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Article Dated 30th April, 2024

Power to Arrest [Section 69]

In the realm of the Goods and Services Tax (GST) Act, the term "arrest" lacks a specific definition, yet judicial interpretations elucidate its essence as the act of apprehending an individual under lawful command or authority, thereby depriving them of their liberty through the enforcement of a legal warrant.

Under the GST framework, arrests are subject to stringent conditions. They are permissible only when the accused individual stands implicated in offences stipulated for such actions, with the monetary involvement surpassing a designated threshold. Moreover, the authority to effectuate arrests rests solely with the Commissioner, who can empower subordinate officers upon reasonable suspicion of specified offences.

In the event of tax evasion, the ramifications extend beyond financial penalties; certain transgressions entail imprisonment, with the severity contingent upon the gravity of the offence. Notably, section 132 of the GST Act delineates the catalogue of offences punishable with incarceration, indicating the gravity with which tax evasion is regarded within the legal framework.

According to section 132, following are the cases where prosecution can be initiated:

  • Supply without proper invoice issuance.

  • Issuing invoices without corresponding supply.

  • Wrongful or fraudulent availing of Input Tax Credit (ITC).

  • Nonpayment of tax collected within the stipulated timeframe.

  • Tax evasion or fraudulent refund claims.

  • Falsifying information or records to evade tax.

  • Dealing in goods liable to confiscation under GST.

  • Engaging in services contravening GST laws.

  • Attempting to commit or aiding in any of the above offenses.

However, arrests can be made under GST law only where the amount involved exceeds 2 crores or where a person commits any of the offences a second time or subsequently thereafter.

However, whoever issues, or causes to issue and retain the benefits arising out of issuance of any invoice/bill without supply of goods and/or services in violation of the provisions of GST law leading to wrongful availment or utilisation of ITC or refund of tax and amount of such tax evaded/ITC wrongly availed or utilised or refund wrongly taken exceeds  1 crore but does not exceed 2 crore, he shall be punishable with imprisonment for a term which may extend to 1 year and with fine.

Safeguards for a person who is placed under arrest:

Notification of Grounds: Individuals arrested for cognizable offences must be provided with a written explanation of the reasons for their arrest. Moreover, they must be presented before a magistrate within 24 hours of their arrest.

Bail Provision: For those arrested for Non-Cognizable and bailable offences, the Deputy/Assistant Commissioner has the authority to grant bail. Such individuals are subjected to the bail provisions outlined in Section 436 of the Code of Criminal Procedure, 1973.

Compliance with Criminal Procedure Code: All arrests must adhere to the provisions delineated in the Code of Criminal Procedure, 1973, specifically those relating to arrest procedures.

Additionally, section 132 of the GST Act specifies the categorization of offences as cognizable and nonbailable, or Non-Cognizable and bailable, providing clarity regarding the legal treatment of different types of offences under GST law.

Cognizable and Non-Cognizable Offences:

Cognizable Offence: Refers to serious offences where a police officer has the authority to arrest without a warrant and to initiate an investigation either with or without the court`s permission. These are typically considered severe violations of the law.

Non-Cognizable Offence: Signifies less serious offences for which a police officer cannot make an arrest without a warrant, and an investigation cannot commence without a court order. These offences are generally of a lesser magnitude compared to cognizable offences.

Cognizable and Non-Cognizable Offences under the CGST Act: According to section 132 of the CGST Act, offences related to taxable goods and/or services, where the amount of tax evaded, Input tax credit wrongly availed, or refund wrongly taken exceeds Rs. 5 crores, are deemed cognizable and nonbailable. In such cases, bail can only be considered by a Judicial Magistrate. Conversely, other offences under the Act are Non-Cognizable and bailable, with arrested individuals eligible for release on bail by Deputy/Assistant Commissioners.

Some Special consideration to be made during arrest:

Adherence to provisions of the Code of Criminal Procedure, 1973 is crucial during arrest procedures, emphasizing the necessity for CGST field officers to be well-versed in these regulations.

Section 57 of the Cr.P.C., 1973 mandates that individuals arrested without warrant must not be detained for a period exceeding what is reasonable under the circumstances, typically capped at 24 hours (excluding travel time to the Magistrate`s court).

Within the specified time frame, as outlined in Section 56 of the Cr.P.C., the arresting authority must promptly present the arrested individual before a Magistrate with jurisdiction over the case.

Guidelines for arrest necessitate a case-specific approach, considering factors such as the gravity of the offence, extent of duty evasion or wrongful credit availed, quality of evidence, potential tampering with evidence or witness influence, and cooperation with the investigation.

The decision to arrest is contingent upon careful evaluation, aiming to ensure thorough investigation, prevent flight, apprehend masterminds orchestrating proxy or benami imports/exports, address evident intent to evade duty, prevent tampering with evidence or witness intimidation, and address cases involving substantial tax evasion.

Adhering to these guidelines ensures arrests are conducted judiciously, safeguarding both the integrity of the investigation process and the rights of individuals within the legal framework.

Related case law:

The Delhi High Court, represented by the Division Bench of Manmohan and Sanjeev Narula, upheld the validity of Sections 132 and 69 of the Central Goods and Services Tax Act, 2017, denying interim relief to the petitioner. The petitioners contended that these sections were unconstitutional as they were provisions of a criminal nature, arguing that they could have been enacted under Article 246A of the Constitution of India, 1950. They further emphasized that the power to arrest and prosecute is not inherent to the power to levy and collect goods and services tax.

The court, however, upheld the presumption of constitutionality for enactments, stating that laws are not to be declared unconstitutional based on speculative abuse of power. It referenced previous judgments to support its reasoning and highlighted the wide scope of Article 246A, which grants powers to make laws on Goods and Services Tax. The court concluded that the CGST Act falls within the legislative competence of Parliament, considering that arrest and prosecution powers are ancillary to the power to levy and collect GST. Even if such power wasn`t explicitly under Article 246A, it could be traced to Entry I of List III, encompassing "Criminal Law." Therefore, the court opined that the CGST Act is valid, considering its overall substance and legislative intent.

CA Pranay Jain is a young and aspiring Chartered Accountant. He qualified Chartered Accountancy Course in 2021 and has a well-established practice in various fields of taxation and auditing, with his core area of practice being in the field of litigation i.e., handling assessment and appeal-related matters and representing assesses before various tax departments.

He is also socially active on LinkedIn at linkedin.com/in/capranayjain

CA Pranay Jain
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