Arrest & Bail Under GST

1. Introduction

Tax administration in India provides for inspection, search, seizure and arrest to tackle the situations created by some unscrupulous tax evaders. To someone these may appears to be very harsh but those are necessary for efficient tax administration. Such stringent provisions shall also act as a deterrent for tax evaders. These are also required to protect the interest of revenue and for infusing a sense of discipline among the tax payers. The provisions for arrests under GST Law have sufficient inbuilt safeguards to ensure that these are used only under authorization from the Commissioner. Besides this, the GST Law also stipulates that arrests can be made only in those cases where the person involved has committed specified offence and the tax amount involved in such offence is more than the specified limit.

2. Provisions of Arrest

In CGST Act 2017 section 69 deals with the provision of arrest in respect of the offences which are specified in section 132 of the CGST Act. Section 69 of the CGST Act gives powers to the Commissioner, if he has reasons to believe that a person has committed any offence as specified in clause (a) to clause (d) of sub-section (1) of section 132 and which is punishable either under clause (i) or clause (ii) of that sub-section, to authorise any central officer to arrest such offender.

The offences, where the Commissioner can order for arrest, are specified in clause (a) to clause (d) of section 132(1). The relevant extract of the provision is as under:

132(1). Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences, namely;

a) supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;

b) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;

c) avails input tax credit using such invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;

d) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

e) to (l) ………

shall be punishable with an imprisonment for a term which may extend from 6 months to 5 years and fine.

However the maximum period of imprisonment will depend on the amount of tax involved in the offence committed i.e. the tax evaded, ITC wrongly availed or utilised or the amount of refund wrongly taken or the amount tax collected but not paid to government. The following table list out the offence, nature of offence and term of imprisonment, where commissioner can order for arrest of the accused:

Offence committed	Amount of tax evaded, ITC wrongly availed or utilised or the amount of refund wrongly taken –	Period of imprisonment and fine	Nature of offence
Any offence specified in clause (a) to clause (d) of sub-section (1) of section 132	Exceeds Rs. 5 Cr	May extend to 5 years and fine [clause (i) of sub-section (1) of section 132]	Cognizable and non-bailable [Section 132(5)]
Any offence committed in clause (a) to clause (d) of sub-section (1) of section 132	Exceeds Rs. 2 Cr but does not exceed Rs. 5 crore	May extend to 3 years and fine [clause (ii) of sub-section (1) of section 132]	Non-cognizable and bailable [Section 132(4)]
Repeats the above offence [Section 132(2)]	Without any monetary limit	May extend to 5 years and fine for the second and every subsequent offence	Cognizable and non-bailable or Non-cognizable and bailable on the basis of amount involved in offence

3. Conditions precedent for arrest by Commissioner

On a combined reading section 69 and section 132 it is observed that following are the primary conditions which should exists for an arrest –

– The Commissioner must have “reasons to believe”;

– Offence has been committed as specified under any of the clause (a) to (d) of sub-section (1) of section 132 or under section 132(2);

– Amount involved in the offence exceeds the monetary limit specified in clause (i) or clause (ii) of sub-section (1) of section 132; and

– The Commissioner by an order has authorised any central officer for the purpose of arrest of such offender

4. Some Important Legal terms

The terms Reasons to believe, Arrest, Cognizable Offence, Non cognizable Offence, Bailable Offence, Non-Bailable Offence are not defined in the CGST Act. In the absence of definitions in the CGST Act, we need to import those definitions available in General Clauses Act. In absence of such definitions even in General Clauses Act, those are to be borrowed from CrPc.

Reasons to believe

One of the important term ‘Reasons to believe’ which is the foundation of arrest provision has also not been defined anywhere in the act.

As per Section 26 of the IPC, 1860, “A person is said to have ‘reason to believe’ a thing, if he has sufficient cause to believe that thing but not otherwise.” ‘Reason to believe’ contemplates an objective determination based on intelligent care and evaluation as distinguished from a purely subjective consideration. It has to be and must be that of an honest and reasonable person based on relevant material and circumstances.

In the case of Desai Brothers v. DCIT reported in 204 ITR 121 (Gujarat) it was held that the words “reason to believe” suggest that the belief must be that of an honest and reasonable person based upon reasonable ground; not a mere ipse dixit, suspicion, guess work, conjecture or surmises, gossip or rumour and such belief must lead to a conclusion that the offence has been committed by the concerned person.

