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 DisputeThe 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 PowersA 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...

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

Ayush Unnikrishnan

This is a premium content
Available exclusively to
Our subscribers

INR 1099+GST

Tags

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

Ayush Unnikrishnan

This is a premium content Available exclusively to Our subscribers

INR 1099+GST

Tags

This is a premium content
Available exclusively to
Our subscribers