This article discusses in detail, the concept of ‘Arrest’ under GST by analyzing its key provisions, procedure, nature of cognizable and non cognizable offences, bail and anticipatory bail and compounding of offences with landmark cases pertaining to the same.


The explicit powers to arrest a person was granted from the very beginning to the Indirect Tax authorities and the same has remained a controversial provision relating to the clarity on its implementation. In the administration and collection of indirect taxes, provisions are made for ‘arrest’ of persons in order to provide for circumstances created by unscrupulous tax evaders[1]. This article aims to discuss in detail the concept of ‘Arrest’ under the GST regime and analyses the incongruous provisions relating to Arrest and release on Bail.

While genuine taxpayers have encountered difficulties in coping up to the transition to the new regime, there are also instances where the transition provisions have been misused to evade tax liability. With key managerial persons being arrested and all the media highlights covering the instances, it is essential to have a clear understanding of the provisions along with their nature and scope. To address major issues relating to fake invoicing, supplying without an invoice and fraudulent availment of input tax credit, the law has provided for arrest where the tax amount involved is more than the specified limit. Such provisions have inherent safeguards and act as a deterrent while safeguarding the legitimate dues of the Government.[2] The GST Flyer on Inspection, Search, Seizure and Arrest highlights the rationale behind such stringent measures.

Key Provisions relating to Arrest

The following are the key provisions with respect to arrest under the CGST Act:

1. Section 69 of CGST Act, 2017

2. Section 132 of CGST Act, 2017

Section 132 lists out the offences under the CGST Act,. The major offences are listed below.

Any person who

1. Supplies any goods or services or both without issue of any invoice.

2. Issues any invoice or bill without supply of goods or services or both.

3. Avails input tax credit using invoice or bill where there has been no supply.

4. Collects any amount as tax but fails to pay the same to the Government

5. Evades tax, fraudulently avails input tax credit or fraudulently obtains refund.

Shall be punishable

1. If the amount of tax evaded or input tax availed or utilised excess 5cr. with imprisonment which may extend to five years and with fine.

2. If the amount of tax evaded or input tax availed or utilized excess 2cr. with imprisonment which may extend to three years and with fine.

3. Subsequent offenders shall on conviction be punished with imprisonment which may extend to five years and with fine.

and all offences under the act except mentioned in 132(5) shall be non cognizable and bailable.

Section 69 states the powers of Arrest and can be understood as follows:

1. If the Commissioner has ‘reason to believe’ that a person has committed an offence under s.132(1) (a) to (d), he may by order authorise to arrest that person.

2. The Officer authorised to arrest shall inform the person his grounds of arrest and produce him before a Magistrate within twenty-four hours, and he shall be admitted to bail/ custody of the Magistrate.

3. In case of a non-cognizable and bailable offence, the Deputy/Assistant Commissioner can release on bail and he shall have the same powers and be subject to the same provisions as an officer-in-charge of a police station.

Procedure for Arrest

The Procedure relating to arrest under GST must be in accordance to the provisions prescribed in the Code of Criminal Procedure, 1973. On a perusal of the provisions, the following points are worth noting:

1. The power to issue an order for arrest lies only with Commissioner or the Magistrate.

2. The Commissioner needs to have a ‘reason to believe’ that the person has committed a cognizable offence. The term reason to believe is a crucial term and in the context of customs law and has been interpreted by Supreme Court and High Courts which is further substantiated in the next part of the paper.

3. Arrest can be done only if the specified offences listed down in Section 132(1)(a) to (d) have been committed and if they exceed the specified limit. However, the same is not applicable in the case of repeated offences/ offenders.

4. Out of the offences mentioned under s. 132, only one of the offences has been notified as a situation where there is an intention to evade tax. In other cases even if there is no intention to evade tax, there could be possibility of arrest.

5. The person who has been arrested under specified circumstances needs to be informed and should be taken to a Magistrate Court.

6. In case the arrest is made for non-cognizable offence then the Assistant Commissioner or Deputy Commissioner shall be discharging the duties of releasing the person on bail.

General Procedure

Section 46 of Code of Criminal procedure 1973 provides for how an Arrest should be made. Nothing in this section gives a right to cause the death of the accused. In making an arrest the police officer/other person making the same touches or confines the body of the person to be arrested unless there be a submission to custody by words or action[3]. The person arrested has a right to know his grounds of arrest[4].