In the case of Sheth Brothers v JCIT reported in 251 ITR 270 (Guj), wherein settled legal position has been summarized what the “reasons to believe” includes as under:

a) There must be material for the belief.

b) The circumstances must exist and cannot be deemed to exist for arriving at an opinion.

c) The Reason to believe must be honest and not based on the suspicion, gossip, rumour or conjecture.

d) The Reasons referred to must disclose the process of reasoning by which he holds the “reasons to believe” and change of opinion does not confer the jurisdiction to reassess.

e) There must be nexus between the material and the belief; and

f) The reasons referred to must show application of mind by the Assessing Officer.

Cognizable offence

Generally, as per Cr. PC, cognizable offence means serious category of offences in respect of which a police officer has the authority to make an arrest without a warrant and to start an investigation with or without the permission of a court. However, GST being a special legislation, only the officers, duly empowered under the Act can act as above.

Non-cognizable offence

Non-cognizable offence means relatively less serious offences in respect of which a police officer does not have the authority to make an arrest without a warrant and an investigation cannot be initiated without a court order, except as may be authorized under special legislation.

Arrest

The term ‘arrest’ has not been defined in the CGST/SGST Act. However, as per judicial pronouncements, it denotes ‘the taking into custody of a person under some lawful command or authority’. In other words, a person is said to be arrested when he is taken and restrained of his liberty by power or colour of lawful warrant.

5. Relevant provisions of the CrPC

The process of arrest and bail for committing an offence under section 132 of the CGST Act, is governed by the procedure of arrest and bail as mentioned under the Code of Criminal Procedure. Some of the relevant sections of CRPC are given as under:

• Section 46 Cr. PC. – Arrest how made – Section 46 lays down the procedure of how arrest is to be made. The arrest made under section 69 of the CGST Act are read in consonance with section 46 of the Code of Criminal Procedure.
• Section 436A – Maximum period for which an under trial prisoner can be detained – the said provision sets a cap for pre-trial custody. It prevents an under trial, who has undergone detention for a period extending up to one-half of the maximum period of the imprisonment specified for any said offence under the law, shall be released by the Court on a personal bond without sureties.
• Section 437 – When bail maybe taken in the case of non bailable offences – this section provides for bail to be granted by the lower (Magistrate’s) court.
• Section 438 . – Direction for grant of bail for a person apprehending arrest – this section provides for anticipatory bail to a person who apprehends being arrested. Such bail may be applied to the Sessions Court or the High Court (both have concurrent jurisdiction).
• Section 439 – Special powers of the High Court or Court of sessions regarding bail – this section provides concurrent jurisdiction of the Sessions Court and High Court to grant bail (regular bail, or interim bail).
• Default bail -Section 167(2) Cr. P.C.

Right to default bail under the first proviso to Section 167(2) CrPC not a mere statutory right but a fundamental right. [Bikramjit Singh v. State of Punjab, 2020 SCC OnLine SC 824, decided on 12.10.2020]. As the term implies, default bail is issued on the default of the investigating agency to conclude its investigation and file its report within time.

6. CBIC guidelines for arrest and bail in GST offences

When a person has committed an offence and his arrest is to be done, then the question arises as to who can arrest, in which circumstances arrest can be made, what is the procedure to be followed for arrest, what is the procedure for bail, and what are the rights of accused. Keeping all these aspects the CBIC has recently issued detailed instructions, vide Instruction No. 2/2022-23 dated 17.08.2022,  regarding arrest and bail in relation to offences punishable under the CGST Act on the basis of the judgement given by the Hon’ble Supreme Court in Siddharth v State of UP (2022) 1 SCC 676. The above-mentioned instruction covers three aspects which are being mentioned below:

(A) Conditions precedent to arrest

i) All legal formalities and requirements must be fulfilled before placing a person under arrest. The reasonable belief of the Commissioner must be unambiguous, clear and based on credible sources of information or material.

ii) The Commissioner before authorizing the arrest of any person must answer the following questions in affirmative:

– Whether or not credible information has been received or reasonable suspicion against the said person exists to or the offence committed by the person is a non-bailable offence?

– Whether the arrest is necessary to ensure proper investigation?

– Whether person not been restricted is likely to hamper the evidence during the course of investigation or has the capacity to influence any witness?

