GST Arrest: Commissioner’s Reasons Cannot Be Replaced by Investigating Officer’s Note

Summary: The Punjab and Haryana High Court, in Sahil Chandna v. State of Haryana and another (CRWP No. 9885 of 2026, decided on 28 October 2026), held that an arrest under Section 69 of the Central Goods and Services Tax Act, 2017 is illegal where the mandatory “reasons to believe” are recorded by the Investigating Officer instead of the Commissioner. Justice Shalini Singh Nagpal ruled that the Commissioner must independently examine tangible, cogent and credible material, apply his mind to the alleged offence and record reasons justifying the necessity of arrest. A mere statement in the arrest authorisation that the Commissioner has “reasons to believe”, even when accompanied by a detailed investigation report prepared by an Inspector, cannot satisfy this statutory requirement. The case concerned a chartered accountant accused of facilitating fraudulent availment and passing on of input tax credit through shell or dummy firms. The Court emphasised that the seriousness of the allegations does not dispense with the procedural safeguards protecting personal liberty. Referring to the CBIC arrest guidelines dated 17 August 2022, it observed that arrest cannot be automatic merely because an offence is alleged and that its necessity must be independently justified. Relying on Union of India Vs Sunil Biyani, the Court further stressed the requirement to communicate the Commissioner’s arrest order and relevant grounds to the accused. The Court also found non-compliance with CBIC Circular No. 122/41/2019-GST dated 5 November 2019, as the reasons to believe and grounds of arrest did not carry a valid Document Identification Number (DIN), and the Department neither established exceptional circumstances justifying its omission nor demonstrated regularisation within the prescribed period. Distinguishing a challenge to the legality of arrest from an application for bail, the High Court declared the petitioner’s arrest, detention, subsequent remand and continued custody illegal and arbitrary and directed his immediate release. However, it clarified that the prosecution remained at liberty to seek remand or custody afresh after complying with the statutory requirements. The judgment reinforces that the Commissioner’s independent recorded satisfaction, communication of arrest grounds and applicable DIN compliance are essential safeguards, and that an Investigating Officer’s report or the Commissioner’s signature alone cannot validate an otherwise unlawful GST arrest.

Introduction

A detailed investigation report and an authorisation signed by the Commissioner do not, by themselves, satisfy the requirements of Section 69 of the Central Goods and Services Tax Act, 2017. The statutory decision to arrest must rest on the Commissioner’s own recorded reasons, supported by the material before him. In Sahil Chandna v. State of Haryana and another, the Punjab and Haryana High Court held that reasons recorded by the investigating officer could not substitute for the satisfaction required of the Commissioner. The Court consequently declared the petitioner’s arrest and continued custody illegal and directed his immediate release.

The judgment addresses a distinction that is sometimes lost in the course of enforcement: the power to authorise an officer to carry out an arrest is not the same as permitting that officer to make the statutory decision that an arrest is warranted. It also examines compliance with the Document Identification Number requirement and distinguishes a challenge to the legality of arrest from an application for bail.

The Dispute Before the Court

The proceedings arose from an investigation into alleged fraudulent availment and passing on of input tax credit through a network of shell or dummy firms. According to the Department, the petitioner, a chartered accountant, had created and personally operated the entities, arranged registrations and bank accounts, controlled financial operations and facilitated transactions without corresponding supplies. These were allegations forming the basis of the investigation, not findings of guilt recorded by the High Court.

The petitioner approached the Court under Article 226 of the Constitution, challenging his detention, arrest, remand and continued custody. His principal objection was that the “reasons to believe” had been recorded by the Inspector conducting the investigation, rather than by the Commissioner as required under Section 69. He also questioned the absence of a valid DIN on the relevant documents.

The Department maintained that the Commissioner had authorised the arrest under his digital signature and that the necessary satisfaction was reflected in the departmental file. It further submitted that the petitioner had been supplied with the reasons to believe and grounds of arrest, which set out his alleged role in considerable detail.

The question before the Court was therefore not whether the allegations were serious. It was whether the statutory conditions governing the deprivation of liberty had been fulfilled.

Section 69: Satisfaction Must Precede Authorisation

As reproduced and considered in the judgment, Section 69(1) requires the Commissioner to have reasons to believe that a person has committed an offence falling within the specified provisions of Section 132. Upon forming that belief, the Commissioner may, by order, authorise an officer of central tax to arrest the person.

The statutory sequence

The sequence is material:

1. The relevant material must be placed before the Commissioner.

2. The Commissioner must form and record the requisite belief.

3. An order authorising arrest must follow that exercise.

4. The authorised officer may then execute the arrest in accordance with law.

In paragraphs 14 to 18, the Court explained that the reasons must arise from tangible, cogent and credible material. They must disclose application of mind to the ingredients of the alleged offence, the requisite guilty intent and the justification for arrest. Where the reasons are recorded by an authority not empowered to undertake that exercise, the defect goes to the legality of the action itself.

The central safeguard is therefore the Commissioner’s satisfaction, not merely his signature on an authorisation.

Why the Commissioner’s Authorisation Was Insufficient

The Department relied on the authorisation issued by the Commissioner and argued that he had reasons to believe that the petitioner had committed the offence. The Court found this insufficient on the record before it.

Paragraph 17 contains the decisive finding:

“A solitary line in the authorisation for arrest that the Commissioner has ‘reasons to believe’ that the petitioner has committed an offence without anything more, would not amount to ‘reasons to believe’ within the meaning of Section 69 of CGST Act.”

