GST Arrests Post Radhika Agarwal V. Union of India: Has Supreme Court Redefined Tax Investigations?

For many businesses facing GST investigations today, the process itself often becomes the punishment. Notices are issued; documents are asked for; top management is being called upon so many times, and arrest, even without the final assessment, is a looming possibility. Many taxpayers have already alleged that the threat of arrest is itself used as a pressure tactic during the investigations, more especially in fake invoice cases, wrong ITC claims, and tax evasion.

It is within this context of whether or not personal liberty will be sacrificed for recovery of taxes that the decision of the Supreme Court in Radhika Agarwal v. Union of India, 2025 INSC 272, becomes interesting. On one hand, it clearly holds that section 69 of the Central Goods and Services Tax Act, 2017 ('CGST Act') is constitutional, but on the other hand, it reiterates that GST investigations cannot happen in a way that is inconsistent with due process of law. The court endeavours to create a balance between enabling tax authorities to conduct a meaningful investigation into serious economic offences and individuals not being subject to abuse of the process of law, particularly arrest.

However, this judgment doesn't put all controversial issues about GST arrests to rest and issues relating to arrest prior to adjudication, scope of 'reasons to believe' and practical safeguards still remain a contentious debate.

Background of the Dispute

The litigation before the Supreme Court in the matter of Radhika Agarwal v. Union of India (supra) had its genesis in several petitions assailing the powers of arrest and investigation available under the Central Goods and Services Tax Act, 2017. Sections 69 and 70 of the CGST Act, dealing with the power to arrest and the power to summon in GST investigations, were the subject matter of challenge.

The primarily raised issue in this case was that in the light of the repeated utilization of power of arrest for various allegations of fake invoicing, utilization of input tax credit wrongly and evasion of tax without completing the adjudication proceedings and without any finding about the tax liability in the case, constitutional protection of Article 20, 21, and 22 are being denied, making the situation worse with coercive investigations even in the absence of finding of tax liability.

Another significant aspect for discussion was that powers under investigation by GST officers are similar to police authorities, so investigations under the CGST Act are required to have such safeguard which a person has during a criminal investigation by Police and statements taken by summoned authorities cannot be used to implicate such a person, so Article 20(3) needs to be taken note of.

However, the Union Government vehemently defended the legislative scheme and stated that the economic crimes of fraud and tax evasion have a serious impact on the public exchequer and need efficient tools to tackle such issues by allowing authorities to make arrests in appropriate cases. Against the backdrop of these contentions, the Supreme Court analysed the constitutionality, scope and limitations of the powers of GST arrest.

Constitutional Validity of GST Arrest Powers

A major issue before the Supreme Court in Radhika Agarwal was as to whether arrest provisions under Section 69 of the CGST Act were in contravention of constitutional rights guaranteed for personal liberty and due process. The argument by petitioners was that these powers vested highly broad discretion in GST authorities and permitted arrests even before the completion of adjudicative proceedings. The exercise of such powers could result in the unwarranted loss of liberty, particularly in cases of tax disputes.

The Supreme Court, however, gave its seal of approval to the arrest powers under the CGST Act, holding that, as the Parliament under its legislative power as granted by Article 246A of the Constitution of India had the power to provide effective measures for enforcing GST Laws, including the power to investigate, arrest and the like in cases of severe tax evasion/fraud.

Simultaneously, the court also reaffirmed that the power of arrest under the CGST Act would continue to be subject to constitutional constraints guaranteeing the right to personal liberty and the power to arrest is not a mechanical one and cannot be formed on mere suspicion but on “reason to believe” to be formed by the Commissioner and such belief must be formed on sufficient materials which is credible, relevant and should point to commission of offenses as stated in the Act and that the same should not become an arbitrary process in every tax dispute.

In addition, the court declined to uphold the proposition that an arrest could only take place after adjudication was finished and held that the purpose of criminal investigation under the CGST law is different from the tax adjudication process regarding assessment and recovery of tax. Therefore, in appropriate cases involving fraud or fake invoicing, it may be permissible to arrest even prior to the completion of adjudication.

Procedural Safeguards and Application of Criminal Procedure Principles

Although holding that the arrest provisions of the CGST Act do not stand on shaky ground, the Supreme Court in Radhika Agarwal stated it is not possible for the GST probes to exist without existing procedural safeguards. The Supreme Court in its judgment heavily emphasised that the fundamental right guaranteed under Article 21 of the Constitution for liberty of a person cannot be abrogated in economic offences or tax investigations.