– Whether the said person is the mastermind or the key operator who effected the Benami/proxy transaction in the name of the dummy GSTIN or non-existent person for the purpose of fraudulently passing ITC?

– Where the intention (mens rea) is fully and entirely established, only then the arrest should be made.

iii) In cases of technical nature (e.g., demand of tax being based on a difference arising out of interpretation of law), arrest should not be adopted as a mechanism to resolve the issue.

iv) Other factors that are to be taken into consideration regarding arrest include (i) cooperation during the investigation, (ii) possibility that evidence would be tampered or witnesses be influenced.

(B) Procedure of arrest

i) The Commissioner, on having substantial reason to believe that an offence under the CGST Act has been committed by a person, shall record on file the (a) nature of the offence, (b) role of the person involved, and (c) the evidence available against him.

ii) The arrest of the person has to be made as per the provisions of Code of Criminal Procedure, 1973, read with section 69 of the CGST Act. It is the duty of the Commissioner to ensure that all the officers are fully familiar with the provisions of arrest as mentioned in the CrPC.

iii) The arrest memo must be made in compliance to the directions given by the Hon’ble Supreme Court in the case of D.K. Basu v the State of West Bengal (1997) 1 SCC416, as well as the format of the arrest memo prescribed under CBIC’s Circular No. 128/47/2019-GST. It should clearly indicate the relevant sections attracted under the CGST Act or any other law under which the person has been arrested.

iv) The grounds of arrest are to be explained to the person being arrested and the same has to be mentioned on the arrest memo.

v) The details of the arrest should be provided to a duly nominated person and the same has to be mentioned in the arrest memo.

vi) The arrest memo should have the date and time of arrest clearly mentioned and a copy of the same should be given to the arrested person with proper acknowledgement. Each individual arrested shall be given a separate arrest memo in the event that there are several simultaneous arrests in one particular case.

vii) As per CBIC’s Circular No. 122/42/2019-GST it is mandatory to generate a Document Identification Number (DIN) on any communication issued by an officer of CBIC to the tax payer or any other concerned person for the purpose of investigation.

viii) The general guidelines to be followed during the time of arrest are-

– A woman should only be arrested by a woman officer as per the provisions of Section 46 of the Cr.P.C.

– The medical examination of the person being arrested needs to be conducted by a Central/State Government medical officer. In case of no medical officer being present, a registered medical practitioner can conduct the medical examination soon after the arrest has been made. The medical examination in case of a woman shall be made strictly in the presence of a female medical officer/practitioner.

– It is the duty of the person being arrested to take reasonable care of the health and safety of the arrested person.

– The arrest should be done using minimal amount of force and publicity and without any violence.

(C) Post-arrest formalities and bail

i) The procedure of arrest varies according to the section under which a person has been arrested i.e., whether the charged offence is a non-cognizable and bailable offence or it is a cognizable and non-bailable offence:

In case the offence is a non-cognizable and bailable offence (section 132(4) of the Act):

– Person arrested is bound to be released on bail against a bail bond by the Assistant Commissioner or Deputy Commissioner.

– The bail conditions are to be informed in writing to the arrested person as well as to the nominated person on telephone.

– The arrested person should be allowed to talk to the nominated person.

In case the offence is a cognizable and non-bailable offence (section 132(5) of the Act):

– Person to be informed about the grounds of his arrest and be produced before the within 24 hours.

– If production before a magistrate is not possible, the accused shall be handed over to the nearest police station for his safe custody under proper challan and be produced before the magistrate the next day.

ii) The bail granted would be subject to the execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer when required and not leaving the country without informing the officer. The amount of the bail bond is to be decided based on the facts and circumstances of the case and it shall not be excessive but commensurate with the financial status of the arrested person.

iii) On fulfilling the conditions of bail, the arrested person shall be released by the concerned officer.

iv) After the arrest of the accused, a prosecution complaint shall be filed by the officer in charge under section 132 of the CGST Act, preferably within 60 days of arrest, where no bail has been granted.

