UNDERSTANDING ARREST UNDER GST LAWS

 

 

UNDERSTANDING ARREST UNDER GST LAWS

 

BACKGROUND

Before adverting to the provisions of arrest, it is imperative to first understand under criminal law what are different categories of offences. As per the Criminal Procedure Code, 1973 (CrPC) and now Bharatiya Nagarik Suraksha Sanhita, 2023 (“BNSS”), there are following four categories of offences:

1.      Bailable offence: These are those offences for which the accused is entitled to get a bail. Police officer must release the accused if accused is willing to furnish a bond. Usually, these are offences where the imprisonment is less than 3 years. Thus, in these cases, accused has a right to get a bail.

2.      Non-bailable offences: These are those offences for which bail is not a matter of right. Police is not compelled to release the accused on bail. The accused is required to seek bail from the Court which is granted on its merits. Court along with the bond can impose conditions which the accused is required to fulfil. Usually, these are offences where the imprisonment is more than 3 years.

3.      Cognizable offences: These are the offences for which a police officer can initiate investigation and can make an arrest without a prior approval of the Magistrate.

4.      Non-cognizable offences: These are the offences for which a police officer is required to take a prior approval of the Magistrate to initiate an investigation or to make an arrest.  

Under the Central Excise regime, prior to 2012, all offences were treated as “non-cognizable offences” and Hon’ble Supreme Court in Om Prakash (2011) 14 SCC 1 had held the said offences to be bailable offences. Thus, Tax Department could not initiate criminal investigation or make an arrest without the order of the Magistrate.

Post this judgment, Central Excise Act and Customs Act were amended in 2012, 2013 and 2019 to define certain categories of offences to be cognizable/ non-cognizable and bailable / non-bailable. For the purpose of this article, will not delve into the offences under Central Excise and Customs.

 

 

 

 

Offences under GST

Under Section 132, offences have been categories under cognizable/ non-cognizable and bailable / non-bailable. They are summarized below for easy reference:

Clause	Offence	Threshold	Cognizable/ bailable
(a)	Supply without invoice	More than INR 5 crore	·      Cognizable ·      Non-Bailable
		Less than INR 5 crore	·      Non-cognizable ·      Bailable
(b)	Issues an invoice without supply leading to wrongful availment of credit	More than INR 5 crore	·      Cognizable ·      Non-bailable
		Less than INR 5 crore	·      Non-cognizable ·      Bailable
(c)	Availing ITC on invoices mentioned in clause (b) or fraudulently avails credit without any invoice	More than INR 5 crore	·      Cognizable ·      Non-bailable
		Less than INR 5 crore	·      Non-cognizable ·      Bailable
(d)	Collecting tax but not depositing it to Government beyond three months	More than INR 5 crore	·      Cognizable ·      Non-bailable
		Less than INR 5 crore	·      Non-cognizable ·      Bailable
(e)	Evading tax or fraudulently claiming credit in cases other than mentioned in clause (a) to (d)	Any amount	·      Non-cognizable ·      Bailable
(f)	Falsifying financial records with intention to evade payment of tax	Any amount	·      Non-cognizable ·      Bailable
(h)*	Receiving goods which are liable for confiscation	Any amount	·      Non-cognizable ·      Bailable
(i)	Receiving services in contravention of the Act	Any amount	·      Non-cognizable ·      Bailable
(l)**	Attempt to commit or abetment any of the above offences	Any amount	·      Non-cognizable ·      Bailable

 

Thus, for all offences falling under category (a) to (d) where the tax evasion is alleged to be more than INR 5 crore, GST officials can make an arrest without the order of the Magistrate. These offences being non-bailable, GST Officer is required to produce the accused before the Magistrate who on the basis of merits of the case either remand the accused or grants a bail or send the accused to judicial custody.

Arrest under GST

Now that we have a fair idea that for which offences a person can be arrested by GST Officials, it is imperative to see the procedure to be followed which if not will lead to release of the accused.

