Supreme Court's double whammy for GST evaders

The Supreme Court (SC) on Wednesday hit the evaders of the Goods and Services Tax (GST) with a double whammy by allowing the Directorate General of GST to arrest defaulters and warning High Courts against granting bail to such persons prior to arrest.

The order came on an appeal filed by the Union Government drawing the Court's attention to a growing phenomenon in High Courts where persons evading the GST file writ petitions challenging the arresting powers of revenue officials under the Central Goods and Services Tax (CGST) Act. On that pretext, they would obtain a stay on arrest.

Solicitor General Tushar Mehta specifically pointed to an order by the Bombay HC passed on April 11, granting protection from arrest to a set of GST defaulters. On the other hand, he referred to another decision by the Telangana HC, which upheld the GST Directorate General's power to arrest. Incidentally, last week, an appeal was brought against this order before the SC, which got dismissed.

The Centre argued that the question of law ought to be settled once and for all by a three-judge bench of the SC, otherwise with defaulters taking advantage of the contradictory views, the Directorate General's functions would be severely impeded.

The Court said, "As different HCs of the country have taken divergent views in the matter, we are of the view that the position in law should be clarified by this Court." It issued a notice to various petitioners before the HC and posted the matter for July.

But the damage was done by the latter part of the order. Although the SC did not interfere with the Bombay HC order granting bail to some of the alleged GST defaulters, the bench added a rider for HCs while dealing with any similar case in future. It said, "We make it clear that the HCs, while entertaining such requests in future, will keep in mind that this Court by order dated May 27, 2019 had dismissed the petition filed against the judgment and order of the Telangana HC in a similar matter, wherein the HC of Telangana had taken a view contrary to what has been held by the Bombay HC in the present case."

This was a clear warning by the SC asking HCs to desist from granting bail in the light of Telangana HC's view getting approval of the SC. Senior advocate Mukul Rohatgi representing a set of persons facing arrest requested the Court to delete this portion of the judgment as it will close all doors for those anticipating arrest. The bench shot back, "That is our idea (behind passing the order)."

The Bombay HC had maintained that unless there is an FIR, no arrest is possible. But the Union Government claimed that FIR is not mandatory as the issue concerns securing the revenue of the country and netting economic offenders who cause a loss to the exchequer. Further, the Centre claimed there are inbuilt safeguards under the CGST Act and hence, those arrested have remedy under the law to challenge their arrest.