By Yukti Goel
Published on: 21 September 2023 at 13:07 IST
The Goods and Services Tax (GST) system in India, introduced on July 1, 2017, marked a significant shift in the country’s indirect tax regime. Its goal was to increase tax compliance and revenue collection by streamlining the tax process and reducing tax evasion.
The ability to arrest people in cases of default is one potent instrument given to GST authorities to accomplish this purpose. In this article we shall delve into the nuances of this power.
The power of GST officials to arrest individuals in cases of default is governed primarily by Section 69 of the Central Goods and Services Tax (CGST) Act, 2017. This section outlines the conditions and procedures under which such arrests can be made.
Understanding GST defaults
GST defaults can include a variety of infractions, including as failing to pay taxes, making false claims, evading taxes, and failing to keep accurate records. Such defaults undermine the revenue collection system and can lead to substantial losses for the government.
Goods and Services Tax (GST) defaults occur when individuals or businesses fail to adhere to the regulations set forth by the tax authorities in their respective jurisdictions.
GST defaults encompass various non-compliance issues, including:
- Late filing of GST returns.
- Non-payment of collected GST.
- Submitting incorrect or incomplete returns.
- Failure to register for GST when required.
- Engaging in fraudulent activities like issuing fake invoices or underreporting income.
Power of GST officials to Arrest under CGST Act
The authority for GST officials to arrest individuals in cases of GST defaults is primarily derived from Section 69 of the Central Goods and Services Tax Act, 2017. This section outlines the circumstances and procedures under which such arrests can be made.
Conditions for Arrest:
The power to arrest under the CGST Act is subject to specific conditions, including
Tax Amount Involved: Typically, the amount of tax evasion or default should exceed a certain threshold, which is often set at ₹5 crore. This threshold ensures that the power of arrest is reserved for more severe cases.
Evidence: GST officials must have a reasonable belief that an individual has committed an offense specified under the GST Act, and there should be sufficient evidence to support this belief.
Commissioner’s Approval: Prior approval from the Commissioner of GST is required before any arrest is made. This step acts as a crucial check against arbitrary or unwarranted arrests.
Nature of Offense: Arrests under GST are generally reserved for non-bailable offenses, which means that the accused may not be granted bail easily. This serves as a deterrent against tax evasion.
Power of GST Officials beyond arrest in case of default
Power to inspect: Under this section, proper officers appointed by the government have the authority to inspect any places of business, including factories, warehouses, or any other premises where goods are stored, or where books, accounts, or documents related to GST are maintained.
Power to Seize: The authorised officer has the authority to seize any goods, papers, or vehicles they discover during the examination that are subject to confiscation under the GST legislation (e.g., unaccounted commodities, non-compliant paperwork). This entitles them to take custody of the items, papers, or vehicles.
Provisional Release: In some circumstances, the officer may be able to release the items that have been seized, but only after the taxpayer has paid a security deposit equal to the tax, interest, and penalty that are still owed
Confiscation and Penalty: Subsequent actions will decide whether the seized items, papers, or vehicles are subject to confiscation. If proven responsible, they may be taken into custody and subject to punishment in accordance with the CGST Act’s requirements.
Procedure to be followed in case of Arrest:
Under Section 69 of the Central Goods and Services Tax (CGST) Act, 2017, GST officials have been granted the authority to arrest individuals in certain situations.
The procedure to be followed in case of arrest in the event of a GST (Goods and Services Tax) default in India involves several steps and legal requirements. It’s important to note that the power to arrest individuals for GST defaults is subject to specific conditions and safeguards to prevent misuse. Here is an outline of the procedure:
1. Identification of GST Default:
GST officials identify a GST default based on specific criteria, such as a significant tax amount involved, evidence of tax evasion, or non-compliance with GST regulations.
2. Commissioner’s Approval:
Before proceeding with an arrest, GST officials must obtain prior approval from the Commissioner of GST. This approval is a critical step to prevent arbitrary or unwarranted arrests and to ensure proper oversight.
Once the Commissioner approves the arrest, GST officials can proceed to arrest the individual or entity suspected of the GST default.
Arrests under GST are generally non-bailable, meaning that the accused may not be granted bail easily. The severity of the offense and the amount involved determine whether bail can be granted.
4. Informing the Accused:
After the arrest, the GST official who made the arrest must inform the accused individual or entity of the grounds for the arrest. This ensures transparency and informs the accused of the specific allegations against them.
