Analysis of Arrest Provision under GST Law

RELEVANT STATUTORY PROVISIONS

Section 69- Power to arrest

(1) Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.

(2) Where a person is arrested under sub-section (1) for an offence specified under sub- section (5) of section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours.

(3) Subject to the provisions of the Code of Criminal Procedure, 1973,––

(a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;

(b) in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station. 

ANALYSIS

Let’s dissect the provision and analyze it.

Where

• the Commissioner has
• reasons to believe that
• a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section,
• he may, by order, authorise any officer of central tax to arrest such person.

Let’s now analyze section 132 of the CGST Act.

132. Punishment for certain offences.— (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 the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;]102

(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) ——–

shall be punishable––

(i) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;

(ii) in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;

(iii) ———-

(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act, except the offences referred to in sub-section (5) shall be non- cognizable and bailable.

(5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.

Let’s try to understand the provision by depicting the same in a table.

SEARCH WARRANT AND ITS CONTENT

The written authority to conduct search is generally called search warrant. The competent authority to issue search warrant is an officer of the rank of Joint Commissioner or above. A search warrant must indicate the existence of a reasonable belief leading to the search. Search Warrant should contain the following details:

i. the violation under the Act,
ii. the premise to be searched,
iii. the name and designation of the person
authorized for search,
iv. the name of the issuing officer with full
designation along with his round seal,
v. date and place of issue,
vi. serial number of the search warrant,
vii. period of validity i.e. a day or two days etc.

SAFEGUARDS FOR THE ARRESTING PERSON

There are certain safeguards provided under section 69 for a person who is placed under arrest. These are:

a. If a person is arrested for a cognizable offence, he must be informed in writing of the grounds of arrest and he must be produced before a magistrate within 24 hours of his arrest;

If a person is arrested for a non-cognizable and bailable offence, the Deputy/ Assistant Commissioner of CGST/SGST can release him on bail and he will be subject to the same provisions as an officer in-charge of a police station under section 436 of the Code of Criminal Procedure, 1973;

b. All arrest must be in accordance with the provisions of the Code of Criminal Procedure,1973 relating to arrest.

PRECAUTIONS TO BE TAKEN DURING ARREST

GST law vide sub section (3) has explicitly provided that the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) relating to arrest and the procedure thereof must be adhered to. It is therefore necessary that all field officers of CGST/SGST be fully familiar with the provisions of the Code of Criminal Procedure, 1973.

One important provision to be taken note of is section 57 of CrPC 1973 which provides that a person arrested without warrant shall not be detained for a longer period than, under the circumstances of the case, is reasonable but this shall not exceed twenty four hours (excluding the journey time from place of arrest to the Magistrate’s court). Within this period, as provided under section 56 of CrPC, the person making the arrest shall send the person arrested without warrant before a Magistrate having jurisdiction in the case.

In a landmark judgment in the case of D.K. Basu v. State of West Bengal reported in 1997 (1) SCC 416, the Hon’ble Supreme Court has laid down specific guidelines required to be followed while making arrests. While this is in relation to police, it needs to be followed by all departments having power of arrest. These are as under:

• The police personnel carrying out the arrest and handling the interrogation of the arrestee should bear accurate, visible and clear identification and same tags with their designations. The particulars of all such police personnel who handle interrogation of the arrestee must be recorded in a register.
• The police officer carrying out the arrest shall prepare a memo of arrest at the time of arrest and such memo shall be attested by at least one witness, who may be either 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 counter signed by the arrestee and shall contain the time and date of arrest.
• A person who has been arrested or detained and is being held in custody in a police station or interrogation center 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.
• 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 Organization in the District and the police station of the area concerned telegraphically within a period of 8 to 12 hours after the arrest.
• 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.
• 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.
• The arrestee should be subjected to medical examination by the 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 concerned State or Union Territory, Director, Health Services should prepare such a panel for all Tehsils and Districts as well.
• Copies of all the documents including the memo of arrest, referred to above, should be sent to the Magistrate for his record.
• The arrestee may be permitted to meet his lawyer during interrogation, though not throughout the interrogation.
• 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.

COGNIZABLE AND NON COGNIZABLE OFFENCES

In section 132(5) of CGST Act, it is provided that the offences relating to taxable goods and /or services where the amount of tax evaded or the amount of input tax credit wrongly availed or the amount of refund wrongly taken exceeds Rs. 5 crore, shall be cognizable and non bailable.

