The power of GST authorities to arrest the taxpayer
Goods and Services Tax (‘GST’) Authorities are empowered to arrest persons accused of offences specified under Section 132 of the CGST Act, 2017 (‘CGST Act’). The provisions of Section 132 provides that specified offences [falling under any of the clauses (a) to (d) of Section 132(1)] involving tax evasion in excess of INR 5 crores will be cognizable and non-bailable, and that officials can proceed with arrest as per the procedure laid out under Section 69 of the CGST Act. Other offences, provided under clauses (e) to (l) of Section 132(1) of the CGST Act, are bailable and non-cognizable. The specified offences are as follows:
- supply of any goods or services or both without issue of any invoice, in violation of the provisions of the Act or the rules made thereunder, with the intention to evade tax;
- issue of any invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;
- availment of input tax credit using such invoice or bill referred to in clause (b);
- collection of any amount as tax and failure to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
The GST law provides the circumstances and instances under which a person can be arrested but no guidelines have been provided in relation to the procedural aspect for arresting a person.
Amongst the offences listed above, the offences specified in (b) have gained much importance. In the past, several transactions were brought under the scanner wherein there was a supply of goods made without an actual movement of goods. This is commonly known as circular trading. The GST Authorities believe that such circular trading does not involve supply of goods even though applicable tax has been paid by each supplier in the chain. The Authorities had arrested many promoters for circular trading and escaping GST. The powers conferred upon GST Commissioners to make arrests in cases involving fake GST invoices cannot be disputed. However, the way these arrest provisions have been incorporated under the GST law is certainly amenable to a constitutional challenge.
Different High Courts have adopted contradictory view on this issue. The Telengana High Court in the case of P.V. Ramana Reddy (25 G.S.T.L. 185) has upheld the Commissioner’s power to order an arrest if a cognisable and non-bailable offence has been committed. The Court said there was no need for a First Information Report to be filed and denied pre-arrest bail to the taxpayer. Whereas the Bombay High Court in the case of Sapna Jain (CWP No.1996 / 2019) said that no coercive action should be taken against the taxpayer and no arrests should be made.
Considering the conflicting decisions of arrest provisions, the Supreme Court, vide its order dated 29 May 2019 - SLP (Crl.) No. 4322-4324/2019, while refusing to interfere with the order of the Bombay High Court, has held that the position regarding the arrest provisions under the CGST Act and the corresponding SGST Act will be clarified by a three members Bench of the Supreme Court before whom all similar matters shall be placed. It may be noted that the Supreme Court, vide order dated 27 May 2019 - SLP (Crl.) No. 4430/2019 has upheld the order of the Telangana High Court. Interestingly, in one subsequent case, even the Supreme Court [in SLP (Crl.) No. 6834/2019] granted interim protection against coercive action subject to payment of 10% of the alleged GST evasion amount.
Recently, the Punjab and Haryana High Court in the case of Akhil Krishan Maggu & Anr.(CWP No. 24195/2019), has observed that taxpayers against whom no concrete evidences are available to establish evasion of tax should not be arrested prior to determination of liability and imposition of penalty. Further, it also stated that arrest of Chartered Accountants / Advocates should not be carried out in absence of corroborative evidence linking them with the alleged offence.
Considering the above, the decision of the three members Bench of the Supreme Court will be crucial in determining the criteria for exercising power under Section 132 of the CGST Act and similar provisions under SGST Act.
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