Save in exceptional circumstances, no women shall be arrested after sunset and before sunrise, and where such exceptional circumstances exist shall be by making a written report and obtaining  prior permission of the Judicial Magistrate within whose jurisdiction the offence is committed or the arrest is to be made[5].

In the case of DK Basu vs. State of Bengal[6] the Supreme Court has laid down the guidelines required to be followed in case which are equally applicable to arrest under GST also.

  • The Arresting officers should bear accurate, clear and visible identification with them having their name and designation.
  • The arrest memo must be signed by one of the relatives of the arrestee or in absence one of the respectable person of the locality and counter signed by the arrestee.
  • The arrested person shall have the right to inform one of his relatives or friends from the place where he is kept after arrest m i.e police station, lock up or an interrogation place
  • The arrestee should be subjected to Medical examination in every 48 hours during his detention
  • The arrestee should be allowed to meet his Lawyer during the interrogation though not throughout the interrogation.
  • Copies of all Documents including the Memo of arrest should be sent to the Magistrate for his record.

Reason to Believe

The aspect of reason to believe is crucial under GST as the Commissioner needs to have a ‘reason to believe’ before initiating an arrest. To understand what constitutes ‘reason to believe’ various judicial precedents need to be noted. In Aslam Mohd. Merchant v. Competent Authority[7], the Supreme Court observed that whenever a statute provides for ‘a reason to believe’, such reasons should either appear on the on the face of the notice or they must be available on the materials which had been placed before the officer making the arrest. The relevant paragraph has been extracted below,

“It is now a trite law that whenever a statute provides for `reason to believe’, either the reasons should appear on the face of the notice or they must be available on the materials which had been placed before him.”

In Tata Chemicals Ltd v. Commissioner of Customs,[8] the Supreme Court reiterated the requisites of ‘reason to believe’ and held that the reasons should be based on that of an honest and reasonable person on reasonable grounds and not merely on suspicion, gossip or rumor without any direct or circumstantial  evidence. Any arrest without the above conditions being satisfied will be wholly without jurisdiction[9]. The relevant paragraph has been extracted below:

“Suffice it to say that these expressions have been held not to mean the subjective satisfaction of the officer concerned. Such power given to the concerned officer is not an arbitrary power and has to be exercised in accordance with the restraints imposed by law.”

Cognizable offences and Non Cognizable offences

Cognizable offences are those where the police can arrest a person without any arrest warrant[10]. Non-cognizable offences are those, where a police officer cannot arrest a person without a warrant issued by competent authority[11]. A Cognizable offence is non-bailable. Non-cognizable offences are bailable, and the arrested person can be released on bail.

Section 134 of the GST Act clearly lays down that, No court shall take cognizance of any offence punishable under this Act without previous sanction of the designated authority. Only a Magistrate of the First Class (and above) has the competent jurisdiction to try such an offence. The same can be summarised in the form of a table:

Tax Amount Involved 100-200 lakhs 200-500 lakhs Above 500 lakhs
Cognizance Non Cognizable Non Cognizable Cognizable
Bailable or Non-Bailable Bailable Bailable Non Bailable
Jail term Upto 1 year Upto 3 years Upto 5 years

Compounding of Offences

Section 138 of the CGST Act, 2017 provides for Compounding of offences. Compounding generally refers to the process where the person/entity committing the offence submits to having committed default so that the same is condoned. Under the CGST provisions, the accused can be discharged on payment of compounding fee which cannot be more than the maximum fine leviable under the relevant provisions. Compounding will be allowed only after payment of all taxes, interest and penalty dues. The amount payable for compounding of offences shall be 50% of the tax involved subject to a minimum Rs. 10,000 and the maximum amount for compounding shall be 150% of the tax or Rs.30,000, whichever is higher.

On payment of the compounding amount, no further proceedings shall be initiated against the accused person for the same offence and any criminal proceedings, if already initiated, will be abated. Compounding will not be available for-

  • a person who has been allowed to compound once in respect of any of the offences specified in 132 (1) clauses (a) to (f).
  • A person who had committed an offence before under GST involving supplies above Rs. 1 crore and has been allowed to compound
  • A person who has been accused of committing an offence under this Act which is also an offence under any other law for the time being in force
  • Any person convicted by a court under
  • Any person giving false information during proceedings or preventing the officer from his duty or destroying