Other offences under the act are non-cognizable and bailable as provided in sub section (4) of the Act.

NO ARREST WITHOUT ENQUIRY/ ASSESSMENT/ ADJUDICATION (PRE GST REGIME)

It has been held by honorable courts in pre GST regime in following cases that no arrest can happen without enquiry/ assessment/ adjudication

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

2. Cleartrip P Ltd & Others Vrs UOI (2016) 42 STR (Bom.)

NO ARREST WITHOUT ENQUIRY/ ASSESSMENT/ ADJUDICATION (GST REGIME)

Even in GST regime, it has been held in following cases that no arrest can happen without enquiry/ assessment/ adjudication

1. Akhil Krishnan Maggu Vrs DGGI (2020) 32 GSTL 516 (P&H)

2. Jaychandran Alloys P Ltd Vrs Superintendent of GT Salem (2019) 25 GSTL 321 (Mad.)

Honorable Court observed as under: 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.

ARREST 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)

ARREST OF CA, ADVOCATE

A CA of an advocate cannot be arrested if he simply files GST Returns and not involved in fraud with his client.

Akhil Krishnan Maggu Vrs DGGI (2020) 32 GSTL 516 (P&H)

SECTION 41 AND 41A OF CRPC TO BE FOLLOWED WHILE ENFORCING ARREST

P V Ramana Reddy Vrs UOI (2019) 25 GSTL 185 (Telangana)

Honble Court observed as follows: Despite of our finding that the writ petitions are maintainable protection, Sections 41 and 41A of Cr.P.C. may be available to persons said to have committed cognizable and non-bailable offences under this Act.

PRE-ARREST BAIL NOT AVAILABLE

P V Ramana Reddy Vrs UOI (2019) 25 GSTL 185 (Telangana)

ANTICIPATORY BAIL AVAILABLE

Jaychandran Alloys P Ltd Vrs Superintendent of GT Salem (2019) 25 GSTL 321 (Mad.)

WHETHER POWER TO ARREST UNDER GST IS CONSTITUTIONALLY VALID?

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

Whether scope of article 246A is significantly wide as it not only empowers both Parliament and State Legislatures to levy and/or enact GST Act, but it also grants power to make all laws with respect to Goods and Services Tax – Held Yes

Whether pith and substance of CGST Act is on a topic, upon which Parliament has power to legislate as power to arrest and prosecute are ancillary and/or incidental to power to levy and collect Goods and Services Tax – Held Yes

Whether even if sections 69 and 132 could not have been enacted in pursuance to power under article 246A, they could have been enacted under Entry 1 of List III, as laying down of a crime and providing for its punishment is ‘criminal law’, consequently, in either option both sections 69 and 132 are constitutional and fall within legislative competency of Parliament – Held Yes

PRE DEPOSIT IN ANTICIPATORY BAIL APPLICATION

Another streak of cases involving GST offences have evolved the concept of “pre-deposits” that the concerned persons offer to pay, in order to secure an anticipatory bail. A portion of the total alleged amount involved in such offences is deposited with the court by the concerned person, while seeking an anticipatory bail. Since such person is, generally, not even an accused at this stage, such a “pre-deposit” is alluded favorably to them, and signifies their willingness to cooperate in further investigations.

In C. Pradeep v. Commissioner of GST and Central Excise, Salem, the Supreme Court allowed an anticipatory bail to the petitioner, on deposit of 10% of the disputed liability in the case. Furthermore, in Orion Security Solutions & Anr. v. Commissioner of CGST Delhi East, the Delhi High Court granted anticipatory bail on the partial deposit of INR 5.5 crores, out of the INR 11.5 crore liability of the petitioner.

It is pertinent to note the difference in the deposits made in the two above-mentioned cases. In C. Pradeep case, the deposit was made with respect to an un-adjudicated liability. However, in the Orion Security case, the liability of INR 11.5 crores was already adjudicated and admitted by the concerned person. Hence, the C. Pradeep case provides for a greater scope in terms of grant of anticipatory bail.

CERTAIN IMPORTANT TERMS NOT DEFINED IN CGST ACT

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) to submit 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 rumor 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, rumor 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.

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 color of lawful warrant.

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.

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.