GST

All you need to know about Arrest and Bail under GST Regime

Just like the other tax legislations, the CGST Act 2017^[1] also contains provisions for arrest and bail. It grants power to the concerned officers to make arrests on the commission of an offence under the CGST Act with a provision for bail. However,the power to arrest was subject to criticism owing to alleged arbitrary arrests by the departmental officers. It was alleged that the powers were used in a routine manner. Considering this and the Supreme Court Ruling, the Central Board of Indirect Taxes and Customs issued guidelines relating to arrest and bail under the CGST Act 2017. This article attempts to break down the provisions regarding arrest and bail under the GST regime.

Arrest and Bail under GST: Section 69- CGST Act

As per Section 69 of the CGST Act, if the commissioner has reasons to believe that any person has-

• Supplied any goods or services or both without issuing any invoice with the intention to evade tax;
• Issued any invoice or bill without supplying any goods or services or both leading to wrongful availing or use of the input tax credit or tax refund;
• Availed input tax credit through the invoice or bill referred above or fraudulently avails input tax credit without the invoice or bill;
• Collected any amount as tax but didn’t pay the same to the government beyond three months from the date when the payment becomes due;

he may, by order, authorize a central tax officer to arrest the person. If the person has been arrested, then the authorized officer must inform the person about the grounds of arrest and produce such person before a magistrate within 24 hours.

The section further states that if the person is arrested for any offence specified under sub-section 4 of Section 132, such person will be admitted to bail, or in default of bail, the person will be forwarded to the magistrate’s custody. In the case of non-cognizable offence and bailable offence, the deputy commissioner or the assistant commissioner, for the purpose of releasing the arrested person or bail or otherwise, shall have the same powers and will be subject to the provisions similar to the officer in charge of the police station.

Supreme Court’s Observations on Arrest

The Central Board of Indirect Taxes and Customs issued a list of guidelines on arrest and bail under GST after the Supreme Court made certain observations in the case of Siddharth v. State of Uttar Pradesh.

The apex court has held that the personal liberty is the most important aspect of the constitution. The Court had observed that the occasion to arrest a person during the investigation arises when there is a need for custodial investigation or in the case where a heinous crime is involved or if there is a chance of the accused person influencing witnesses or where the accused person may abscond.

The Court held that simply because an arrest can be made as it is lawful, it doesn’t mandate that the arrest has to be made. The Court said there should be a distinction between the existence of the power to arrest and the justification for using it. The Court remarked that if the arrest is made in a routine manner, it can result in incalculable harm to the reputation and self-esteem of the person. The Court had advised that if the investigating officer doesn’t have a reason to believe that the accused person will abscond or disobey summons and where the accused has co-operated with the entire investigation process, then there should not be a compulsion on the officer to arrest the accused.

CBIC Guidelines on Arrest and Bail under GST

The CBIC (here in after referred to as the board) has said that it examined the Supreme Court judgment and observations. In light of this, the board issued guidelines with respect to arrest and bail under GST Act.

Conditions precedent to arrest

The Board has said that the legal requirements should be met before placing a person under arrest. The reasons to believe in placing an alleged offender under arrest should be unambiguous. The board has said that such reasons should be based on credible material.

It further added that since arrest impinges on the personal liberty of a person, the power to arrest should be exercised with care. The arrest must not be made in a routine and mechanical manner.

The Board has said that even if all the lawful conditions precedent to arrest are fulfilled, that will not mean that an arrest can be made. When the legal ingredients of the offence are made out, the competent authority is required to determine whether the answer to any or some of the questions mentioned below is in the affirmative-

• Person was concerned in the non-bailable offence, or credible information is received, or there is reasonable suspicion;
• Arrest is necessary to ensure proper investigation of the offence;
• The person, if not restricted, may tamper with the course of further investigation or may tamper with the evidence or intimidate or influence the witnesses;
• The Person is the mastermind or the key operator affecting Benami transaction in the name of dummy GSTIN or non-existing persons for passing fraudulent ITC etc.;
• The person unless arrested, his presence cannot be ensured before the investigating officer.

The board has said that the approval to arrest a person should be granted only when the intent to evade tax or commit acts resulting in availing or use of wrongful ITC or fraudulent tax refund or failure to pay the collected amount as tax is evident and the element of mens rea is palpable. Thus, the factors before arresting a person, apart from meeting the legal requirements, should be that proper investigation is ensured and the chances of tampering with the evidence are prevented.

As per the guidelines, the arrest should not be made in case of technical nature. Such cases include where the tax demand is based on a difference of opinion about the interpretation of the law. The prevalent practice of assessment can be one of the determining factors while ascribing the intention to evade tax to the alleged offender.

The board further mentioned some other factors influencing the decision to arrest a person, i.e., where the alleged offender cooperates with the investigation in respect of compliance to the summons, furnishing documents called for, voluntary tax payment, not giving evasive replies, etc.

