GST Section 69 Arrest Before Adjudication: SC Clarifies ‘Reasons to Believe’ Threshold

GST Arrest Before Adjudication: How Much Evidence Must The Commissioner Have Before “Reasons To Believe” Become Sufficient?

Summary: Few powers under the GST regime generate as much anxiety as Section 69 of the CGST Act, 2017, which allows a Commissioner to authorise the arrest of a person before any assessment, adjudication, or determination of tax liability has taken place. The central issue is whether a person can be arrested for a tax dispute that has not yet been proved and, more specifically, how much material the Commissioner must possess before “reasons to believe” move beyond suspicion into a lawful basis for arrest. Section 69(1) permits arrest where the Commissioner has reasons to believe that a person has committed specified offences under Section 132(1), including serious cases involving tax evasion, fraudulent input tax credit, or non-payment of collected tax above statutory monetary thresholds. The Supreme Court’s ruling in Radhika Agarwal vs Union of India (2025 INSC 272) establishes that a finalised tax liability is not a mandatory precondition to arrest, but also makes clear that “reasons to believe” is a genuine and higher threshold that cannot be satisfied mechanically. The belief must be supported by measurable and verifiable material, including records such as seized goods, invoices, bank records, statements or transaction data, from which a reasoned estimate of evasion can be drawn. The judgment therefore creates a middle path between mere suspicion and a concluded assessment. While judicial review does not permit courts to re-appreciate the merits of the tax case, courts can examine whether the statutory preconditions, recorded reasons and communicated grounds were genuinely satisfied. For taxpayers and counsel, the principal battleground in challenging pre-adjudication arrest is consequently whether the recorded reasons are supported by specific, verifiable material rather than conclusory statutory language.

Introduction

Few powers under the GST regime generate as much anxiety as Section 69 of the CGST Act, 2017, which allows a Commissioner to authorise the arrest of a person before any assessment, adjudication, or determination of tax liability has taken place. For a taxpayer, this raises an uncomfortable question: can a person be arrested for a tax dispute that hasn’t even been proved yet? For practitioners, the sharper question is evidentiary: exactly how much material must the Commissioner hold before “reasons to believe” cross the threshold from suspicion into a lawful basis for arrest?

The Statutory Trigger

Section 69(1) empowers the Commissioner to authorise arrest where he “has reasons to believe” that a person has committed an offence specified under clauses (a) to (d) of Section 132(1), and where the offence falls within the categories attracting imprisonment of five years or less (clause (i)); broadly, cases involving tax evasion, fraudulent input tax credit, or non-payment of collected tax above the monetary thresholds set out in the Act. The phrase “reasons to believe” is deliberately not defined in the CGST Act, which has forced courts to import meaning from analogous provisions in the Customs Act, 1962, the Prevention of Money Laundering Act (PMLA), and general criminal jurisprudence.

Why Pre-Adjudication Arrest Was Controversial

Ordinarily, tax administration follows a sequence: scrutiny, show cause notice, adjudication, and only then recovery or penalty. Arrest under Section 69, however, can precede all of this. Taxpayers and trade bodies challenged this scheme on the ground that it converts a fiscal statute into a quasi-criminal instrument, allowing coercive detention on the department’s own subjective satisfaction, without the safeguard of a prior determination that any tax is actually owed. This argument found early support from the Delhi High Court, which in the Make My Trip line of Cases (originating from service tax arrests in 2016, and eventually reaching the Supreme Court in Union of India v. MakeMyTrip (India) Pvt. Ltd., 2019)  took a dim view of arrests carried out without a prior show cause notice or credible determination of liability, at one point remarking that such conduct risked reducing the system to a “police state.”

Radhika Agarwal: The Supreme Court Draws the Line

The controlling precedent today is the Supreme Court’s Constitution Bench-adjacent ruling in  Radhika Agarwal vs Union of India (2025 INSC 272, decided 27 February 2025), which finally settled the constitutional validity of arrest powers under both the Customs Act and the CGST Act while laying down the evidentiary threshold for “reasons to believe.”

Three holdings from this judgment define the current legal position:

First, arrest does not require a finalised tax liability.

