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Gauhati High Court on GST Detention: Balancing Procedural Safeguards and Personal Liberty

Introduction

The case of Dharmendra Agarwal v. Union of India & Ors.[i] involves a judicial examination by the Gauhati High Court of arrest and detention under s. 69 of the Central Goods and Services Tax Act, 2017 (‘Act’), and its intersection with constitutional rights. Mr. Dharmendra Agarwal, a partner at M/s. Yash Associates (‘Petitioner’), while challenging his arrest, which was allegedly attributable to him fraudulently availing input tax credit (‘ITC’) amounting to Rs. 9.11 crore, contended that such action was premature, given that the assessment order(s) in such regard was yet to be passed. This ruling explores the balance between enforcement powers under Goods and Services Tax (‘GST’) law and the constitutional guarantee of personal liberty.

Brief Facts

  • The Petitioner was accused of fraudulently availing ITC by using forged invoices without having the actual receipt of goods.

  • Resultantly, proceedings were initiated against the Petitioner by the Directorate General of GST Intelligence (‘DGGI’) under s. 132(1)(c) of the Act, alleging that a tax amount exceeding Rs. 5 crores had been invaded, and thus, the Petitioner was liable to be prosecuted in such regard.

  • The Petitioner cooperated with the DGGI during the investigation and duly responded to the summons issued against him. However, he was subsequently detained by the investigating officer based on an authorization issued by the Commissioner under s. 69 of the Act.

  • Troubled by having been taken into custody, the Petitioner sought release on the grounds that his detention was unwarranted, relying on precedents such as Daulat Samirmal Mehta v. Union of India[ii], where similar detentions were quashed.

  • The respondents argued that the arrest was justified under the Act and supported by sufficient material evidence while relying on several decisions, such as State of Gujarat v. Choodamani Parmeshwaran Iyer[iii], wherein it was emphasized that in such matters,  there is limited scope of judicial intervention.

Held

  • The High Court observed that while s. 69 of the Act empowers the Commissioner to authorize arrests in cases of offences committed under s. 132 of the Act, such powers must be exercised cautiously. The Court emphasized that the requirement of ‘reasons to believe’ must be based on substantive evidence, not assumptions.

  • In the present case, the Court found no evidence suggesting that the petitioner posed a risk of tampering with evidence or obstructing the investigation. Additionally, the Court noted that the quantum of tax liability had not been finalized, making the arrest premature.

  • The Court granted interim bail to the petitioner, emphasizing the importance of proportionality in exercising arrest powers. The Petitioner was directed to furnish a personal bond of Rs. 1,00,000 with two local sureties of like amount and adhere to conditions such as cooperating with the investigation, not tampering with evidence, and informing authorities before changing residence. The Court reiterated that while statutory powers exist under s. 69, their exercise should be justified by concrete circumstances rather than routine implementation.

Our Analysis

The Court’s decision reaffirms the critical balance between enforcement powers granted to tax officers under the Act and the constitutional right of personal liberty guaranteed to every citizen. It highlights the principle that coercive powers by statutory authority, though lawful, must not be exercised arbitrarily. The requirement of ‘reasons to believe’ serves as a safeguard to prevent misuse of arrest powers and ensures that taxpayers are not subjected to undue hardship without substantial grounds.

The decision reinforces the judicial scrutiny over arrest powers under GST laws, echoing similar precedents like Daulat Samirmal Mehta v. Union of India (Supra) and Arnab Manoranjan Goswami v. State of Maharashtra[iv]. By focusing on proportionality, the Court has clarified that arrest should only be used when absolutely necessary, such as in cases involving a flight risk or evidence tampering. This principle aligns with the Supreme Court’s ruling in Siddharth v. State of Uttar Pradesh[v], which emphasized that detention should not be routine but reserved for situations where custodial investigation is critical.

The decision also has broader policy implications for tax enforcement. It highlights the need for tax authorities to finalize assessments before resorting to coercive measures like arrests. As seen in this case, premature detention can not only affect personal liberty but also erode public confidence in tax enforcement. The Court’s emphasis on procedural compliance serves as a reminder that effective governance must go hand in hand with fairness and transparency.






End Notes

[i] [2025] 170 taxmann.com 558 (Gauhati).

[ii] 2021 SCC OnLine Bom 200.

[iii] 2023 0 Supreme (SC) 1154.

[iv] AIR 2021 SC 1.

[v] 2021 SCC OnLine SC 615.





Authored by Pranav Dabas, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.

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