The Court, while addressing the issues relating to the arrest powers of GST officers under Section 69(1) of the CGST Act, observed that those powers should be exercised along with safeguards available under criminal procedure jurisprudence. Specifically, it relied on the judgment of D.K. Basu v. State of West Bengal, 1997 (1) SCC 416, with respect to principles that need to be followed during arrest. These include: stating the grounds of arrest, drawing up an arrest memo, notifying friends or relatives, maintaining arrest records and protection against illegal custodial practice.

The Supreme Court also held that even in cases where a person is summoned by GST officers during investigation proceedings, there exist some procedural safeguards that need to be complied with by the tax authority. The Court said that due care has to be taken during interrogation proceedings. Interrogation should not be a tool of physical torture, and the purpose of investigations should not be harassment. Though the Court has said that GST officials are not police officials, yet it was held that safeguards that apply to criminal investigations cannot be kept entirely out of bounds merely on account of the proceedings being under a fiscal law.

Another contribution from this segment of the ruling is to address the concern of transparency and accountability while wielding powers of arrest. The judgment suggested that the “reasons to believe” to exercise arrest powers under Section 69(1) of the CGST Act must be neither vague nor based on the subjectivity or whims of the officers. Existence of relevant materials required to exercise arrest powers may thus come to scrutiny, if mala fide allegations are made.

In a practical sense, this part of the judgment may be its most important contribution, that while retaining the powers to prosecute serious economic offenders, tax authorities are yet held accountable to standards of constitutional and procedural propriety.

GST Officers and the Question of “Police Officer” Status

The other contentious issue the Apex Court in Radhika Agarwal's case inquired into was whether the GST officials can be deemed as “police officers” within the meaning of criminal law protection and provisions related to evidence. The relevance of this query arises from the fact that statements given to police officers stand on a different footing according to the scheme of the Indian Evidence Act and provisions related to the admission of evidence.

The prosecution argued that GST officers hold powers that significantly resemble those held by police officers. Their investigative powers, powers to issue summons, search and seize premises and property, and their powers to arrest, all suggest a police officer status. On these grounds, the prosecution asserted that statements recorded by GST officers should have similar legal protection, which is generally offered to investigations carried out by police officers, especially the prohibition under Section 25 of the Indian Evidence Act, 1872 or Section 23 of the Bharatiya Sakshya Adhiniyam (BSA), 2023.

In doing so, the Court relied upon earlier decisions involving customs and revenue authorities, including Poolpandi v. Superintendent, Central Excise, 1992 (3) SCC 259 and Tofan Singh v. State of Tamil Nadu, AIR 2020 SC 5592. The Apex Court held that GST officers function mainly under fiscal statutes. Their role as compared to an ordinary investigator under general criminal law is different, according to the Court. Therefore, statements recorded under summons under Section 70 of the CGST Act do not automatically become invalid because they have been made before a GST officer.

The evidentiary position of the prosecution in GST cases, especially concerning fake invoicing and false input tax credit claims, where statements recorded during the course of investigation are very important, gets significantly strengthened with this observation of the Court.

Although it also held that this status of the officer under criminal law does not give the power to abusive interrogation, so the voluntariness of the statement still stands, and it would be up to the Court to determine in relevant cases if the same was voluntary or not.

Arrest Before Adjudication: The Continuing Controversy

A significant area of controversy in the judgment involves the issue of whether a person can be arrested prior to the determination of the tax liability by an adjudicatory process. Before Radhika Agarwal, the most important judgment in this matter was the one passed by the Telangana High Court in P.V. Ramana Reddy v. Union of India, WP No. 4764 of 2019, wherein the power to arrest, before adjudication, was validated. primarily in matters about fake invoices and illegal input tax credit.

The main plank of the argument made by the petitioners was that the act of arresting a person prior to the adjudication of tax liability is not fair, for the very reason that even the tax liability is itself under determination at the investigative stage. It was thus argued that the initiation of prosecution and the arrest can ordinarily follow the adjudication proceedings in establishing a tax evasion, and only after completion of assessment or adjudication. This line of reasoning also asserted that a pre-emptive arrest generates fear and undue pressure on the businesses under investigation.

