Saurabh Kumaar Pandey vs. State Of U.P. And 3 Ors

Held

The Court held that no case was made out in favor of the petitioner to prohibit his arrest if it were to be carried out in accordance with the provisions of the Finance Act, 1994. The Court found that the respondents had clearly stated that documentary evidence showed the company collected service tax for the periods 2014-15, 2015-16, and 2016-17 to the tune of Rs. 4.80 crore, and investigation revealed no deposit of this amount. This constituted an offence under Section 89(1)(ii) of the Finance Act, making the directors liable. The Court noted that the petitioner had been issued a summons under Section 14 of the Central Excise Act, 1944 (applicable to service tax matters) but avoided appearing before the investigating officer by filing the writ petition. The Court also acknowledged that an offence under Section 89 of the Finance Act is cognizable, and Section 91 confers power of arrest. The respondents argued that the petitioner neither made himself available for interrogation nor was ready to deposit half the service tax due. The Court emphasized that even if a director resigns, they cannot seek exoneration from liability for service tax due for the period they were a director. Since a huge amount of service tax was outstanding from the period when the petitioner was a director, he could not claim non-liability based on the 'Deed of Settlement' or his resignation. Therefore, the prayer for prohibition of arrest was dismissed.

Facts

The petitioner, Saurabh Kumaar Pandey, an ex-Director of M/s Proplarity Infratech Private Limited, filed a writ petition seeking a mandamus to prevent his arrest by the Senior Intelligence Officer, DGGI, Meerut Zone. The investigation concerns alleged evasion of service tax under Section 89(1)(ii) of the Finance Act, 1994, read with Section 174 of the Central Goods & Services Act, 2017. The petitioner claims he resigned from directorship on December 12, 2016, and was divested of signing authority in May 2015, thus having no involvement in the company's business thereafter. He argues that the arrest of co-directors was arbitrary and cites precedents regarding the necessity of arrest. The respondents contend that the petitioner was a director during the period service tax was collected but not deposited, making him liable. They also state he has not cooperated with the investigation or offered to deposit the due amount.

Key Issues

1. Whether the petitioner, as an ex-Director who resigned prior to the alleged service tax evasion period, can be arrested for the company's tax liabilities, particularly in light of the principles laid down in Arnesh Kumar vs. State of Bihar, concerning the necessity of arrest in cases punishable with imprisonment up to seven years? (Section 89(1)(ii) of the Finance Act, 1994, Section 41 of Cr.P.C.) Petitioner's Arguments: The petitioner contends that since he resigned from directorship in 2016 and was divested of signing authority in 2015, he has no connection to the alleged service tax evasion. He argues that the arrest of his co-directors was arbitrary and that his own potential arrest would be illegal, citing Joginder Singh vs. State of U.P. and Arnesh Kumar vs. State of Bihar, which emphasize reasonable justification and exceptional conditions for arrest. He also claims that no definite liability has been fixed against him. Respondents' Arguments: The respondents argue that the petitioner's resignation and divestment of signing authority do not absolve him of liability, as the service tax was collected during his tenure as a director. They assert that the company collected service tax amounting to Rs. 4.80 crore for the periods 2014-15, 2015-16, and 2016-17, which was not deposited, constituting an offence under Section 89(1)(ii) of the Finance Act. They also state that the petitioner has not cooperated with the investigation or offered to deposit half the outstanding service tax due, a condition that might obviate the need for arrest according to departmental guidelines.