The reasons supplied in the case were detailed. They addressed the allegations, statutory provisions, evidence and the stated cognizable and non-bailable character of the offence. The difficulty was not a lack of detail. It was that those reasons had been recorded by the Inspector/Investigating Officer, not by the Commissioner.

This distinction is important. An investigating officer may collect evidence and place the case for consideration. But, on the Court’s reasoning, that exercise does not discharge the Commissioner’s statutory responsibility to examine the material and record the belief on which the arrest is authorised. The authorisation must be the result of that decision-making process, not a substitute for it.

Power to Arrest Does Not Make Arrest Automatic

The Court also examined the CBIC instructions dated 17 August 2022 concerning arrest under the CGST Act. The instructions reproduced in the judgment state that fulfilment of the legal ingredients does not, by itself, mean that an arrest must follow. They require consideration of the necessity for arrest, including the requirements of investigation, the risk of interference with evidence or witnesses, the alleged person’s role in the arrangement and the possibility of securing his presence without arrest. Cooperation with the investigation is also identified as a relevant consideration.

The Court’s discussion in paragraph 16 places these requirements in the context of personal liberty. Arrest can cause substantial harm to reputation and self-esteem. The decision cannot therefore be routine merely because the law confers the power to arrest. There must be a recorded justification for exercising that power in the particular case.

For this reason, the existence of material suggesting an offence and the necessity of taking the person into custody are related but distinct matters. The judgment requires the statutory decision-making process to address both.

Reasons to Believe and Grounds of Arrest

The judgment deals with both “reasons to believe” and “grounds of arrest”. The former concern the basis on which the Commissioner reaches the statutory decision to authorise arrest. The latter concern the basis of arrest communicated to the person arrested. The Court did not treat the supply of an investigating officer’s detailed account as sufficient to cure the absence of reasons recorded by the Commissioner.

Relying on Union of India v. Sunil Biyani, as discussed in the judgment, the High Court further held that the Commissioner’s order under Section 69 was required to be communicated to the person sought to be arrested. Paragraph 18 states that the reasons must not only be recorded by the Commissioner on the available material but must also be conveyed to the accused.

The finding was thus twofold: the required reasons had to originate from the statutory authority, and the communication requirements had to be observed.

Absence of DIN: A Further Ground Against the Arrest Documents

The Court separately examined Circular No. 122/41/2019-GST dated 5 November 2019. As reproduced in the judgment, the circular mandates a computer-generated DIN for specified departmental communications, including arrest memoranda. It permits departure in identified exceptional circumstances, subject to recorded reasons and the prescribed procedure. Communications issued under those exceptions are required to be regularised within 15 working days.

In the present case, the Court found that the grounds of arrest and reasons to believe did not bear an electronically generated DIN. The Department could not explain the exigency that justified issuing them without DIN, nor did it establish that the documents had been regularised within the prescribed period. The contention that both documents formed part of the arrest memorandum was not accepted.

The DIN finding must be read with those facts. The Court was not considering an established exceptional case followed by timely regularisation. It was dealing with documents for which neither the exception nor compliance with the regularisation procedure had been demonstrated. That failure provided an additional ground on which the documents did not withstand judicial scrutiny.

An Arrest Challenge Is Not a Bail Application

The Department relied on decisions concerning serious economic offences and the grant of bail. The High Court distinguished those authorities, observing that bail was not the issue before it. The challenge concerned compliance with Section 69 and the legality of the arrest itself.

That distinction explains the result. The Court was not deciding whether the petitioner deserved release on a discretionary assessment of bail considerations. It was examining whether the Department had lawfully exercised the power that placed him in custody. The seriousness of the allegations did not answer the identified failure to comply with the statutory preconditions.

Relief Granted—and Its Limits

In paragraph 22, the High Court allowed the petition and held the detention, arrest, subsequent remand and continued custody to be illegal and arbitrary in violation of Section 69. It directed that the petitioner be released forthwith.

The relief did not amount to an acquittal or a determination that the alleged transactions were genuine. The Court expressly left the prosecution at liberty to move an application for remand or custody, if required, after supplying the reasons to believe and grounds of arrest in writing and acting in accordance with law.

That reservation must be read alongside the earlier findings. The judgment does not suggest that merely handing over the same defective documents would be enough. Its reasoning requires compliance with the substantive requirement of reasons recorded by the Commissioner as well as the applicable communication requirements.

Relevance for GST Practice

For practitioners examining an arrest under Section 69, the judgment directs attention to the underlying decision and record, rather than only to the face of the arrest memorandum. The following matters emerge from the Court’s reasoning:

These points arise from paragraphs 14 to 22 of the judgment and the departmental instructions reproduced and applied by the Court.

Conclusion

Sahil Chandna turns on the location of statutory responsibility. Section 69 entrusts the decision to authorise arrest to the Commissioner. A detailed note prepared by the investigating officer cannot take the place of that decision, and a general recital in the authorisation cannot supply the reasoning that the law requires.

The judgment does not restrict the Department from investigating alleged fraudulent credit arrangements or pursuing prosecution in accordance with law. It insists that, when the investigation reaches the stage of arrest, the prescribed safeguards must already have been observed. In this case, the absence of the Commissioner’s recorded reasons, together with the unexplained DIN deficiencies, rendered the arrest and continued custody unsustainable.

By S. Prasad GST Practitioner Mysore