Provisions and Procedures for Arrest under GST Law

[Anuj Bansal]

Provisions and Procedure for Arrest under GST Law

GST tax laws provides powers to GST officials to arrest a person under certain circumstances. These powers are granted to check revenue leakage and fraudulent practice. It is proven fact that power comes alongwith responsibility. Power of arrest has to be exercised with utmost cautious and judicially so that no innocent is harassed. The power to arrest with the GST officer has been a contentious issue.  The Supreme Court, on the government approaching it for clarification, has referred the matter to a three-judge bench on May 29, 2019, on the ground that different high courts have expressed conflicting views on such powers. Previously, a two-judge bench of Supreme Court had vide its order dated May 27, 2019, affirmed the judgement dated April 18, 2019, of the Telangana High Court in P.V. Ramana Reddy versus Union of India [2019 (4) TMI 1320 - TELANGANA AND ANDHRA PRADESH HIGH COURT]case, wherein powers of GST officers were succinctly explained.

GST law lays down circumstances and instances under which a person can be arrested but no guidelines have been given in relation to procedural aspect of arrest. In such situation, reference has to be made to Code of Criminal Procedures (CrPC) and settled case laws. In this article, procedural aspect of making arrest under GST law have been capsulated.

CIRCUMSTANCES WHEN ARREST CAN BE DONE

As per section 69(1) of CGST Act, “Where the commissioner has reason 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.”

Therefore, there are three primary conditions which are required to be fulfilled:

1. Commissioner must have a “Reason to Believe”.
2. Offence as specified in Section 132 (clauses (a), (b), (c) or (d)) of the CGST Act.
3. Commissioner may authorize any officer under the Central Tax to arrest.

1. Commissioner has ‘Reason to believe’

In section 69(1) of CGST Act, phrase ‘reason to believe’ holds utmost importance. As per Indian Penal Code, Sec. 26, “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 is very subjective phrase and may vary in the circumstances of each case. In many cases, the meaning of phrase ‘reason to believe’ have been discussed in length. Specifically, under Section 147 of Income tax Act, which deals with income escaping assessment, this phrase had been deciphered by various courts. The findings under various case laws under Income Tax Act will squarely apply in the case of GST as well. Some of the important finding under various case laws are as under: -

1. Reason to believe consists of two words “reason” and “to believe”. The word “reason” means cause or justification and the word “believe” means to accept as true or to have faith in it. Therefore, there must be a justification for it and belief is the result of the mental exercise based on information received.
2. The “Reason to believe” is different from “Reason to suspect” or from “to have an opinion”. It has been held by the courts that the reason to believe can be said to exist only when the Assessing Officer comes into possession or “discovers” “some material” or, “gets a new insight” subsequent to the conclusion of the original proceedings.
3. Reason to believe, does not mean a purely subjective satisfaction. The belief must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the section.
4. The words 'reason to believe' contemplate an objective determination based on intelligent care and deliberation involving judicial review as distinguished from a purely subjective consideration.

2. Offences as specified in Section 132 (clauses (a), (b), (c) and (d)) of the CGST Act. which are punishable under Sub-Section (i) and (ii) of Section 132(1) and Section 132(2).

Accordingly, as per the said clauses of Section 132, offences where the arrest can be made are following: -

1. Supply of any goods or services or both without issue of an invoice with the intention to evade tax.
2. Issue of any invoice or bill without supply of goods or services or both.
3. Availing of input tax credit using such invoice or bill referred to above.
4. Collection of any amount as tax but failing to pay the same to the Government beyond a period of three months from the date on which such payment becomes due.

Section 132(1)(i) and Section 132(1)(ii) also specifies that in case the amount evaded or ITC wrongly availed or utilized or the amount of refund wrongly taken exceeds five crores then imprisonment may extend for a term upto five years and fine and in case evasion is above two crores but below five crores, imprisonment may be for a term upto three years and fine.

3. Commissioner may authorize any officer under the central tax to arrest.

According to section 69(1) CGST Act, Commissioner can authorise any officer of central tax to arrest. However, according to circular No. 171/6/2013-ST dated 17.09.2013, issued under The Central Excise and Custom Act, officer not below the rank of Superintendent could be authorised by Commissioner for making arrest. Accordingly, under the erstwhile Laws any officer below the rank of Superintendent was not authorized to arrest. However, under GST laws there is no such clarification issued and therefore, any central tax officer can be authorised by the Commissioner to arrest.

In regard to procedural aspect, it is stated that provisions of CrPC Act will apply in case of GST:

There is no provision under CGST Act 2017, specifically providing any procedure for investigation, inquiry or trial of an offence under Section 132 of the CGST Act. Section 132 of the Act indicates the offences and consequences / punishment for committing such offences, where an offence is proved and a person is found guilty. However, there is no procedure laid down in CGST Act in regard to Warrant, Bail, etc. Therefore, in the absence of such procedures, all such offences are to be investigated, inquired and tried as per the procedures provided under the CrPC. Hence, after arrest of the person, as per Section 69(1) of CGST Act, for further procedure CrPC provisions shall be followed. In regard to above, Section 4 of the CrPC can be referred which enumerates the procedure for trial of offences under the IPC and other Laws.

Relevant procedures under CrPC are as follows:

1.  

