MARCH 05, 2025

By Vijay Kumar

CONSTITUTIONAL validity of Sections 69 and 70 of the CGST Act which provide for the power to arrest and the power to summon has been assailed in a petition before the Supreme Court on the grounds of legislative competence. It is submitted that Article 246-A of the Constitution while conferring legislative powers on Parliament and State Legislatures to levy and collect GST, does not explicitly authorize the violations thereof to be made criminal offences.

The Supreme Court in a widely discussed judgement delivered on February 27, 2025 in Radhika Agarwal v Union Of India - 2025-TIOL-13-SC-GST-LB held:

a penalty or prosecution mechanism for the levy and collection of GST, and for checking its evasion, is a permissible exercise of legislative power. The GST Acts, in pith and substance, pertain to Article 246-A of the Constitution and the powers to summon, arrest and prosecute are ancillary and incidental to the power to levy and collect goods and services tax. The vires challenge to Sections 69 and 70 of the GST Acts must fail and is accordingly rejected.

Arresting Developments: The New Norm

The Supreme Court observed:

The GST Act is not a complete code when it comes to the provisions of search and seizure, and arrest, for the provisions of the Code (of Criminal Procedure) would equally apply when they are not expressly or impliedly excluded by provisions of the GST Acts.

Where a Commissioner has reasons to believe that a person has committed a punishable offence, he may authorise any officer of central or state tax to arrest such person. when a person is arrested, the officer authorised to arrest, must inform the person of the grounds of arrest and produce him before the Magistrate within 24 hours.

'Cognizable offence', defined in Section 2(c) of the Code, means an offence for which the police officer may, in accordance with the First Schedule of the Code or any other law for the time being in force, arrest without a warrant. 'Non-cognizable offence', defined in Section 2(l) of the Code, means an offence for which a police officer has no authority to arrest without a warrant.

Sub-section (4) to Section 132, states that notwithstanding anything in the Code, all offences under the GST Act, except the offences referred to in sub-section (5), are non-cognizable and bailable. Thus, non-cognizable offences have been made bailable.

Revenue made a submission that in cases of bailable and non-cognizable offences, the central/state officers do not make arrests. Arrests are made only when the offence is non-bailable and cognizable.

Arresting Ambiguity

The Supreme Court's directions:

1. To pass an order of arrest, the Commissioner must satisfactorily show, the reasons to believe recorded by him, that the person to be arrested has committed a non-bailable offence and that the pre-conditions of the Act are satisfied. Failure to do so would result in an illegal arrest.

2. The Commissioner, while recording the reasons to believe should state his satisfaction and refer to the 'material' forming the basis of his finding regarding the commission of a non-bailable offence.

3. The arrest must proceed on the belief supported by reasons relying on material that the conditions specified are satisfied, and not on suspicion alone.

4. An arrest cannot be made to merely investigate whether the conditions are being met. The arrest is to be made on the formulation of the opinion by the Commissioner, which is to be duly recorded in the reasons to believe.

5. Power of arrest should be used with great circumspection and not casually. Further, the power of arrest is not to be used on mere suspicion or doubt, or for even investigation.

Can arrest be made before assessment?

The Commissioner may authorise arrest when he is able to ascertain and record reasons to believe. The reasons to believe must be explicit and refer to the material and evidence underlying such opinion. There has to be a degree of certainty to establish that the offence is committed and that such offence is non-bailable. The principle of benefit of doubt would equally be applicable and should not be ignored either by the Commissioner or by the Magistrate when the accused is produced before the Magistrate.

Because, let's face it, nobody likes a surprise arrest with their morning coffee.

One of the assertions and allegations made on behalf of the petitioners is that the parties are compelled and coerced to admit and make payment of tax with the threat of arrest. This is in spite of the fact that there is no assessment or adjudication as to the alleged demand.

The Supreme Court found some force in the petitioners' submission that the assessees are compelled to pay tax as a condition for not being arrested.

It's like the old saying: "Pay your taxes, or pay the price" - except now, the price might include a free stay in a government-funded hotel (aka jail).

The Supreme Court observed that in case there is a breach of law, and the assessees are put under threat, force or coercion, the assessees would be entitled to move the courts and seek a refund of tax deposited by them. The department would also take appropriate action against the officers in such cases.

Summons:

A person summoned under Section 70 of the GST Acts is not per se an accused protected under Article 20(3) of the Constitution. It is obvious that the investigation must be allowed to proceed in accordance with law and there should not be any attempt to dictate the investigator and at the same time, there should not be any misuse of power and authority.

Bail in anticipation:

The power to grant anticipatory bail arises when there is apprehension of arrest. This power, vested in the courts under the Code, affirms the right to life and liberty under Article 21 of the Constitution to protect persons from being arrested. It is not essential that the application for anticipatory bail should be moved only after an FIR is filed, as long as facts are clear and there is a reasonable basis for apprehending arrest.

Anticipatory Bail in GST too!

Arrest but Conditions Apply

1. The power to arrest a person without a warrant and without instituting a criminal case is a drastic and extreme power. Therefore, the legislature had prescribed safeguards which act as exacting conditions as to how and when the power is exercisable.

2. The "grounds of arrest" are required to be informed forthwith to the person arrested.

3. The courts can judicially review the legality of arrest. This judicial review is permissible both before and after criminal proceedings or prosecution complaints are filed.

4. The investigating officer is also required to look at the whole material and cannot ignore material that exonerates the arrestee. A wrong application of law or arbitrary exercise of duty by the designated officer can lead to illegality in the process.

5. The doctrine of proportionality has come to permeate constitutional law when questions of life and liberty are involved. Arrest often involves contestation between the fundamental right to life and liberty of individuals against the public purpose of punishing the guilty.

6. An officer cannot conclude that an offence has been committed out of thin air or mere suspicion. Officers may only arrest a person if they have "reasons to believe" that a person has committed an offence. A person is said to have a "reason to believe" a thing, if they have sufficient cause to believe that thing but not otherwise.

7. The reasoning must weigh in why an arrest is being made in a specific case, particularly given the specific severity assigned to the offence by the legislature. The reasoning must also state how the monetary thresholds outlined in the Act are met.

8. Moreover, the framework of the Act clearly reflects the legislative intent to establish a distinct and unique procedure for the exercise of arrest powers by an officer.

9. A person arrested, as soon as may be, is required to be informed of the grounds of such arrest. The grounds of arrest must be given in writing to the arrestee before he is produced before the Magistrate

GST officers can arrest but not at the drop of a hat.

Arrest, not because you have the power

Arrest because it is your duty

TIOL Tax Congress in Mumbai

It was a great honour for us to have Hon'ble Union Minister Shri Nitin Gadkari in our TIOL Awards function and Tax Congress at Mumbai on Saturday, the 1st of March 2025 along with Dr. P. Thiagarajan, Hon'ble IT Minister of Tamil Nadu and Mr. Chandrasekharan, Chairman of Tata Sons. The function held in the Sangam hall of Hotel JW Marriot in Juhu was a real Sangam of stars of the tax world.

In his Facebook, Shri Gadkari posted, Honored to present the TIOL Business Leader Award 2025 posthumously to Shri Ratan Tata Ji

Until next week

Comments/feedback welcome at vijaywrite@tiol.in or 9848111243 (WhatsApp)