Under GST law, ONLY a commissioner [under Section 69] has the power to make an arrest which he can authorise to be executed through any officer. This arrest cannot so happen for any or all breach of GST provisions and is reserved ONLY for serious offences [given under Section 132 and explained above].

Further, CBIC has issued detailed Instruction No. 2/2022-23 (GST-Investigation), dated 17-8-2022 which is to be followed before making the decision to carry out an arrest. They are extracted below:

3.2_Since arrest impinges on the personal liberty of an individual, the power to arrest must be exercised carefully. The arrest should not be made in routine and mechanical manner. Even if all the legal conditions precedent to arrest mentioned in Section 132 of the CGST Act, 2017 are fulfilled, that will not, ipso facto, mean that an arrest must be made. Once the legal ingredients of the offence are made out, the Commissioner or the competent authority must then determine if the answer to any or some of the following questions is in the affirmative:

3.2.1_Whether the person was concerned in the non-bailable offence or credible information has been received, or a reasonable suspicion exists, of his having been so concerned?

3.2.2_Whether arrest is necessary to ensure proper investigation of the offence?

3.2.3_Whether the person, if not restricted, is likely to tamper the course of further investigation or is likely to tamper with evidence or intimidate or influence witnesses?

3.2.4_Whether person is mastermind or key operator effecting proxy/benami transaction in the name of dummy GSTIN or non-existent persons, etc. for passing fraudulent input tax credit etc.?

3.2.5_As unless such person is arrested, his presence before investigating officer cannot be ensured.

3.3_Approval to arrest should be granted only where the intent to evade tax or commit acts leading to availment or utilization of wrongful Input Tax Credit or fraudulent refund of tax or failure to pay amount collected as tax as specified in sub-section (1) of Section 132 of the CGST Act, 2017, is evident and element of mens rea/guilty mind is palpable.

3.4_Thus, the relevant factors before deciding to arrest a person, apart from fulfilment of the legal requirements, must be that the need to ensure proper investigation and prevent the possibility of tampering with evidence or intimidating or influencing witnesses exists.

3.5_Arrest should, however, not be resorted to in cases of technical nature i.e. where the demand of tax is based on a difference of opinion regarding interpretation of Law. The prevalent practice of assessment could also be one of the determining factors while ascribing intention to evade tax to the alleged offender. Other factors influencing the decision to arrest could be if the alleged offender is co-operating in the investigation, viz. compliance to summons, furnishing of documents called for, not giving evasive replies, voluntary payment of tax etc.

The sine qua non for making an arrest is that Commissioner MUST has “reasons to believe” on the basis of “material evidence” that a cognizable and non-bailable offence of INR 5 crore and above has been committed by the accused. Once this condition is satisfied, GST Department can make an arrest on having reasonable apprehension that if not arrested then the accused will tamper with the evidence or proper investigation will not be carried out or will not be found in future.

Procedure of arrest

If the GST Department has arrested the person, then they are required to follow the below procedure:

While making the arrest GST Officials MUST follow the procedure laid down in Section 41-B of CrPC [Section 36 of BNSS] i.e. officer making the arrest must identify himself to arrestee, Section 50-A of CrPC [Section 48 of BNSS] i.e. inform about the arrest to the person nominated by arrestee and Section 55-A of CrPC [Section 56 of BNSS] i.e. to ensure health and safety of arrestee.

These provisions are in furtherance of the procedure laid down by Hon’ble Supreme Court in the matter of D.K. Basu v. State of West Bengal 1997 (1) SCC 416. The said procedure is as under:

(1) The police personnel carrying out the arrest and handling the interrogation of the arrestee should bear accurate, visible and clear identification and name tags with their designations. The particulars of all such police personnel who handle interrogation of the arrestee must be recorded in a register.