5. Production Before a Magistrate:
In cases where a person is arrested for an offense specified under GST laws, they must be produced before a Magistrate within twenty-four hours of the arrest. This ensures that the accused’s rights are protected and that due process is followed.
6. Application for Bail:
The accused individual or entity has the option to apply for bail before the appropriate Magistrate. Whether bail is granted or not depends on the nature of the offense and other legal considerations.
7. Legal Proceedings:
Following the arrest, legal proceedings related to the GST default continue. The accused may face charges, penalties, and further legal actions as per the provisions of the Central Goods and Services Tax (CGST) Act, 2017.
8. Judicial Review:
Throughout the legal proceedings, there is the possibility of judicial review to ensure that the arrest and subsequent actions were carried out in accordance with the law.
9. Compliance and Resolution:
In some cases, individuals or entities may choose to resolve the GST default by paying the outstanding tax, interest, and penalties. Compliance and resolution of the default can lead to the release of any seized assets or goods.
It’s essential to emphasize that the power to arrest in GST cases is not wielded arbitrarily and is subject to specific conditions, approvals, and legal procedures to safeguard individual rights and prevent misuse. Legal counsel is often sought during these proceedings to ensure that the accused’s rights are protected and that due process is followed.
In the case of Akhil Krishan Maggu V. Directorate General of Goods and Services Tax Intelligence (DGGI) the Directorate General of GST Intelligence’s ability to detain people in accordance with GST legislation was concerned. The Central Goods and Services Tax (CGST) Act’s Section 69, which gives the right to detain a person for certain offences relating to tax evasion and other fraudulent this act under GST, the Supreme Court of India in case held this section be constitutionally acceptable.
The court clarified that arrests under GST laws should be made in exceptional cases where credible evidence of tax evasion or fraud exists, and the authorities must follow due process. This decision reaffirmed the government’s power to arrest individuals involved in severe GST offenses while emphasizing the importance of safeguarding individual rights and ensuring proper legal procedures.
Conditions Triggering Arrest
The authority to arrest individuals or entities under GST is not wielded capriciously; rather, it is subject to certain stringent conditions. Here is a detailed breakdown of these conditions:
- Offenses Under Section 132: To warrant an arrest, the individual or entity must be suspected of committing offenses specified in Section 132 of the CGST Act. These offenses include activities such as issuing invoices without the actual supply of goods or services, fraudulent utilization of input tax credit, and deliberate non-filing of returns with the intention of evading taxes.
- Threshold Amount: Generally, the tax amount involved in the default should exceed ₹5 crore. This threshold ensures that the power of arrest is reserved for substantial cases of tax evasion or default. It acts as a filter, preventing minor defaults from invoking this severe measure.
- Reasonable Belief: GST officials must possess a reasonable belief that the accused has committed the specified offenses. This belief should be substantiated by sufficient evidence to support the allegations. It serves as a crucial safeguard against baseless or malicious arrests.
- Commissioner’s Authorization: Prior to making an arrest, GST officials are mandated to obtain authorization from the Commissioner of GST. This procedural step is a fundamental checkpoint to prevent arbitrary arrests and guarantees that a higher-ranking authority reviews and sanctions the arrest.
Safeguards Against Misuse
To prevent the misuse of this power, the GST law incorporates several safeguards:
1. Approval from Higher Authorities: As previously mentioned, an individual’s arrest can only proceed with the approval of the Commissioner of GST. This ensures that a higher-ranking authority thoroughly reviews and sanctions the arrest.
2. Stringent Threshold: The substantial threshold of ₹5 crore ensures that arrests are reserved for cases involving significant tax evasion, reducing the likelihood of minor defaulters being subjected to arrest.
3. Judicial Review: In the event of an arrest, the accused has the option to apply for bail before the appropriate magistrate. This provision allows for judicial oversight of the arrest, ensuring that it is not arbitrary and safeguarding the individual’s rights.
4. Transparency and Accountability: GST officials are obligated to conduct their duties transparently and adhere to strict procedures while exercising this power. Any misuse of authority can result in disciplinary action against the official.
The power of GST officials to arrest individuals in case of defaults is a critical enforcement tool aimed at ensuring tax compliance and preventing substantial revenue losses. However, it is essential to strike a balance between enforcing tax laws and safeguarding individual rights. The stringent conditions and safeguards in place are designed to prevent misuse and ensure that the power is exercised judiciously and responsibly. This power reflects India’s commitment to upholding the rule of law and achieving revenue collection objectives in a just and equitable manner.
Edited by: Bharti Verma, Associate Editor at Law Insider