The Court rejected the argument that adjudication or assessment must precede arrest. It held that crystallisation of tax liability is not mandatory before an arrest is carried out, and that where the department is otherwise certain, with a sufficient degree of certainty, that an offence under Section 132(1)has been made out, the Commissioner may authorise arrest after recording explicit reasons based on material and evidence already gathered. In doing so, the Court effectively moved away from the stricter position the Delhi High Court had taken in the MakeMyTrip line of cases, where arrest without a prior show cause notice or formal quantification of dues had been treated as impermissible.

Second, “reasons to believe” is a genuine, higher threshold, not a rubber stamp.

The Court was careful to distinguish this standard from casual or mechanical satisfaction. An officer can be said to have “reason to believe” only when the material before him leaves no sufficient cause to believe otherwise — a test considerably more stringent than the “mere suspicion” threshold that governs ordinary criminal investigations, and one that cannot be met through a routine or perfunctory exercise. This is a significant safeguard: it means the Commissioner cannot simply record boilerplate language mirroring the statutory text. There must be an actual application of mind to specific facts that rules out innocent explanations.

Third, the reasons must be tethered to measurable, recorded material.

The belief that an offence has been committed must flow from a computation based on measurable, verifiable factors, such as goods seized, invoices, or transaction records, and a completed assessment or adjudication is not a precondition for such a belief to be validly formed. This confirms that while a completed assessment is not necessary, the Commissioner must still point to quantifiable evidence: seized goods, invoices, bank records, statements, e-way bill mismatches, or similar from which a reasoned estimate of evasion can be drawn. A vague apprehension that “something is wrong” will not suffice; there must be a working calculation, even if provisional, showing that the evasion plausibly crosses the monetary threshold that makes the offence cognizable and non-bailable under Section 132.

What This Means in Practice

Read together, Radhika Agarwal creates a middle path: the Commissioner does not need a completed, appealable assessment order before authorising arrest, but neither can he act on suspicion alone. In practical terms, before “reasons to believe” become legally sufficient, the following elements should typically be discernible from the file:

• Documentary material in hand: not merely intelligence inputs or third-party allegations, but tangible records such as seized goods, invoices, e-way bills, GSTR mismatches, bank statements, or recorded statements under Section 70
• A working quantification of evasion: an approximate, evidence-based estimate showing that the alleged evasion falls within the monetary bands under Section 132(1) that attract the relevant term of imprisonment, even if the final figure is later revised at assessment.
• A recorded satisfaction in writing: the officer’s belief must be reduced to writing and must reflect genuine application of mind, distinguishing it from a template recitation of the statutory phrase.
• Grounds of arrest communicated to the person: the Court reinforced that written grounds of arrest must be furnished at the time of arrest, enabling the arrestee to challenge its legality and seek bail, aligning GST arrest procedure with the safeguards recognised under Article 22 of the Constitution and analogous PMLA jurisprudence.
• Absence of a completed adjudication is not fatal, but its absence raises the evidentiary bar on what other material must independently establish the “sufficient degree of certainty” the Court speaks of.

Judicial Review Remains Available, But Is Narrow

Importantly, the Supreme Court also clarified that judicial review of an arrest is not an invitation for courts to re-appreciate the merits of the tax case. Courts will examine only whether the statutory preconditions- material in possession, recorded reasons, and communicated grounds were genuinely satisfied, not whether the Commissioner’s ultimate view on tax evasion is correct. This narrows the scope for a writ court to second-guess the Commissioner’s assessment of the evidence, while still preserving a check against arrests made on flimsy or undocumented grounds.

Conclusion

The net effect of Radhika Agarwal is that the “reasons to believe” standard under Section 69 sits between the low threshold of “mere suspicion” under ordinary criminal law and the high threshold of a concluded assessment. The Commissioner must possess concrete, quantifiable material, not just intelligence or apprehension, sufficient to project, with reasonable certainty, that the evasion crosses statutory thresholds, and must record this reasoning in writing before ordering arrest. For taxpayers and counsel, this means the real battleground in challenging a pre-adjudication arrest is no longer whether an assessment existed, but whether the recorded reasons are backed by specific, verifiable material rather than conclusory language borrowed from the bare statutory text.