Arrest Under GST Act: Supreme Court Clarifies Law Protecting Human Dignity

Arrest of a person is not only violative of Article 21 of the Constitution which affirms the right to life and liberty but is also a loss of human dignity in the family and society. Courts have held that the power of arrest should be used with great circumspection and not casually. The Hon'ble Supreme Court in Radhika Agarwal V. Union of India and Others, Writ Petition (Criminal) No. 336 OF 2018 has stipulated sufficient safeguards so that no arrests are made arbitrarily in GST cases.

How an arrest is made under the GST Act

Section 69 of the GST Act explains when the Commissioner can authorize any officer of Central or State tax to arrest such a person. The Section further provides that a person arrested must be informed of the grounds of arrest and must be produced before the Magistrate within 24 hours.

Section 132: punishment of offences

The Hon'ble Apex Court has explained that Section 132 of the GST Act deals with punishment of offences. This section is vital because no arrest can be made until the Commissioner is able to show and satisfy on the basis of material and evidence that the conditions stipulated under Section 132 are satisfied.

Section 132 (1) consists of nine clauses, offences under the said clauses are further graded depending upon the amount of tax evaded, the amount of input tax wrongly availed or utilized, or the amount of refund wrongly taken. When the amount of tax evaded exceeds Rs. 500 lakhs, the punishment may extend to imprisonment for five years and with fine; where the amount of tax evaded is less than Rs. 500 lakhs but exceeds Rs. 200 lakhs, the punishment may extend to imprisonment for three years with fine. Where the amount of tax evaded is less than Rs. 200 lakhs but exceeds Rs. 100 lakh, the punishment may extend imprisonment for one year and with fine.

Section 132 further deals with cases where the accused commits or abets the commission of an offence of falsifying or substituting financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax and provides a punishment which may extend to imprisonment for six months, with or without fine. It also deals with repeat offenders. It also states that the minimum term of imprisonment for some offences in the absence of special and adequate reasons to the contrary to be recorded by the Court, shall not be for less than six months.

Bailable and non-bailable offences under Section 132:

The Hon'ble Apex Court has brought a distinction that Section 132 sets out two categories of offences. One set of offence is non-cognizable and bailable; another set of offence is cognizable and bailable. The Central/State officers of Revenue in cases of bailable and non-cognizable offences do not make arrests. Arrests are made only when the offence is non-bailable and cognizable.

The following set of offences with punishment falls into the category of non-bailable and cognizable, clauses (a) to (d) of sub-section (1) to Section 132:

(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;

(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.

Punishment for aforesaid offences, clause (i) of sub-section (1) to Section 132:

(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.

Relevant Circulars:

The Hon'ble Apex Court has further mentioned the various circulars of the GST-Investigation wing. Firstly, circular dated 17.08.2022 refers to the procedure of arrest and that the Principal Commissioner/Commissioner has to record on the file, after considering the nature of the offence, the role of the person involved, the evidence available and that he has reason to believe that the person has committed an offence under Section 132. Secondly, circular dated 23.12.2019 provides the format of arrest. The arrest memo should indicate the relevant sections of the GST Act and other laws. Thirdly, circular dated 13.01.2025 stated that the grounds of arrest must be explained to the arrested person and noted in the arrest memo. The acknowledgement of the same should be taken from the arrested person at the time of service of the arrest memo. Fourthly, circular dated 17.08.2022 lays down that a person nominated or authorised by the arrested person should be informed immediately, and this fact must be recorded in the arrest memo. The circular also makes other directions concerning medical examination of the arrested person and the procedure of arresting a woman, etc. It also lays down the post-arrest formalities which have to be complied with.

The Hon'ble Apex Court has held that to pass an order of arrest in cases of non-bailable and cognizable offences, the Commissioner must satisfactorily demonstrate through reasons to believe recorded by him, that the person to be arrested has committed a non-bailable offence and the pre-conditions of sub-section (5) to Section 132 of the Act which specifies the offences with punishment are satisfied. Failure to do so would result in an illegal arrest. Further, it has been clarified that 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 as specified in clauses (a) to (d) of sub-section (1) to Section 132. The computation of the tax involved in terms of the monetary limits under clause (i) of sub-section (1) to Section 132, which make the offence cognizable and non-bailable, should be supported by referring to relevant and sufficient material.

The Hon'ble Apex Court has made it clear that the arrest must proceed on the belief supported by reasons relying on material that the conditions specified in sub-section (5) of Section 132 which specifies the cognizable and non-bailable offences with punishment are satisfied, and not on suspicion alone. 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. The reasons to believe must be based on the evidence establishing to the satisfaction of the Commissioner that the requirements of sub-section (5) to Section 132 of the GST Act which stipulates the cognizable and non-bailable offences with punishment are met.

The provisions of the GST Act as discussed above along with the circulars mentioned above have to be complied with for a lawful arrest.

Author is an Advocate practicing at Patna High Court. Views are personal.