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Arrest and bail in GST law

Tax evasion, an economic offence, is dealt with heavily under law and enforcement. Arrest and bail provisions under the GST law are undergoing heavy evolution with the law being recent and being intensely invoked.

Arrest and bail in GST law

I. Introduction

Tax evasion has historically been a pervasive economic offence. Between the direct tax (income-tax) and indirect tax (e.g., GST, customs duty), there is a difference in the tools of enforcement available to the government. The direct tax laws are periodic in nature (for instance, the income-tax is levied on an annual basis) and hence the starting point of any investigation or enforcement concerning direct taxes is the finalization of accounts and filing of income-tax returns. On the other hand, indirect tax laws monitor transactions. Their enforcement and investigation could be done while the transaction is being carried out. Thus, in the latter case, arrest is provided for in the law as an enforcement and investigation tool. This article analyses the various statutory and legal provisions regarding arrest and bail under the GST law.

II. Statutory provisions

Section 132 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) lays down the list of criminal offences under the Act, for which offenders may be criminally prosecuted, as well as arrested subjected to the reasonable discretion of the GST authorities. The section also categorizes the offences into ‘bailable’ and ‘non-bailable’ offences, as follows:

(i) Bailable offences

  • In cases where the amount of tax evaded, or input tax credit (ITC) wrongly availed or utilized, is between Rs. 2 crores to Rs. 5 crores, the offence is non-cognizable and bailable, with up to three years of imprisonment and fine.

  • In cases where the amount of tax evaded, or ITC wrongly availed or utilized, is between Rs. 1 crores to Rs. 2 crores, the offence is non-cognizable and bailable, with up to one year of imprisonment and fine.

  • In cases where the offence committed or abetted by a person falls under section 132(f), 132(g) and/or 132(j) of the Act, the offence would be bailable and non-cognizable, punishable with imprisonment up to six months or fine or both.

(ii) Non-bailable offences

  • In cases falling under section 132(i) - wherein the amount of tax evaded, or ITC wrongly availed or utilized, exceeds Rs. 5 crores, the offence is cognizable and non bailable, and punishable with imprisonment up to five years and fine.

In either case, a person may be arrested if the following conditions are satisfied, as per the Commissioner’s reasonable belief:

(a) Offence committed should be one specified under s. 132(1)(a) to (d) – that is, the offence should involve supplies without invoice (out-of-books sales), or wrong / false invoicing leading to wrongfully availing ITC or getting refund (wrong invoicing), or wrongfully availing ITC, or collection of tax and non-payment to government;

(b) Offence should be punishable under s. 132(1)(i) or (ii), or s. 132(2) – that is, tax evasion or ITC availed should be more than Rs. 3 crores or the person should be a repeat offender.

The power to arrest a person has been provided under section 69 of the CGST Act. Under s. 69, the Commissioner has the power to authorize any officer to arrest a person if he has reasons to believe that such person has committed any offence specified under sections 132(1)(a) to (d) of the Act. The procedure to be followed for the arrest would be as laid down under the Code of Criminal Procedure, 1973 (‘CrPC’), and is explained below.

III. CBIC guidelines for arrest and bail in GST offences

The CBIC has recently issued detailed instructions (vide Instruction No. 2/2022-23 dated 17.08.2022) regarding arrest and bail in relation to offences punishable under the CGST Act on the basis on the judgement given by the Hon’ble Supreme Court in Siddharth v State of UP (2022) 1 SCC 676. The above-mentioned instruction covers three aspects which are being mentioned below:

(A) Conditions precedent to arrest

(i) All legal formalities and requirements must be fulfilled before placing a person under arrest. The reasonable belief of the Commissioner must be unambiguous, clear and based on credible sources of information or material.

(ii) The Commissioner before authorizing the arrest of any person must answer the following questions in affirmative:

-- Whether or not credible information has been received or reasonable suspicion against the said person exists to or the offence committed by the person is a non-bailable offence?

-- Whether the arrest is necessary to ensure proper investigation?

-- Whether person not been restricted is likely to hamper the evidence during the course of investigation or has the capacity to influence any witness?

-- Whether the said person is the mastermind or the key operator who effected the Benami/proxy transaction in the name of the dummy GSTIN or non-existent person for the purpose of fraudulently passing ITC?

(iii) Where the intention (mens rea) is fully and entirely established, only then the arrest should be made.

(iv) In cases of technical nature (e.g., demand of tax being based on a difference arising out of interpretation of law), arrest should not be adopted as a mechanism to resolve the issue.

(v) Other factors that are to be taken into consideration regarding arrest include (i) cooperation during the investigation, (ii) possibility that evidence would be tampered or witnesses be influenced.

(B) Procedure of arrest

(i) The Commissioner, on having substantial reason to believe that an offence under the CGST Act has been committed by a person, shall record on file the (a) nature of the offence, (b) role of the person involved, and (c) the evidence available against him.

(ii) The arrest of the person has to be made as per the provisions of Code of Criminal Procedure, 1973, read with section 69 of the CGST Act. It is the duty of the Commissioner to ensure that all the officers are fully familiar with the provisions of arrest as mentioned in the CrPC.

(iii) The arrest memo must be made in compliance to the directions given by the Hon’ble Supreme Court in the case of D.K. Basu v the State of West Bengal (1997) 1 SCC 416, as well as the format of the arrest memo prescribed under CBIC’s Circular No. 128/47/2019-GST. It should clearly indicate the relevant sections attracted under of the CGST Act or any other law under which the person has been arrested.

(iv) The grounds of arrest are to be explained to the person being arrested and the same has to be mentioned on the arrest memo.

(v) The details of the arrest should be provided to a duly nominated person and the same has to be mentioned in the arrest memo.