(2) That the police officer carrying out the arrest of the arrestee shall prepare a memo of arrest at the time of arrest and such memo shall be attested by at least one witness, who may either be a member of the family of the arrestee or a respectable person of the locality from where the arrest is made. It shall also be countersigned by the arrestee and shall contain the time and date of arrest.

(3) A person who has been arrested or detained and is being held in custody in a police station or interrogation centre or other lock-up, shall be entitled to have one friend or relative or other person known to him or having interest in his welfare being informed, as soon as practicable, that he has been arrested and is being detained at the particular place, unless the attesting witness of the memo of arrest is himself such a friend or a relative of the arrestee.

(4) The time, place of arrest and venue of custody of an arrestee must be notified by the police where the next friend or relative of the arrestee lives outside the district or town through the Legal Aid Organisation in the District and the police station of the area concerned telegraphically within a period of 8 to 12 hours after the arrest.

(5) The person arrested must be made aware of this right to have someone informed of his arrest or detention as soon as he is put under arrest or is detained.

(6) An entry must be made in the diary at the place of detention regarding the arrest of the person which shall also disclose the name of the next friend of the person who has been informed of the arrest and the names and particulars of the police officials in whose custody the arrestee is.

(7) The arrestee should, where he so requests, be also examined at the time of his arrest and major and minor injuries, if any present on his/her body, must be recorded at that time. The “Inspection Memo” must be signed both by the arrestee and the police officer effecting the arrest and its copy provided to the arrestee.

(8) The arrestee should be subjected to medical examination by a trained doctor every 48 hours during his detention in custody by a doctor on the panel of approved doctors appointed by Director, Health Services of the State or Union Territory concerned. Director, Health Services should prepare such a panel for all tehsils and districts as well.

(9) Copies of all the documents including the memo of arrest, referred to above, should be sent to the Illaqa Magistrate for his record.

(10) The arrestee may be permitted to meet his lawyer during interrogation, though not throughout the interrogation.

(11) A police control room should be provided at all district and State headquarters, where information regarding the arrest and the place of custody of the arrestee shall be communicated by the officer causing the arrest, within 12 hours of effecting the arrest and at the police control room it should be displayed on a conspicuous notice board.

 

CBIC has also issued Instructions which lays down following additional procedure:

·      The communication issued by the officers must have a Document Identification Number (DIN).

·      A woman should be arrested only by a woman officer in accordance with section 46 of Code of Criminal Procedure, 1973.

·      It is the duty of the person having the custody of the arrested person to take reasonable care of the health and safety of the arrested person.

·      Arrest should be made with minimal use of force and publicity, and without violence. The person arrested should be subjected to reasonable restraint to prevent escape.

Rights of the Arrestee

The arrestee has following rights:

1.     Seek copy of the arrest memo which much capture what “reasons to believe” commissioner had against him along with “material evidence”.

2.     Right to meet an advocate of his choice as provided under Section 41-D of CrPC [Section 38 of BNSS]. Arrestee has a right to meet the advocate of his choice during the interrogation [but not throughout the interrogation].

To summarize

Power to make an arrest under GST is not a power which can be exercised casually. There is a reason why courts have consistently taken a view that tax officials are not police officers who are making arrest under Section 41 of CrPC [Section 35 of BNSS] or carrying out investigation under Section 173 of CrPC [Section 193 of BNSS]. The threshold to make an arrest by tax officials is on a higher pedestrian i.e. there must be “reasons to believe” on the basis of “material evidence”.

The difficulty lies when tax officials use arrest or “threat of arrest” as a mode for recovery of alleged tax demand.

Recently, the Hon’ble Supreme Court in the matter of Radhika Agarwal 2025 INSC 272 after noting various circulars issued by CBIC observed that tax authorities must exercise due care and caution while making an arrest as coercion and threat would amount to a violation of fundamental rights and the arrestee would be entitled to move the courts. Therefore, one should be aware of the arrest provisions.