7. Types of Bail and Factors to be considered for grant of bail

There are three types of bail i.e. Regular Bail, Anticipatory Bail and Default Bail. Regular Bail or post arrest bail is taken after the arrest. It is generally attached with certain conditions.. The provisions in law are laid out U/s 437 of Criminal Procedure Code, 1973. Anticipatory Bail or pre arrest bail is taken prior to arrest. However, it becomes effective from the time of arrest. As the word anticipation itself means, it is in expectation of some sort of accusation by the applicant. The provisions in law are laid out U/s 438 of Criminal Procedure Code, 1973. Default Bail is issued on the default of the investigating agency to conclude its investigation and file its report within time and its provisions are laid down in u/s 167(2) of CRPC.

Cognizable and non bailable offence does not mean that bail will not be granted. In such cases the accused shall be produced before the Magistrate and bail shall be granted by the court considering the facts of the case or the court may grant remand.

In case of non-cognizable and bailable offence bail is bound to be granted. In such cases the Deputy Commissioner or the Assistant Commissioner shall grant the bail and release the person arrested on furnishing of bail bond. In case of default of bail the person shall be forwarded to the custody of Magistrate.

However, in view of the ratio laid down by Hon’ble Supreme Court and various High Courts in YS Jaganmohan Reddy v CBI ((2013) 7 SCC 439), P Chidambaram v Directorate of Enforcement (2019) 9 SCC 24, and DK Shivakumar v Directorate of Enforcement 2019 SCC Online Del 10691), the granting of bail shall depend on various factors like:

• Nature and gravity of the accusations levied against the Applicant;
• Nature of evidence in support of the accusations;
• Severity of punishment that the conviction will entail;
• Character and criminal antecedents of the Applicant;
• Circumstances which are peculiar to the Applicant;
• Reasonable possibility of securing the presence of the Applicant at the trial;
• Reasonable apprehension of the witnesses being influenced, or evidences being tampered with;
• Larger interest of the public and similar considerations.

However, the Apex Court in case of OMPRAKASH AND CHOITH NANIKRAM HARCHANDANI VERSUS UNION OF INDIA [2011 (9) TMI 65- SUPREME COURT], has held that no arrest can be made in case of non-cognizable and bailable offence.

Therefore, if the offence is bailable, grant of bail is automatic and can be given by police officer in charge of police station or by court, on bond or even without bond. There is no discretion with the Court/ Police Officer (Assistant Commissioner in the case of GST) in the matter for not granting bail. In the cases of VAMAN NARAIN GHIYA VERSUS STATE OF RAJASTHAN 2008 (12) TMI 446 – SUPREMECOURT and Sultan Kamruddin Dharani v. UOI 2008 (9) TMI 373 – BOMBAY HIGH COURT, it has been held that in case of bailable Offence, there is no discretion to refuse the bail if the accused is prepared to furnish surety. It has further been held that there is no discretion even to impose any condition except demanding of security with sureties.

Recently, the Bombay High Court in the case of Yogesh Jagdish Kanodia v. The State of Maharashtra dealt with the issue of arrest of an individual whether it is correct in terms of Section 132 and 69 of the CGST Act. In this case the accused was arrested and produced before the Chief Metropolitan Magistrate on account of commission of offence under section 132(1)(b), (c) and the offence was cognizable and punishable with imprisonment for a term, the High Court held that the accused has committed such offence warranting an arrest and therefore dismissed the bail petition.

8. No arrest without enquiry/ assessment/ adjudication

In following cases various honourable courts has held, in pre GST regime as well in GST regime, that no arrest can happen without enquiry/ assessment/ adjudication:

1. Make my Trip Vrs UOI (2016) 44 STR 481 (Del.) Pre GST Regime

2. Clear Trip P Ltd & Others Vrs UOI (2016) 42 STR (Bom.) Pre GST Regime

3. Akhil Krishnan Maggu Vrs DGGI (2020) 32 GSTL 516 (P&H)– In this case Punjab and Haryana HC had prescribed the exceptional circumstances for arrest stating that power of arrest should not be exercised at the whims and caprices of any officer or for the sake of recovery or terrorising any businessman or create an atmosphere of fear, whereas it should be exercised in exceptional circumstances during investigation, such as:

• A person is involved in evasion of huge amount of tax and is having no permanent place of business,
• A person is not appearing in spite of repeated summons and is involved in huge amount of evasion of tax,
• A person is a habitual offender and has been prosecuted or convicted on earlier occasion,
• A person is likely to flee from country,
• A person is originator of fake invoices i.e. invoices without payment of tax,
• When direct documentary or otherwise concrete evidence is available on file/record of active involvement of a person in tax evasion.”

