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In order to combat tax evaders and safeguard government revenue, tax legislation includes measures for inspection, search and seizure, summons, prosecution, and arrest. However, these strict requirements have a negative impact on both enterprises and individuals. As a result, they need to be framed in checks and balances and have sufficient safeguards included. In a significant ruling on the subject of arrests, the Hon. Supreme Court of India noted that personal freedom is a key component of our constitutional mandate and that just because an arrest is permitted by law does not mean that it “must” be made. The presence of the power to arrest and the justification for using it must be distinguished clearly.

The court stated that it cannot be emphasised enough how important it is to have enough evidence to bring charges when it comes to prosecution. In light of the foregoing and in light of recent directives issued by the Central Board of Indirect Taxes & Customs, it is crucial to examine the topic of coercive actions under the GST law (“CBIC”). Through the instructions, the CBIC has clarified several requirements for initiating an arrest and prosecution under Sections 132, 137, 138, 159, and 69 of the Central Goods and Services Tax Act of 2017. (“CGST Act, 2017”)

KEY ASPECTS OF THE INSTRUCTIONS

1. 1. On arrest

• • Conditions Before an arrest Before making an arrest, all legal conditions must be met; additionally, the “cause to believe” that leads to the decision to detain an alleged offender must be unequivocal, abundantly apparent, and supported by reliable information. Once the legal component of the crime is established, it must be combined with yes responses to some fundamental inquiries, some of which include the following: if the arrest is required to guarantee a thorough investigation of the offence? Additionally, permission to arrest should only be given where both the mens rea requirement and the evidence of tax evasion are present.
  • Arresting People Process – Both the requirements of the CGST Act, 2017 and the Code of Criminal Procedure, 1973 (“CrPC”) must be followed. The arrest memo must adhere to the prescribed guidelines and, among other things, should list the relevant sections of the CGST Act, 2017, or other laws that may be relevant, the reasons for the arrest, and the designated or authorised person who should be informed about the arrest as soon as possible. The arrest memo also has to provide the time and date of the arrest. If there are many arrests in a single case, each arrested person must receive a separate memo. Other procedures that must be followed in order to make arrests with the least amount of violence, publicity, and force and in conformity with the appropriate CrPC rules should only be made by female officers. The person in charge of the arrested individual must take reasonable measures to ensure their health and safety.
  • Formalities Following Arrest- When someone is arrested for a crime listed in section 132(4)3 of the CGST Act, 2017, the responsible officer is required to release the suspect on bail in exchange for a bail bond. The terms of the bail must be explained to the individual who has been arrested in writing and over the phone to the person who has been chosen. If the individual who was arrested wishes to speak with the designated person, no limits should be placed on them. The arrested person must be brought before the competent magistrate without undue delay and within 24 hours after arrest if the bail requirements are not met. If necessary, the detained individual may be delivered to the closest police station for safe custody under a formal challan in the case that circumstances impede their production before a magistrate. They will then be brought before the magistrate the following day. Documents like a bail bond, challan, etc. must be filed in the correct format according to the rules. After the arrest, efforts should be taken to present the prosecution complaint to the appropriate courts as soon as possible and/or within the specified deadline. Every Commissionerate needs to keep a bail register with information on each case, each arrestee, the bail amount, the surety amount, etc. The money/instrument/document received as surety should be kept in safe custody of a single nominated officer who shall ensure that these documents received as surety are kept valid till the bail is discharged.