1. The Authorized Officer must be having a warrant to arrest a person

As per Section 155 of the CrPC, the officer arresting a person must be having a warrant with him. However, Section 41 of CrPC enumerates circumstances when arrest can be made without a warrant. As per said Section 41, for cognizable offences warrant is not required. Therefore, in case of cognizable offences, warrant is not required whereas in case of non-cognizable offence warrant is required.

Further, as per Section 132(5) of the CGST Law, where the tax evasion is above ₹ 5 Cr. and the offence falling either under clauses (a), (b), (c) or (d) of section 132 (1), the same shall be a cognizable and non-bailable and accordingly, warrant is not required. Further, as per Section 132(4) of the CGST Act, all other offences are bailable and non-cognizable and in such cases warrant is required.

In regard to above, reference can also be made to the decision of Apex Court in case of OM PRAKASH AND CHOITH NANIKRAM HARCHANDANI VERSUS UNION OF INDIA [2011 (9) TMI 65 - SUPREME COURT], in which case it has been held that no arrest can be made in case of  non-cognizable and bailable offence.

2.  Procedural Aspect of the Arrest

As stated above, GST Law does not define the procedural aspect of the Arrest, therefore, the same is to be taken from Section 46 of The CrPC Act. As per the said section, the police officer shall not touch or confine the body of other person if there is submission to the custody by word or action. If such person forcibly resists his arrest, or attempts to evade, police officer or other person may use all means to effect the arrest.

3. Who can be arrested in case of a company

Section 137 of CGST Act provides that if the person who commits the offence is a company, the person who was in-charge and responsible for the conduct of business of the company shall be deemed to be guilty of the offence and punished accordingly. Although, such person shall not be liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

Further, sub-section (2) provides that in case of company where the offence has been committed and it is proved that it is committed with the consent or due to negligence of any director, manager, secretary or other officer of the company, such person shall be liable to be proceeded against and punished accordingly.

4.  Grant of bail under GST Law

As stated earlier, Section 132(5) provides that where the tax evasion is above ₹ 5 Cr. and offence is falling under any of the Causes (a), (b), (c) or (d) of Section 132(1) of the CGST Act, same would be Non-Bailable and Cognizable. Other offences under GST would be Bailable and Non-cognizable.

Section 69(2) of CGST Act is dealing with the Non-Bailable or cognizable offence and states that where a person is arrested for non bailable or cognizable offence, the officer authorised to arrest shall inform such person of the grounds of arrest and produce him before a Magistrate within 24 hours.

However, as per section 69 (3) of CGST Act, where a person is arrested for bailable or non-cognizable offence, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate. In such cases, Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise shall have the same powers and be subject to same provisions as an officer-in-charge of a police station.

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 - SUPREME COURT 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. 

5.  Right of Person Arrested

In this regard, reference can be made to Article 22 of the Constitution of India which provides the following fundamental rights to every arrested person:

1. Right to be informed, as soon as may be, of the grounds for such arrest;
2. Right to consult and to be defended by a legal practitioner of his choice;
3. Right to be produced before the nearest Magistrate within twenty-four hours of his arrest excluding the time necessary for the journey from the place of arrest to court of Magistrate;
4. Right to not be detained in police custody beyond the period of twenty-four hours without the authority of the Magistrate.

Further, a detailed discussion in regard to Rights of the person Arrested is done in the Apex Court’s Decision of D.K. Basu v. State of West Bengal [1996 (12) TMI 350 - SUPREME COURT].

In conclusion, it can be stated that arrest can be made by a GST Officer subject to conditions and circumstances specified in the law and person arrested has a right to know grounds of arrest and also to get bail or to be produced before the Magistrate within the specified time.

Discussions to this article

[Himansu Sekhar]

Very informative. But

as per Section 13 of CE Act,. Power to arrest. -

(1) Any Central Excise Officer not below the rank of Inspector of Central Excise may, with prior approval of the [Principal Commissioner of Central Excise or Commissioner of Central Excise], arrest any person whom he has reason to believe to be liable to punishment under this Act or the rules made thereunder.

Initially it was Superintendent which was amended to Inspector.

[NEHA BANSAL]

Mr, Himanshu,

You are absolutely correct! Power to arrest under Excise Act was always with officer not below the rank of Inspector as per section 13. With due respect, circular referred in above article pertains to Service tax Act under which power to arrest was bestowed to officer not below the rank of Superintendent. Although, I think such kind of clarification should also come under GST Laws also.

Regards,

CA Neha Bansal

[Himansu Sekhar]

The lowest rank officer is Inspector. It is the power of the Commissioner to authorise any officer not below the rank of Inspector. I feel there is no need to issue any clarification.

[Ganeshan Kalyani]

The article is beautifully written quoting reference to CrPc, Constitutional rights etc. In addition to GST laws. All these ingredients gives coverage to the subject. DK Basu case law is a well known case law which provided rights to the person being arrested. The judgement is the result of seeking justice in custodial death. It has given Constitutional rights, rather it restored the rights of the human . Nice write-up. Keep it up Sir.

[DEEPAK SHARMA]

A person having many firm/company, he arrested in case of fraudulent conducted by one company or firm.................he release on bail..............investigation is due and going on.........is it possible that, he can be arrested again in other matter of other company or firm instantly ????.