Critical Analysis on the judgement of the Hon’ble Supreme Court in the case of – Radhika Agarwal v. Union of India dt. 27-02-2025 by A. Rangadham, Authorized Representative, CESTAT, Hyderabad.
Arrest under any statutory law has always been a cause not only for social debate but also judicial debate. A plethora of decisions can be read and analysed, but the balance between liberty of the individual and the crying need of the society for justice is always swayed by the facts of each case.
The Hon’ble Supreme Court in the case under discussion has provided the right balance while analysing the provisions of arrest under Customs Act and CGST Act. This is a welcome decision both for the Taxpayers as well as for the department.
The controversy on hand is pursuant to the decision of the three Judge Bench of the Supreme Court in Om Prakash and Another v. Union of India and Another [(2011) 14 SCC 1] and the subsequent amendments made to Section 104 of the Customs Act, 1962. The judgement also goes into the constitutional validity of arrest under both Customs Act, 1962 and CGST Act. Fortunately, the Apex Court has dealt with the powers of arrest under both the Acts separately.
ARREST UNDER CUSTOMS ACT, 1962:-
- The Supreme Court has categorically held that the amendments made to the Customs Act in 2012, 2013, and 2019 are substantive and effectively make the application of Omprakash (supra) ineffective. (para 22)
- It is incumbent upon the customs officer to maintain records of their statutory functions. It is also obligatory to provide grounds of arrest upon the arrestee. (para 24)
- Section 41B (the procedures of arrest and the duties of the officer making the arrest), 41D (right to meet an advocate during interrogation), 50A (information regarding arrest to be disclosed to near ones), 55A (take reasonable care of health and safety) of Cr.P.C are applicable for they complement the provisions of the Customs Act. (para 29). Interestingly, the Supreme Court is silent on the applicability of Sec. 41A of Cr.P.C.
- Judicial review of the arrest made is permissible both before and after criminal proceedings or prosecution complaints are filed. Author’s note – A word of caution on judicial review of arrest has however been recorded by Justice Bela M Trivedi which will be detailed herein after. (para 33)
- Judicial review on the ‘reasons to believe’ cannot amount to a merits review. (para 36)
- There is not much material difference between Section 19(1) of PMLA vis-à-vis Section 104(1) of Customs Act. (para 41)
- The threshold for arrest under Section 104(1) of the Customs Act is higher than that under Section 41 of the Code.
- The Customs Act explicitly classifies offenses into bailable and non-bailable as well as cognizable and non-cognizable. Therefore, the ‘reasons to believe’ must reflect these classifications when justifying an arrest. The reasons must also state how the monetary thresholds outlined in the Act are met. (para 44)
- The grounds of arrest must be given in writing to the arrestee before he is produced before the Magistrate in terms of section 104(2) of the Customs Act.
- The provisions contained in the Customs Act themselves provide enough safeguards against arbitrary and wrongful arrests. (para 48). Author’s Note – Hence, it can safely be concluded that the Hon’ble Court did not comment upon the applicability of Sc. 41A of the Code considering that the Customs Act itself provided for sufficient safeguards against unlawful arrests.
ARREST UNDER GST ACTS: –
- The ratio on the applicability of the Code to the Customs Act would equally apply to the GST Acts. (para 50)
- The GST Acts are not a complete code when it comes to the provisions of search and seizure and arrest for the provisions of the Code would equally apply when they are not expressly or impliedly excluded by provisions of the GST Acts. (para 50)
- Under GST Acts only when the offence falls under the limited categories specified in clauses (a) to (d) of Section 132(1) and the amount of tax evaded, amount of input tax credit wrongly availed or utilized, the amount of refund wrongly taken exceeds Rupees 500 lakhs then the offences would be non-bailable and cognizable. Arrests are to be made only when the offence is non-cognizable and non-bailable and satisfying the conditions of Section 132(5). (para 55)
- To pass an order of arrest in case of cognizable and non-cognizable offences, the Commissioner must satisfactorily show vide the reasons to believe recorded by him that the person to be arrested has committed a non-bailable offence and that the preconditions of section 132(5) of the Act are satisfied. Failure to do so would result in an illegal arrest. (para 56)
- The ‘reasons to believe’ must record and refer to the ‘material’ forming the basis of the findings regarding the commission of a non-bailable offense and must also be supported by the computation of the tax involved in terms of the monetary limits which make the offence cognizable and non-bailable. (para 56)
- The ‘reasons to believe’ must be based on evidence establishing to the satisfaction of the Commissioner that the requirements of section 132(5) of the GST Acts are met and not on mere ipse dixit without foundational reasoning and material. (para 57)
- Dissent has been expressed on the decision of the High Court of Delhi in the case of MakeMyTrip (India) Private Limited and Another v. Union of India and Others [2016 SCC OnLine Del 4951] to the extent that the assessment proceedings quantifying the amount of tax evaded must be completed. The Honorable Court held that there could be cases where even without a formal order of assessment the department is certain that it is a case of offence under clause (a) to (d) of section 132(1) and the amount of tax evaded falls within clause (i) of section 132(1) of the GST Acts with ‘sufficient degree of certainty’.