(vi) The arrest memo should have the date and time of arrest clearly mentioned and a copy of the same should be given to the arrested person with proper acknowledgement. Each individual arrested shall be given a separate arrest memo in the event that there are several simultaneous arrests in one particular case.

(vii) As per CBIC’s Circular No. 122/42/2019-GST it is mandatory to generate a Document Identification Number (DIN) on any communication issued by an officer of CBIC to the tax payer or any other concerned person for the purpose of investigation.

(viii) The general guidelines to be followed during the time of arrest are-

-- A woman should only be arrested by a woman officer as per the provisions of Section 46 of the Cr.P.C.

-- The medical examination of the person being arrested needs to be conducted by a Central/State Government medical officer. In case of no medical officer being present, a registered medical practitioner can conduct the medical examination soon after the arrest has been made. The medical examination in case of a woman shall be made strictly in the presence of a female medical officer/practitioner.

-- It is the duty of the person being arrested to take reasonable care of the health and safety of the arrested person.

-- The arrest should be done using minimal amount of force and publicity and without any violence.

(C) Post-arrest formalities

(i) The procedure of arrest varies according to the section under which a person has been arrested i.e., whether the charged offence is a non-cognizable and bailable offence or it is a cognizable and non-bailable offence:

-- In case the offence is a bailable offence (section 132(4) of the Act):

--- Person arrested is bound to be released on bail against a bail bond by the Assistant Commissioner or Deputy Commissioner.

--- The bail conditions are to be informed in writing to the arrested person as well as to the nominated person on telephone.

--- The arrested person should be allowed to talk to the nominated person.

-- In case the offence is a non-bailable offence (section 132(5) of the Act):

---Person to be informed about the grounds of his arrest and be produced before the within 24 hours.

--- If production before a magistrate is not possible, the accused shall be handed over to the nearest police station for his safe custody under proper challan and be produced before the magistrate the next day.

(ii) The bail granted would be subject to the execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer when required and not leaving the country without informing the officer. The amount of the bail bond is to be decided based on the facts and circumstances of the case and it shall not be excessive but commensurate with the financial status of the arrested person.

(iii) On fulfilling the conditions of bail, the arrested person shall be released by the concerned officer.

(iv) After the arrest of the accused, a prosecution complaint shall be filed by the officer in charge under section 132 of the CGST Act, preferably within 60 days of arrest, where no bail has been granted.

IV. Relevant provisions of the CrPC

The process of arrest and bail for committing an offence under section 132 of the CGST Act, is governed by the procedure of arrest and bail as mentioned under the Code of Criminal Procedure.

  • Section 46 Cr.P.C. – Arrest how made - Section 46 lays down the procedure of how arrest is to be made. The arrest made under section 69 of the CGST Act are read in consonance with section 46 of the Code of Criminal Procedure.

  • Section 438 Cr.P.C. – Direction for grant of bail for a person apprehending arrest – this section provides for anticipatory bail to a person who apprehends being arrested. Such bail may be applied to the Sessions Court or the High Court (both have concurrent jurisdiction).

  • Section 436A – Maximum period for which an undertrial prisoner can be detained - the said provision sets a cap for pre-trial custody. It prevents an under trial, who has undergone detention for a period extending up to one-half of the maximum period of the imprisonment specified for any said offence under the law, shall be released by the Court on a personal bond without sureties.

  • Section 437 – When bail maybe taken in the case of non bailable offences – this section provides for bail to be granted by the lower (Magistrate’s) court.

  • Section 438 – Direction for grant of bail to person apprehending arrest (anticipatory bail) – any person who apprehends or anticipates his arrest under any law may approach the court for a direction that upon his arrest he may be released on bail.

  • Section 439 – Special powers of the High Court or Court of sessions regarding bail – this section provides concurrent jurisdiction of the Sessions Court and High Court to grant bail (regular bail, or interim bail).

V. Factors considered for the grant of bail

The offence of tax evasion is a classic economic offence (refer to the 29th and 47th Reports of the Law Commission of India, categorizing tax evasion as an economic offence). Time and again, the Hon’ble Supreme Court has held that economic offences constitute a class apart and need to be visited with a different approach in the matter of bail (refer Y S Jaganmohan Reddy v CBI (2013) 7 SCC 439). Considering the law on bail in cases involving economic offences, as laid down by the Hon’ble Supreme Court and various High Courts (refer YS Jaganmohan Reddy v CBI (supra), P Chidambaram v Directorate of Enforcement (2019) 9 SCC 24, and DK Shivakumar v Directorate of Enforcement 2019 SCC Online Del 10691), the following are the relevant considerations for the grant of bail in such cases:

  • Nature and gravity of the accusations levied against the Applicant;

  • Nature of evidence in support of the accusations;

  • Severity of punishment that the conviction will entail;

  • Character and criminal antecedents of the Applicant;

  • Circumstances which are peculiar to the Applicant;

  • Reasonable possibility of securing the presence of the Applicant at the trial;

  • Reasonable apprehension of the witnesses being influenced, or evidences being tampered with;

  • Larger interest of the public and similar considerations.

VI. Conclusion

Arrest is a serious action which directly affects the liberty and freedom of a person. The provisions under the GST law regarding arrest may be justifiable, but what is expected in parallel is that the provisions are followed scrupulously and in a manner that upholds the spirit of the law and reinforces the confidence in the enforcement machinery rather than spreading scare. In indirect taxes, arrest provisions have always been provided for in law, but the GST law being new it would have to be seen how the agencies enforce its provisions and ensure that the power of arrest is not abused. Courts have to play a crucial role in this prognosis and the balance between the curtailment of tax evasion and the liberty of the individual has to be carefully maintained by the courts.

Authored by: Anshi Bhatia, Advocate, Metalegal Advocates

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