Provision of summon under GST - Tangle of discretion and bureaucracy

Debasish Bandyopadhyay, B.Com, LL.B, PGDFM

The legislative intent and purpose of provision relating to summon under GST has frequently been coming under judicial scrutiny in the recent past. Section 70 of the CGST Act relates to the power to summon persons to give evidence in relation to any enquiry under the GST Act. The source of power to summon witness and the proper officer to issue such summon has been under the storm of controversy in the GST regime. The said power of summon is similar in nature as enshrined in the Code of Civil Procedure, 1908. For the sake of understanding extract of section 70 of the Act, which is as follows:

"70. Power to summon persons to give evidence and produce documents.

(1) 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 (Central Act 5 of 1908).

(2) Every such inquiry referred to in sub-section (1) shall be deemed to be a "judicial proceedings" within the meaning of section 193 and section 228 of the Indian Penal Code, 1860 (Central Act 45 of 1860)."

On careful reading of the aforesaid provision, it is pertinent to note that power is conferred on the proper officer under section 70 to issue summon on ANY person whose attendance he/she considers necessary. Therefore, it is clear from the above that the statute does not put any specific restriction to issue summon to Managing Director or General Managers or any other senior executives of any company. However, with the evolving jurisprudence on the subject matter, summon must be reasonable and must not be issued arbitrarily based on assumption and surmise. On the basis of various judicial pronouncements, it is almost settled position on the provision of summon that proper officer has legal authority to summon any person including Managing Director or General Manager but summon must be issued to them only it is absolutely necessary for the purpose of enquiry.

Whereas in respect of ground realities on the application of summon provision, it is widely believed that field formation does not show any restrain or respect in issuing summon while conducting any enquiry under the GST law. It is observed that indiscriminate usage of summon provision resulting into abuse of power giving rise to extensive unease in doing business across the country. In fact, unnecessary issuance of summons to senior managerial officials of any organization may create panic leading to defeat the whole spirit of the legislative intent of such provision. Sometimes, summons are being issued without assessing the requirement or legal tenability of them.

One important question that has been the centre of debate on the trade circle is the validity of statement recorded under summon proceedings under GST. It is pertinent to highlight based on sufficient jurisprudence under erstwhile regime as well as under GST regime that tax officer or GST officer cannot be equated with police officer, therefore section 25 of Indian evidence Act does not apply. In the matter of P.V. Ramana Reddy vs Union of India [2019-VIL-22-SC] certain observations are worth taking note of as under:

- The officers under various tax laws such as the Central Excise Act etc. are not police officers to whom Section 25 of the Indian Evidence Act 1872 would apply,

- The power conferred upon the officers appointed under various tax enactments for search and arrest are actually intended to aid and support their main function of levy and collection of taxes and duties,

- A person against whom an enquiry is undertaken under the relevant provisions of the tax laws, does not automatically become a person accused of an offence, until prosecution is launched,

- The statements made by persons in the course of enquiries under the tax laws, cannot be equated to statements made by persons accused of an offence, and

- There is no protection for such persons under Article 20(3) of the Constitution of India, as the persons summoned for enquiry are not persons accused of any offence within the meaning of Article 20(3) of the Constitution of India.

In a recent development, Calcutta High Court has held that summon proceedings may not be sustainable when Insolvency and Bankruptcy Code (IBC) is invoked. In the matter of Manoj Pushkar Toshniwal @ Manoj Toshniwal vs Union of India & ors. [2021-VIL-805-CAL], DGGI issued summons to petitioner under section 70 of the CGST Act for having reasons to believe that petitioner was in possession of facts and/or documents, which were relevant for enquiry, and further, look out notice was issued against petitioner for purpose of further investigation. The petitioner cooperated in response to several summons issued by DGGI and they are made to know about decision taken by NCLT that whole of control of company is under liquidation and under management of Resolution Professional under IBC. In the aforesaid scenario, the Hon'ble High Court has held that interim order cannot be cancelled to issue warrant of arrest on prayer of DGGI merely on ground of non-appearance made on behalf of petitioner on assigned date, therefore, look out Notice is issued in arbitrary manner and is quashed. The relevant part of the judgement is extracted below;

"Therefore, I am of the view that without giving notice to the petitioner, interim order should not have been cancelled to issue warrant of arrest on the prayer of the respondent nos.3 and 4 merely on the ground of non-appearance made on behalf of the petitioner on the assigned date.

In the context of what is discussed above, it is made hereby clear that the petitioner has a fundamental right of movement and right to life as enshrined in Article 19(1)(b) of the Constitution of India. Therefore, he has a right to travel beyond the territory of India as held by the Hon'ble Supreme Court in Maneka Gandhi vs. Union of India (supra) and in case of Satwant Singh Sawhney Vs. D. Ramarathnam Assistant reported in 19767 AIR 1836:1967 SCR (2) 525 wherein it has been held by majority decision of the Hon'ble Apex Court that 'the expression personal liberty which occurs in Art. 21 of the Constitution includes the right to travel abroad and that no person can be deprived of that right except according to procedure established by law. The mere prescription of some kind of procedure cannot even meet the mandate of Article 21. The procedure prescribed by law has to be fair, just and reasonable, not fanciful, oppressive or arbitrary. The question whether the procedure prescribed by law which curtails or takes away the personal liberty guaranteed by Art. ................................"

In such a backdrop, it is clearly evident from the above discussion that provision of summon has grossly been misused in the GST regime. The provision must be exercised sparingly in absolute necessary circumstances. Let us have a look at certain relevant observation of the Economic Survey 2021-22, as extracted below;

"6.14 This reveals that having more stringent regulation may actually mean that exercise of discretion on the ground is more, not less. Thus, it is clear that in a world full of uncertainty and complexity, it's not possible to substitute effective supervision with more prescriptive regulation. Note that employing third-party supervision cannot substitute the process of simplifying regulation to lower opaque discretion because as argued above verifiability of efforts and actions by any third party is minimal when contracts are incomplete. Therefore, the question then arises is how can we allow for discretion such that is not misused and leads to effective supervision.

THE PROBLEM OF REGULATORY DEFAULT

6.15 From the discussion in the previous sections, it is clear that there is a need to create simple regulation and complement the same by providing flexibility and discretion to the supervisor. However, if the legal and institutional frameworks do not explicitly limit mushrooming of regulations, policymakers may naturally drift towards more regulation, even if it is sub-optimal for the economy."

It is abundantly clear that stringent regulatory provisions may not be effective due to inappropriate exercise of discretionary muscle by the field formation in implementing them. It is quite clear that in absence of simple legislation and effective supervision, the intent and purpose of any provision may not reap the intended benefit. The bureaucratic apparatus of the Government is well aware of the fact but the policymakers of the country need to understand that over-burden of regulations and deterrent provisions may turn out to be counter-productive in making the country's economic climate investment-friendly and conducive to business. Therefore, it is hoped that the proper officers authorized to issue summons must exercise such sensitive provision with care and discretion realizing the economic and legislative reality of the country.

[Date: 11/12/2021]

(The views expressed in this article are strictly personal.)