- Arrest memo should indicate the relevant sections of the GST Act and other laws. In addition, the grounds of arrest must be explained to the arrested person and noted in the arrest memo. The grounds of arrest must be furnished in writing as an annexure to the arrest memo. (para 62)
- If there are allegations of force and coercion by the officers for making recovery during the course of search inspection and investigation, it would be a case of breach of law. The taxpayer would be entitled to move the courts and seek a refund of tax deposited with them. The department would also take appropriate action against the officers in such cases. (para 68)
- A person summoned under section 70 of the GST Act is not protected under Article 20(3) of the Constitution. (para 69)
- On Anticipatory Bail – The power to grant anticipatory bail must be considered by the courts based on facts which are not vague or general allegations. In appropriate cases, applications for anticipatory bail can be allowed, which may also be conditional. (para 70) Author’s Note: The court has held that anticipatory bail for economic offences are to be granted only in appropriate cases and considering the facts of the case and the severity of the offence.
- Constitutional Validity of Section 69 and 70 of GST Act – While deciding the issue of legislative competence, the entries should not be read in a narrow or pedantic sense but given their broadest meaning and the widest amplitude because they are intrinsic to a machinery of government. The ambit of an entry or article laying down the legislative fields extends to all ancillary and subsidiary matters which fairly and reasonably can be said to be comprehended in it. Thus, the penalty or prosecution mechanism for the levy and collection of GST and for checking its evasion is a permissible exercise of legislative power. The power to summon, arrest and prosecute are ancillary and incidental to the power of levy and collection of goods and services tax. Hence the challenge to the vires of section 69 and 70 of the GST Acts must fail. (para 75)
Caution on Judicial Review under Art. 32 and 226, when the arrest of a person is challenged – Per Justice Bela M Trivedi
- When the jurisdiction of the courts are invoked under Article 226 or Article 32 challenging the punitive or preventive detention, the court must take into consideration the nature of rights infringed, the scope and object of the legislation under which such arrest or detention is made, the need to balance the rights and interests of the individual as against those of the society etc. (para 4)
- Judicial intervention is warranted only in exceptional circumstances when the arrest is prima facie found to be mala fide, or is prompted by extraneous circumstances, or is made in contravention of or in breach of provisions of the concerned statute or when the authority acting under the concerned statute does not have the requisite authority etc. (para 5)
- The safeguards provided in the Special Acts against the arrest of a person are – the requirement to have ‘material’ in possession of the authorized officer, to form an opinion and record in writing the ‘reasons to believe’ that the person arrested is guilty of an offence and has committed an offence under the provisions of the concerned Act and the requirement to inform the person arrested of the grounds of arrest. (para 6)
- When the legality of an arrest made under the Special Acts like PMLA, UAPA, Foreign Exchange, Customs Act, GST Acts, etc. is challenged, the Court should be extremely loath in exercising its power of judicial review. (para 9)
- Sufficiency or adequacy of material on the basis of which the belief is formed by the officer, or the correctness of the facts on the basis of which such belief is formed to arrest the person, could not be a matter of judicial review. (para 9)
- The very use of the phrase “reasons to believe” implies that the officer should have formed a prima facie opinion or belief on the basis of the material in his possession that the person is guilty or has committed the offence under the relevant special Act. Sufficiency or adequacy of the material on the basis of which such belief is formed by the authorized officer, would not be a matter of scrutiny by the Courts at such a nascent stage of inquiry or investigation. (para 10)
- Ordinarily arrest is a part of the process of investigation intended to secure several purposes viz., the accused may have to be questioned in detail regarding various facets of motive preparation Commission and aftermath of crime and the connection of other persons if any in the crime; is that consensus in which the accused may provide information leading to discovery of material facts; it may be necessary to curtail his freedom in order to enable the investigation to proceed without hindrance and to protect witnesses and persons connected with the victim of the crime; to prevent his disappearance; to maintain law and order in the society etc. For these are such other reasons arrest may become an inevitable part of the process of investigation. (para 11)
- Any liberal approach in construing the stringent provisions of the Special Acts may frustrate the very purpose and objective of the Acts. It hardly needs to be stated that the offences under the PMLA or the Customs Act or FERA are the offences of very serious nature affecting the financial systems and in turn the sovereignty and integrity of the nation. The provisions contained in the said Acts therefore must be construed in the manner which would enhance the objectives of the Acts and not frustrate the same. (para 12)
- Frequent or casual interference of the courts in the functioning of the authorized officers who have been specially conferred with the powers to combat the serious crimes, may embolden the unscrupulous elements to commit such crimes and may not do justice to the victims, who in such cases would be the society at large and the nation itself. Minor procedural lapse on the part of authorized officers may not be seen with magnifying glass by the courts in exercise of the powers of judicial review, which may ultimately end up granting undue advantage or benefit to the person accused of very serious offences under the special Acts. (para 12)
The salutary caution on judicial review of arrests under Special Acts set forth by Justice Bela M Trivedi and the Chief Justice upholding the vires of arrest and summons under the GST Acts laced with sufficient safeguards for the arrestee, the Hon’ble Supreme Court has laid down a definitive path to be adopted by the authorised officer causing arrest and a beacon for the arrestee.