However, the Supreme Court refused to recognise the adjudicatory process as a necessary precondition for the issuance of the power of arrest under the CGST law. It recognised that the adjudicatory proceedings and criminal investigation are separate and may run independently on their own course of action. It reiterated that where there exists material which points towards the commission of an offence of a cognisable nature (including cases involving fraud, fake invoices and intentional tax evasion), the power of arrest may well be exercised even prior to the completion of adjudication.

The judgment further empowers the investigating capacities of the GST authorities greatly, especially concerning large-scale economic crimes. However, on the other hand, it is feared that it could be used as a tool to exert unduly large pressure, thereby creating fear of oppressive practices in implementation. Tax cases often are about classification, interpretation of laws and documents, which may create fine lines between true tax evasion and genuine business errors; during an investigation, this line might get lost. Thus, it remains to be seen to what extent of power is used while conducting an investigation, where much would depend on the discretion of authorities, since the judgment recognises arrest as an extraordinary tool. Judicial review might have to step in from time to time to check that the power of arrest is not used as an ordinary investigatory measure in tax cases.

Unresolved Concerns and Practical Challenges

While the Supreme Court has clarified a number of significant issues relating to GST investigations in the case of Radhika Agarwal v. Union of India, concerns persist about the actual practical application of the power of arrest in the CGST framework. A number of critical uncertainties persist, particularly relating to the extent of discretion being enjoyed by the investigation authorities.

A key concern remains about the term 'reasons to believe' in Section 69 of the CGST Act. While the court has strongly said that the power to arrest cannot be invoked in a mechanical manner, it has stopped short of providing for a precise standard as to the kind of material required for invoking the powers of arrest. This leaves tremendous amounts of discretion in the hands of the tax authorities and might lead to differing conclusions in various investigations.

Another major issue continues to be coercive recoveries during investigation. In a lot of GST disputes, it is alleged that the fear of arrest has forced business concerns to make voluntary payments prior to the determination of liability. The Court does uphold the fact that Constitutional rights should not be undermined, yet fails to provide an in-depth set of operational instructions regulating the behaviour of investigation officers during the summoning of a business concern to a tax office.

A relevant query in this regard is how the safeguards of the notice procedure applicable to normal criminal law would apply to arrest in matters of GST investigations. While financial crimes do not have the urgency as crimes threatening society at large but rather concern disputes concerning documents, the question of proportionality in the use of powers of custody remains significant.

From a business point of view, this judgment will bring more significance to pre-investigation preparation. Business concerns might need to improve documentation and compliance practices and seek legal recourse once a summons is served. Moreover, courts will be called upon to scrutinise more carefully if powers of arrest are being used to advance an investigation or simply to achieve recovery.

This judgement is therefore a mix of status quo and a change. While retaining wide powers for the GST investigation authorities, it reiterates that the powers may be invoked only under the mandate of the Constitution. Only time will determine the true long-term impact of the judgment and the manner in which it is applied by courts and GST authorities, as well as its application in the various courts of law and the respective GST authorities.

The Supreme Court decision in Radhika Agarwal v. Union of India stands as a watershed moment in the evolving landscape of tax investigation and economic crimes under the GST regime in India. While firmly upholding the constitutional legitimacy of arrest powers under the CGST Act and recognising the State's interests in cracking down upon mass-scale tax fraud and tax evasion, the Court attempted to balance these rights with existing constitutional protections for personal liberty and due process.

The most important aspect of the judgment is its attempt to strike a balance between strong tax enforcement and constitutional protections against arbitrary investigation between strict tax enforcement on one side, and constitutional guarantees of freedom from undue investigation on the other between the need for a strong enforcement mechanism for tax in today's complex economy and the potential for arbitrary arrest, coercive interrogation and abuse of power at the time of dispute, in the absence of a balanced investigation system. The Court's emphasis on principles of due process, transparency and judicial review represents acceptance that neither fiscal investigation can escape constitutional boundaries.

However, the judgment has also left critical questions to be interpreted at later stages. Availability of powers of arrest before adjudication, wide amplitude of the concept of 'reasons to believe' and on-ground realities of GST investigations may continue to ensure ongoing dispute in the context of investigative overreach and in the future may rather shift the focus from existence of such powers to the actual exercise of such powers.

Though not a complete overhaul, the judgment clearly changes the constitutional and legal landscape for GST investigations in the future. It strengthens the legal foundation of GST investigations while reaffirming that tax enforcement must remain accountable to constitutional principles and the rule of law.

Views are personal.