However, the arrest has raised questions about the provisions of arrest in a fiscal law like GST. Should a statute aim at focusing on taxation and compliance be having provisions of arrest? In this regard it will be instructive to recall the discussions in the 6th GST council meeting on December 11, 2016, and the 7th GST Council meeting on December 22-23, 2016, which debated on the issue at length. The fact that the discussions were spread over two Council meetings would indicate the extent and depth of the discussions.
There were concerns raised by several state ministers— Tamil Nadu, Gujarat, West Bengal, and the Principal Secretary of Maharashtra. The basic argument was that the state VAT (value added tax) laws did not have any such provision of arrest and would be excessive. The minsters of Bihar, Assam, Puducherry, supported the proposal with the caveat that a distinction should be made between small and big tax offenders. The then Union Finance Minister and Chairperson of the Council, Arun Jaitley summed up the competing viewpoints. The first being the concern that if arrest provisions were excessive, it would hurt business sentiments; the second, that resources of states were required for economic development and there should not be any sympathy for tax evaders.
The Chairperson also pointed out that both the Central Excise and Service Tax laws had provisions relating to arrests; that circumstances of arrest were being limited to those violations which were similar to those in criminal law, namely: for forgery (fake invoices), breach of trust (failing in the duty to act as agent of the Government to collect and deposit tax into the government account), and cheating (moving goods without paying tax).
Jaitley further pointed out that under the proposal no arrest could be made where non-payment of tax due to dispute in interpretation and that there were sufficient safeguards against arrest, namely that arrest could only be authorised by the Commissioner and the tax evasion threshold was ₹2 crore or more and it was bailable for evasion up to an amount of ₹5 crore. The proposal was approved thereafter. The arrest provisions were there after incorporated in the draft bills and duly approved by Parliament and the State Legislatures.
Section 69 of the CGST Act empowers a Commissioner to arrest where there are ‘reasons to believe’ that a person has committed an offence as specified under clauses (a, or b, or c, or d) under sub-section (1) of Section 132. This section outlines the punishments for major offences of tax evasion. In the case at hand the sections mentioned are 132 (1) and 132 (1)(a). Section 132 (1) states that ‘Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences’, namely: supplies any goods or services or both without issue of any invoice; in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax, is punishable with imprisonment ranging from 1 year to 3 years to 5 years with appropriate fines.
While we are not privy to the facts of the case at hand it would appear, this is a case relating to fake invoices. Invoices are critical documents for the availment of credit which in turn can be used for discharge of tax liability. If the invoice is fake, obviously the credit availed is incorrect. These cases have been rampant in the GST regime-with cases amounting to more than ₹50,000 crore of this nature having been reportedly detected in the last fiscal year.
So, while legal guardrails are available, the Central Board of Indirect Taxes & Customs (CBIC) has also issued a detailed instruction in 2022. The instructions reiterate the legal provisions and highlight the fact that since arrest impinges the personal liberty of an individual, the powers are to be exercised carefully. The law prescribes the need to record ‘reasons to believe’— this should be recorded and several court decisions have highlighted the ingredients which go into this concept. The last Supreme Court Decision in 2025 in the case of Radhika Agarwal vs Union of India has again emphasised that ‘reason to believe’ must be substantiated by material evidence facilitating judicial review.
Given the large-scale detection of cases of evasion which have a multiplier negative impact on the economy, for the money so generated can be used for other nefarious anti-national activities, arrest provisions are indeed needed in the fiscal laws. However, the Board’s circular categorically states that merely because the legal conditions precedent to arrest exists, it does not automatically follow that an arrest must be made.
Hence it is essential that due discretion is exercised and the facts of each case examined. More specifically is there a fear that if the arrest is not made, evidence is likely to be being tampered with or the person is a flight risk. Indiscriminate exercise of the powers would raise questions about the very power. It is hoped that the Commissioner/Additional Director General concerned has indeed satisfied himself about the need for arrest before exercising this deterrent power.
—The author, Najib Shah is former Chairman, Central Board of Indirect Taxes & Customs (CBIC). The views are personal.
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