the Department sought setting aside of the orders dated 08.07.2021 and 13.04.2022 insofar as they directed seven days’ prior notice before coercive action.

Respondents’ Arguments

The respondents submitted that they had appeared before the Authority and produced all relevant documents.

They further submitted that they had undertaken to appear before the Department and join the investigation.

According to the respondents, there was no infirmity in the orders dated 08.07.2021 and 13.04.2022.

They therefore sought dismissal of all three petitions filed by the Department.

Court’s Findings / Order

The Delhi High Court recognised that the gravity of economic offences affecting the financial health of the country cannot be underestimated. The Court referred to the principles emphasised in Nimmagadda Prasad, Parvinderjit Singh and Gurbaksh Singh Sibbia.

The Court held that whenever the Department has reason to believe that fraud is being committed by a company, it has a statutory right to conduct an investigation and, upon detection of fraud, proceed against the persons responsible in accordance with law.

However, the Court noted the Department’s own submission that, at that stage, only summons had been issued to the respondents requiring them to join the investigation, record statements and produce relevant documents.

The Court also noted the Department’s case that arrest could not take place without prior approval of the Commissioner, CGST, and that no proposal or application seeking arrest of the respondents had been placed before the Commissioner.

At the same time, the High Court found that since summons had been issued and investigation was ongoing, it could not be said with certainty that there was no likelihood of arrest in future.

The Court rejected the Department’s contention that the impugned direction amounted to blanket protection.

It held that:

  • no blanket protection had been granted to the respondents;
  • no condition had been imposed restricting the Department’s right to conduct investigation;
  • the respondents had been directed to join the investigation whenever required;
  • if the respondents failed to comply with notices or failed to join the investigation, the Department remained fully entitled to proceed in accordance with law.

The Court observed that since there was no imminent threat of arrest, no case for anticipatory bail had been made out. The learned ASJ, while dismissing the anticipatory bail applications, had merely directed that seven days’ prior notice be given before taking coercive action.

The High Court held that this direction was in consonance with principles of natural justice and enabled the respondents to avail remedies in accordance with law if apprehension of arrest arose.

The Court further held that the direction was confined to coercive steps proposed in the present matter and could not be treated as blanket protection against all future crimes.

Accordingly, the Delhi High Court found no merit in the petitions and dismissed all three petitions along with pending applications.

Important Clarification

The judgment does not grant anticipatory bail to the respondents.

The anticipatory bail applications had already been dismissed. What survived was only a limited procedural protection requiring the Department to provide seven days’ prior notice before taking coercive action in the present matter.

The High Court expressly clarified that this was not blanket protection against all crimes or future offences.

The respondents remained under an obligation to:

  • join the investigation whenever required;
  • comply with summons and notices;
  • provide statements and relevant documents as lawfully required.

If the respondents failed to comply with notices or failed to join the investigation, the Department remained entitled to proceed in accordance with law.

Equally important, the High Court did not curtail the Department’s statutory power to investigate suspected GST fraud. The Court recognised that the Department has the statutory right to investigate and proceed against responsible persons upon detection of fraud.

The limited seven-day notice direction was sustained because the investigation was ongoing, future arrest could not be ruled out with certainty, and the notice would enable the respondents to avail lawful remedies before coercive action.

Detailed Case Law Considered and Applied

1. Union of India vs Padam Narain Aggarwal & Ors., (2008) 13 SCC 305

The Department relied upon this Supreme Court decision concerning exercise of arrest powers on the basis of objective considerations and “reason to believe”. The judgment also discussed the impermissibility of blanket bail protection that could operate as a shield against illegal activities.

2. Nimmagadda Prasad vs Central Bureau of Investigation, (2013) 7 SCC 466

Relied upon for the principle that economic offences involving deep-rooted conspiracies and huge loss of public funds are grave offences affecting the economy and financial health of the country. The Delhi High Court acknowledged the seriousness of economic offences.

3. Parvinderjit Singh vs State, (2008) 13 SCC 431

Relied upon for the principle that blanket anticipatory bail should not ordinarily be granted and that apprehension of arrest must rest on reasonable grounds and tangible material.

4. Gurbaksh Singh Sibbia vs State of Punjab, (1980) 2 SCC 565

Considered in relation to foundational principles governing anticipatory bail and personal liberty. The Delhi High Court also referred to this authority while recognising the gravity of economic offences and the applicable legal framework.

5. Sushila Aggarwal vs State (NCT of Delhi), (2020) 5 SCC 1

Relied upon for the proposition that anticipatory bail should not become blanket protection covering all future or unspecified offences. The Delhi High Court distinguished that principle because the respondents had not received blanket protection; the direction was confined to seven days’ notice before coercive action in the present matter.

6. State of Maharashtra vs Vishwas Shripati Patil, 1978 Crl. LJ 1403

Cited by the Department in support of its challenge to blanket protection. The High Court found that the impugned orders did not grant blanket protection.

7. Percy Rustomji Basta vs State of Maharashtra, (1971) 1 SCC 847

Also relied upon by the Department in support of its challenge to the prior-notice direction.

8. Rajeev Jhawar vs Central Bureau of Investigation, Bail Appl. 1683/2022, decided on 02.06.2022

The High Court noted that orders providing prior notice before coercive action had been upheld in this case.

9. Siddharth Chattopadhyaya vs State of Punjab and Another, judgment dated 09.10.2023 of the Punjab and Haryana High Court

Cited by the Delhi High Court as supporting the validity of such prior-notice protection.

10. Ram Chandra Panda & Anr. vs State of West Bengal, 2023 SCC OnLine Cal 55

Also relied upon as authority supporting orders requiring prior notice before coercive action.

Key Legal Takeaway

The Delhi High Court has drawn a clear distinction between blanket anticipatory bail and a limited direction requiring seven days’ prior notice before coercive action in a pending CGST investigation.

A direction for seven days’ prior notice does not automatically become blanket protection where:

  • anticipatory bail itself has been refused;
  • the protection is confined to the present matter;
  • respondents remain bound to join investigation;
  • the Department’s investigation powers remain unrestricted;
  • non-cooperation can be dealt with according to law; and
  • the notice merely enables affected persons to avail appropriate legal remedies before coercive action.

The judgment is significant for GST investigation and arrest jurisprudence involving summons under Section 70 of the CGST Act, allegations of fake or ineligible ITC, circular trading, economic offences, anticipatory bail, apprehension of arrest, Commissioner’s approval for arrest, and limited procedural protection before coercive action.

Sections Involved

Section 70 of the Central Goods and Services Tax Act, 2017 – Power to summon persons to give evidence and produce documents in an inquiry.

Section 174 of the Central Goods and Services Tax Act, 2017 – Repeal and saving provisions; summons in the investigation were stated to have been issued under Sections 70 and 174 of the CGST Act.

Section 482 of the Code of Criminal Procedure, 1973 – Inherent powers of the High Court; the Department invoked this provision to challenge the impugned orders.

Section 438 of the Code of Criminal Procedure, 1973 – Anticipatory bail.

Relevant Arrest Framework under the CGST Act, 2017 – The judgment records the Department’s submission that arrest under the CGST Act required prior written approval of the Commissioner, CGST, and that no proposal seeking arrest of the respondents had been placed before the Commissioner.

Sections 132, 133, 135, 135A and 136 of the Customs Act – Referred to while discussing the Supreme Court decision in Union of India vs Padam Narain Aggarwal & Ors. concerning the requirement of “reason to believe” and objective considerations for exercise of arrest powers.

Link to download the order -

https://mytaxexpert.co.in/uploads/1783057698_352compressed.pdf

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