4. Jaychandran Alloys P Ltd Vrs Superintendent of GT Salem (2019) 25 GSTL 321 (Mad.)– The Madras HC had held that determination of excess credit as provided under Section 73, 74 of the CGST Act is a prerequisite for recovery and such recovery can only be initiated once the amount of excess credit has been quantified and determined in an assessment. The court then concluded that the term ‘commits’ clarifies that the act of committal of the offence is to be fixed first before punishment is imposed. When recovery is made subject to determination in an assessment, the Revenue’s argument that punishment for the offence alleged can be imposed even prior to such assessment is clearly incorrect and amounts to putting the cart before the horse.

9. Arrest even without enquiry/ assessment/ adjudication is permitted (GST regime)

It has been held in following cases that arrest can happen even if no enquiry/ assessment/ adjudication has commenced.

1. PV Ramana Reddy Vs UOI (2019) TIOL 873 (Telangana)

2. Bharath Raj Punj Vs CCGST (2019) TIOL 678 (Raj.)

3. Vimal Yashwantgiri Goswami Vs State of Gujarat (2020) 121 taxmann.com (Gujarat)

10. Arrest of CA or Advocate

In the case of Akhil Krishnan Maggu Vrs DGGI [(2020) 32 GSTL 516 (P&H)], the hon’ble court held that a CA or an advocate cannot be arrested if he simply files GST Returns and not involved in fraud with his client.

11. Can an anticipatory bail be granted in such cases

Grant of anticipatory bail is a statutory right under Section 438 of CrPC. However, the same is not applicable in those states where this provision has been omitted or for those offences where some special enactment, under which a person is prosecuted, ousts the application of this provision.

The Telangana High Court’s findings in P.V. Ramana Reddy v. Union of India [(2019) 25 GSTL 185 (Telangana)] posed a significant challenge for grant of anticipatory bail. The High Court observed that as the power of arrest under Section 69 of CGST Act is exercised before a First Information Report is registered, in such cases, Section 438 of CrPC cannot be invoked. The Court also observed that until a prosecution is launched, by way of a private complaint with the previous sanction of the Commissioner, no criminal proceedings can be taken to commence. Since arrest under Section 69 of the CGST Act is done before prosecution, it would not come within the purview of criminal proceedings. Consequently, Section 438 will not apply and no anticipatory bail can be granted. Thereafter the hon’ble Supreme Court vide SLP (Crl.) No. 4430/2019 [2019 (26) G.S.T.L. J175 (S.C.)] has also dismissed the petition challenging the above referred Telangana High Court judgment.

Whereas the Bombay High Court in the case of Sapna Jain v. Union of India said that no coercive action should be taken against the taxpayer and no arrests should be made. However the matter is sub-judice before Hon’ble Supreme Court three member Bench in UOI vs Sapna Jain SLP (Crl.) 4322-4344/2019.

In the case of Jaychandran Alloys P Ltd Vrs Superintendent of GT Salem (2019) 25 GSTL 321 (Mad.), the hon’ble Madras HC granted the anticipatory bail.

12. Whether power to arrest under GST is constitutionally valid?

Dhruv Krishan Maggu Vs Union of India (2021) 123 taxmann.com 192 (Delhi)- Held Yes.

13. Conclusion: In view of all the above facts, legal provisions and guidelines issued by CBIC and judicial pronouncements, a person can be arrested by Commissioner or by the officer authorised by him, if such person has committed a specified offence and the amount of tax involved is more than Rs.2C r. But the arrest is not to be done in a routine or mechanical manner merely because there exists provisions for arrest. If it is to be done the Commissioner must have ‘reasons to believe’ based on objective determination and it must lead to a conclusion that offence has been committed and keeping in mind all the surrounding circumstances and track record of the offender arrest may be made. If the offence is cognizable and non bailable (i.e. amount of tax is more than Rs.5 Cr) the accused shall be produced before the Magistrate within 24 hours of the arrest and then the Magistrate may either grant bail or grant remand. If the offence is non-cognizable and bailable then bail must be granted on furnishing of bail bond and surety and in such the Deputy Commissioner or the Assistant Commissioner shall release the accused.

****

Disclaimer: The contents of this document are solely for informational and knowledge purpose. Neither have I accepted any liability for any loss or damage of any kind arising out of any inaccurate or incomplete information in this document nor for any action taken in reliance thereon.