1. 1. On prosecution

• • The presence of evidence, as in an arrest, is one of the crucial factors in determining when to begin a prosecution. In comparison to adjudication processes, a criminal prosecution requires a higher level of proof because the case must be proven beyond a reasonable doubt. 
  • When an additional tax claim is based on a disagreement over how the legislation should be interpreted or is of a technical nature, no charges should be filed. Before a matter is decided, a prosecution complaint may be filed, especially if there is a serious crime implicated or if there is strong qualitative evidence.
  • With the exception of habitual offenders and arrest cases, where there is no monetary limit, a prosecution is often started when the amount of tax evasion, abuse of the input tax credit facility, or fraudulently obtained refund is greater than 500 lakhs. 
  • Attempts should be taken to file a prosecution complaint in court within sixty days of an arrest in circumstances where no bail is granted. In all other situations, a formal deadline should be set for filing a prosecution complaint.
  • When it is established that an offence was committed by a director, manager, secretary, or other officer of a company with their knowledge or complicity, or as a result of their negligence, the person is presumed to have committed the offence and is subject to legal action and punishment as a result. Because of this, under section 132, both a natural person and a legal person may be prosecuted in such circumstances.
  • The adjudicating authority should always state whether it thinks the case is appropriate for prosecution when issuing the order itself (with the exception of arrest matters where a complaint had already been filed before adjudication), so that it can be processed further and sent to the Principle (Pr.) Commissioner/Commissioner for his approval of prosecution. Regardless of whether the adjudication body has recommended prosecution or not, the Pr. Commissioner/Commissioner may also review the matter on his own initiative, taking into account the nature of the offence among other things.
  • If a prosecution has been sanctioned but no complaint has been filed and new information surfaces that calls for a reconsideration of the sanction for prosecution, the relevant authority must bring this to the attention of the sanctioning body without delay. The sanctioning body may, if satisfied, suggest that the jurisdictional Pr. Commissioner/Chief Commissioner recommend that the sanction for prosecution be rescinded after taking into account the additional facts and evidence. 
  • The CGST Act of 2017’s prosecution provisions also give the Pr. Commissioner/Chief Commissioner, or any other officer acting on his behalf, the authority to publish the name and other information of a person found guilty.
  • Once a prosecution has begun, it should be closely reviewed on a regular basis. Additionally, where necessary, corrective action must be made to guarantee that the prosecution is moving along satisfactorily. 
  • People who are being prosecuted should be made aware of the provisions regarding the compounding of offences, and the Pr. Commissioner/Commissioner or Pr. Additional Director General/Additional Director General of the Directorate General of Goods and Services Tax Intelligence, as applicable, should make a compounding offer to those people.
  • In addition to documenting statistical information, the Director General, Directorate General of Performance Management, and Pr. Chief Commissioner are obliged to examine the Commissionerates. They should explicitly check that the orders in this respect are being followed rigorously.

CONCLUSION

The department is told not to make arrests or bring charges in a routine, mechanical manner, as was the case in the past, which relieves the employees of the Companies. Giving “mens rea” the utmost significance, together with the fulfilment of numerous other requirements that result in an individual’s arrest or prosecution, ensures a check on the tax authorities’ otherwise unrestricted and expansive powers. Multiple legal precedents4 from the previous administration that state that solid proof or evidence cannot be replaced for mere suspicion, regardless of how strong it may be, further corroborate this. Strong proof is absolutely necessary in order to impose penalties on the officials or pertinent corporate personnel.

Additionally, if the tax evasion or improper credit availment is the result of an interpretational error and has no ulterior motive, arrest and/or prosecution are not necessary. The authorities are instructed to exercise the power of arrest with the utmost care and discretion because it impinges on a person’s personal liberty. These instructions prevent any unwelcome action on the part of the authorities, even if the goal is still that the fear of arrest or prosecution should work as a deterrent for committing any tax offence.

It should be highlighted that even while departmental officials must abide by circulars and directives, courts have often taken harsh action against errant employees who act hastily and rob people of their rights.

REFERENCES

1. 1. In the case of Sidharth vs. State of Uttar Pradesh & Ors, Criminal appeal no 838 / 2021 arising out of SLP (Crl.) no. 5442/2021. See also, Instruction no 2/2022-2023 GST Investigation dated 17 August 2022
   2. Instruction no 4/2022-2023 GST Investigation dated September 1, 2022; and Instruction no 2/2022-2023 GST Investigation dated August 17, 2022.
   3. S132 (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974) all offences under this Act, except the offences referred to in sub-section (5) shall be non-cognizable and bailable. (5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.
   4. Associated Plastics & Rayons v. CCE, Vapi, 2007 (215) ELT 309 (Tribunal); Jaybee Industries v. Commissioner, 2004 (168) ELT 316 (Tribunal); Bijendra Kedia v. Commissioner, 2001 (133) ELT 791 (Tribunal).

Article by Sudarshana Jha