Procedure for Arrest

The guidelines on the procedure for arrest have been given below:

• Commissioner has to record on file that after considering the nature of the offence, the person’s role, and the evidence, he has a reason to believe that the person has committed an offence as stated under Section 132(4) of the CGST Act. He can authorize a central tax officer to arrest such a person;
• The provisions of the CrPc read with Section 69 sub-section 3 of the CGST Act relating to arrest and the procedure should be adhered to;
• The commissioner should ensure that the officers are familiar with the provisions of the CrPc;
• The memo of arrest should be in compliance with the Supreme Court directions in the case of DK Basu v. State of West Bengal;
• The arrest memo should indicate the relevant sections of the CGST Act or other laws attracted to the case and to the person arrested. Any inapplicable provisions should be struck off;
• The grounds upon which the person has been arrested must be told to the arrested person, who is to be noted in the memo of arrest;
• A nominated or authorized person of the arrested person should be informed immediately;
• The date and the time of arrest should be mentioned in the arrest memo, and the arrest memo should be provided to the arrested person under proper acknowledgement;
• Separate arrest memo should be made and given to the arrested person;
• Generation and quoting of document identification numbers are mandatory in a communication issued by CBIC officers to taxpayers.

Modalities to be complied with

• Women should be arrested only by a woman officer;
• A medical officer serving the central or state government must examine the arrested person’s medical examination. If such an officer is not available, then a registered medical practitioner. This should be done soon after the arrest is made;
• Female persons should be examined by or under the supervision of a female medical officer, and if such an officer is not available, then by a female, registered practitioner;
• It is the duty of the custodian to take reasonable care of the health and safety of the person in custody;
• Minimal force should be used to arrest and without any violence.

Provisions relating to Bail under GST

• Person arrested under sub-section (1) of Section 69 of the CGST Act for an offence mentioned under section 132( of the CGST Act, the assistant or deputy commissioner is bound to release such person on bail against a bail bond.
• The conditions for bail should be informed to the arrested person in writing, and it should also be informed to the nominated person of the arrested person. 
• The arrested person should be permitted to talk to the nominated person;
• The conditions for bail under GST shall relate to the execution of a personal bail bond and one surety given by a local person of repute. It shall also include an appearance before the investigating officer and not leaving the country without informing the officer;
• The amount in the personal bail bond and surety shall depend upon the facts and circumstances of each case;
• It must be ensured that the bail bond amount or the surety amount must not excessive and should be commensurate with the financial stature of the arrested person;
• If the arrested person meets the bail conditions, then such a person should be released on bail by the concerned officer. However, only if the bail conditions are not fulfilled shall the arrested person be produced before the magistrate without delay and within 24 hours. The arrested person can be handed over to the nearest police station, if necessary, for his safe and sound custody during the night before being produced before the Court;
• If a person is arrested under sub-section 1 of Section 69 of the CGST Act for an offence under sub-section 5 of Section 132, the authorized officer who arrests the person shall inform the grounds of arrest such person and produce him before the Magistrate within 24 hours. In any case, it should be ensured that the arrested person is produced before the magistrate within 24 hours of their arrest, exclusive of the time required for the journey from the place of arrest to the magistrate’s Court;
• The format of the documentation, like the bail bond in the CrPc and the challan for handing over to the police, must be followed;
• Once the accused has been arrested, efforts should be made to file a prosecution complaint under Section 132 before the competent Court within 60 days of the arrest, where no bail is granted. In other cases of arrest also, such complaints should be filed within a definite time frame;
• All Commissionerate/ Directorate is required to maintain a bail register, which contains the case details, details of the arrested person, bail amount, surety amount, etc.;
• Money or instruments, or documents obtained as surety, should be kept in the safe custody of a nominated officer who ensures that these instruments or documents are kept valid till the time the bail is discharged.

Anticipatory Bail under GST

There is no statutory impediment under the CGST Act for entertaining an application for anticipatory bail. Different High Courts have made different observations in this regard. Therefore, it can be said that it purely depends upon the facts and circumstances of the case and the judge’s discretion. The Court may also impose certain conditions while granting anticipatory bail.

On the provision of anticipatory bail under GST, the Delhi High Court has held that it is a statutory right. In the case of Tarun Jain v. Directorate General of GST, the Court granted anticipatory bail to the petitioner while holding that it is a statutory right. In this case, the petitioner was accused of an offence under Section 132 clauses b and c of the CGST Act.

The Court had noted that the offences under the said Act are not serious to the extent that where the accused persons’ custody can be held to be sine qua non.

While allowing the bail application, the Court held that anticipatory bail is a statutory right in consonance with Article 21 of the Constitution.

In another case, the Uttarakhand High Court denied anticipatory bail to an accused of claiming ITCs through fake invoices. The Court had held that the bail could not be granted as the allegations were grave and the accused was not cooperating in the investigation process.

Conclusion

Different High Courts in the country have also highlighted the scope of arrest and bail under the GST regime. As these guidelines are meant for authorized officers and departmental authorities, the taxpayers also get empowered and knowledgeable about their rights. The Supreme Court’s Judgment in Siddharth v. State of Uttar Pradesh has paved the way for the CBIC to issue guidelines to prevent arbitrary arrests and ensure clarity over the bail provisions under the GST regime. Now, the department and concerned authority must follow these guidelines and rules in true spirit.

Read our Article: Guidelines for Launching Prosecution Under GST Act