Incongruous Provisions: Bail & Anticipatory Bail

An interesting observation can be drawn while noting the objective and intent for arrest and the provisions relating to Anticipatory Bail and Bail. While the nature of the arrest is specific and is for offences of higher magnitude, the provisions relating to bail are incongruous. The same was observed by the Telangana and Andra Pradesh High Court in P.V. Ramana Reddy v.Union of India. S. 69 (1) provides powers to the Commissioner to make arrest if the offence is cognisable and bailable; however, the power to make arrest for non cognisable and bailable offences is unknown. S. 69(3) gives powers of granting Bail to Assistant Commissioner or Deputy Commissioner to release the accused in cases of non-cognizable and bailable offences. There is some incongruity between sub-Sections (1) and (3) of Section 69 read with section 132 of the CGST Act, 2017.Another incongruity exists between S. 69 (1) & (2) which deal with the power of arrest and production before the Magistrate in the case of cognizable and non-bailable offences. This matter reached the Supreme court along with other conflicting judgments of the Madras[12] and the Bombay High Courts.

The Supreme Court[13] reaffirmed the decision of the Telangana and Andhra Pradesh High Court in P.V. Ramana Reddy and held that a person who is summoned under section 70(1) and person whose arrest is authorised under section 69(1) cannot be treated as the ‘one’ accused of any offence until a prosecution is launched by way of a private complaint with the previous sanction of the commissioner. In other words, no criminal proceedings can be initiated until a prosecution is initiated, by way of a private complaint with the previous sanction of the commissioner. However, the taxpayer can approach the Courts and file for Anticipatory Bail.

The Gujarat High Court recently in Manmohan Lalman Agarwal v. State of Gujarat[14] has granted anticipatory bail to the applicants on the alleged charges of misappropriation considering the law laid down by a Constitutional Bench of the Supreme Court in Shri Gurubaksh Singh Sibbiaa v. State of Punjab[15]. Owing to the medical ailments and the age of the applicants, the Court granted them bail on the condition that they shall cooperate with the investigation and make themselves available for interrogation whenever required.

In Sanjay Dhingra v. DG, GST however the Punjab and Haryana High Court refused to grant Bail to the petitioners who were alleged in an offence relating to selling of fake invoices without supplying goods for 127 Crores. Considering magnitude of the economic offence as held by the SC in Nimmagaddaa Prasad v CBI[16] and keeping in mind the accusations, nature of evidence and to secure the presence of the accused in the Trial dismissed their petition for concession of Bail. Thus, similar to the provisions in Crpc, the cases relating to bail are tested on the nature of allegations, extent of evidence, severity of punishment, appearance of accused in trial, tampering of evidence along with the larger interests of the Public and the State.


The provisions relating to arrest have been provided for the purposes of investigation of offences committed under GST, to prevent evidence tampering and the alleged person from absconding. It is a tool given to the Department for investigation and should be used only in exceptional circumstances.  Misuse of such provisions for completing revenue targets will consequently result in harassment of taxpayers which is not the rationale behind these provisions.

[1] See GST Flyer on Inspection, Search, Seizure and Arrest, available at

[2] Ibid.

[3] s. 46, Code of Criminal Procedure, 1973.

[4] s. 50, Code of Criminal Procedure, 1973.

[5] Sheela Barse v. State of Maharashtra, AIR 1983 SC 378.

[6] DK Basu vs. State of Bengal, 1997(1) SCC 416.

[7]Aslam Mohd. Merchant v. Competent Authority, 2008 (7) TMI 852

[8] Tata Chemicals Ltd v. Commissioner of Customs, 2015 (5) TMI 557; See also Bar Council of Maharashtra v. M.V. Dabholkar, [1976] 2 S.C.R. 48 at 51. N. Nagendra Rao & Co. v. State of A.P. (1994) 6 SCC 205 at 216.

[9] Sheo Nath Singh v. Appellate Assistant Commissioner of Income Tax, Calcutta, (1972) 1 SCR 175; Rohtas Industries Ltd. v. S.D. Agarwal, (1969) 3 S.C.R. 108.

[10] s. 2 (c) Criminal Procedure Code, 1973.

[11] s. 2 (l) Criminal Procedure Code, 1973.

[12]  Jayachandran Alloys (P.) Ltd. v.  Superintendent of GST & Central Excise, WP No 5501 of 2019.

[13] P.V. Ramana Reddy v. Union of India, WP No. 4764 of 2019.

[14] Manmohan Lalman Agarwal v. State of Gujarat, CMA No. 21575 of 2019.

[15] Shri Gurubaksh Singh Sibbiaa v. State of Punjab, (1980) 2 SCC 665.

[16] Nimmagaddaa Prasad v CBI2013 (3) SCC (Cri) 575

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March 2021