Arrest and Bail Under GST: A Statutory Overview

The Goods and Services Tax (GST) regime isn’t just about invoices and input tax credits-it also brings with it serious consequences for fraud and evasion, including the power to arrest. While the power to arrest under GST may seem unusual in a taxation law, it reflects the government’s intent to tackle tax evasion as a criminal offence in certain cases. Section 69 of the CGST Act, 2017, read with Section 132, outlines the framework under which GST officers can arrest individuals. But this power is not absolute. It comes with statutory checks, gradation based on the seriousness of the offence, and procedural safeguards, many of which borrow from the Code of Criminal Procedure, 1973 (CrPC).

This article offers a comprehensive yet concise look at how arrest and bail operate under the CGST Act, decoding the interlinked provisions and clarifying the CrPC’s role in the GST arrest framework.

When Can Arrest Happen?

The CGST Act does not permit arbitrary arrests. Instead, Section 69(1) grants the Commissioner the power to authorize the arrest of a person only when there are reasons to believe that the person has committed any of the offences listed under the following clauses of Section 132(1):

• Clause (a): Supplying goods or services without issuing an invoice, with intent to evade tax.

• Clause (b): Issuing invoices without actual supply, leading to wrongful availment or utilization of ITC or refund.

• Clause (c): Availing ITC on the basis of such fake invoices or fraudulently without invoice.

• Clause (d): Collecting tax but failing to deposit it with the government beyond 3 months from the date on which such payment becomes due.

The arrest power applies only when there are reasons to believe that the person has committed any of above-mentioned offences. If any of these offences are committed, the following punishments apply:

• Clause (i) of Section 132(1) - tax evasion or wrongly availed orutilized ITC/refund exceeding Rs.500 lakhs: up to 5 years imprisonment and fine.

• Clause (ii) of Section 132(1)-amounts between Rs.200 lakhs and Rs.500 lakhs: up to 3 years and fine.

• Section 132(2) - repeat offences: up to 5 years and fine.

So, an arrest cannot be made merely for technical infractions or procedural lapses, it is triggered by serious, fraud-based offences involving significant tax amounts.

What Happens After Arrest?

Under Section 69(2):

If a person is arrested for offences specified in Section 132(5) (i.e., clauses (a) to (d) and punishable under clause (i) of section 132(1)), which are cognizable and non-bailable, the arresting officer must:

(a) Inform the person of the grounds of arrest, and

(b) Produce the person before a Magistrate within 24 hours.

This ensures adherence to Article 22 of the Constitution and compliance with the Code of Criminal Procedure, 1973.

Bailable vs Non-Bailable Offences under GST

The CGST Act draws a sharp distinction between bailable and non-bailable offences, depending on the gravity and quantum of the offence. But what do these terms really mean? Let’s break it down with some insights from the Code of Criminal Procedure (CrPC), 1973. Definitions as per CrPC:

• Cognizable offence [Section 2(c)]: A serious offence where a police officer can arrest without warrant.

• Non-cognizable offence [Section 2(l)]: A less serious offence; police cannot arrest without warrant.

• Bailable offence [Section 2(a)]: Bail is a matter of right, and the police or concerned authority can grant it.

• Non-bailable offence [Section 2(a)]: Bail is not automatic; it is decided by the court.

GST Framework on Bailable and Non-Bailable Offences:

Under Section 132 of the CGST Act, offences are categorized as ‘non-cognizable andbailable’ or ‘cognizable and non-bailable’ depending on the nature of the offence and the tax amount involved, as follows:

➢ Non-Cognizable and Bailable Offences - Section 132(4):

These offences are considered less serious and do not warrant immediate arrest:

• All offences under Section 132(1), except those under clauses (a) to (d),

• Offences involving tax amount below Rs.500 lakhs, irrespective of the clause under which they fall.

For such cases, bail can be granted by a Deputy Commissioner or Assistant Commissioner as per Section 69(3)(b).

➢ Cognizable and Non-Bailable Offences- Section 132(5):

These offences are more severe and allow for arrest without a warrant:

• Offences under clauses (a) to (d) of Section 132(1), and

• Offences wherethe amount involved exceeds Rs.500 lakh, attracting punishment under Section 132(1)(i).

For such cases, the arrested person must be produced before a Magistrate within 24 hours, in line with Section 69(2).

Bail Provisions

Under Section 69(3):

Clause (a): Where the arrest is for an offence under Section 132(4) (i.e., non-cognizable and bailable offences), the person:

• Shall be admitted to bail, or

• In default, be forwarded to the Magistrate.

Clause (b): For such non-cognizable and bailable offences, the Deputy Commissioner or Assistant Commissioner has the same powers of a police station in-charge to grant bail.

The Reconciliation: How Section 69(3)(a) Applies to Bailable Offences?

Section 69(3)(a) provides an important safeguard for those arrested under Section 69(1). If a person is arrested but the offence they are accused of falls under Section 132(4), they are eligible for bail.

Section 132(4) deals with non-cognizable and bailable offences, including offences listed under Section 132(1), except those under Section 132(5).

This means:

• Offences under clauses (a) to (d), punishable under clauses (ii), (iii), or (iv) of Section 132(1) i.e., where the tax involved is less than Rs.500 lakh, and

• Offences under clauses (e) to (l), which also fall under Section 132(4).

Understanding Section 69(1) and Section 132(4)

Section 69(1) grants powers for arrest under clauses (a) to (d) (fraud-based offences), punishable under clauses (i) and (ii) of Section 132(1), based on the quantum of tax involved. However, the tax amount plays a critical role:

• Tax amount > Rs.500 lakh → Offence becomes cognizable and non-bailable under Section 132(5).

• Tax amount between Rs.200-500 lakh → Offence is non-cognizable and bailable, governed by Section 132(4) and eligible for bail under Section 69(3)(a).

• Tax amount < Rs.200 lakh → Likely not arrestable under Section 69(1) (due to lesser severity).

Final Clarification:

Let’s seal the deal with this neat alignment:

1) Section 69(1) authorizes arrest only for offences under clauses (a) to (d) of Section 132(1).

2) If the tax amount involved:

• > Rs.500 lakh → Offence is cognizable & non-bailable → Governed by Section 132(5) → Person must be produced before Magistrate.

• Rs.200-500 lakh → Offence is non-cognizable &bailable → Governed by Section 132(4) → Bail granted by GST officer under Section 69(3)(a).

3) For fraud-based offences involving Rs.200-500 lakh, Section 69(1) still applies, but Section 132(4) ensures they are non-cognizable and bailable.

This carefully crafted legal framework balances arrest powers with bail rights, depending on the tax impact.

Now, the CrPC Connection: What Applies to Section 69(3)?

Section 69(3) begins with:

“Subject to the provisions of the Code of Criminal Procedure, 1973…”

This clause makes it clear that the arrest and detention under the GST law must align with the procedural safeguards and requirements of the Criminal Procedure Code (CrPC). In effect, the provisions relating to arrest, bail, rights of the accused, and production before a Magistrate become applicable.

Below is an inclusive list of relevant CrPC provisions applicable to GST arrests under Section 69. While this list covers the key provisions that are most commonly relevant in GST arrests, it is important to note that other provisions of the CrPC may also come into play depending on the specifics of the case. In my opinion, while this list is comprehensive, one should remain open to the possibility that additional safeguards under the CrPC might be applicable depending on individual circumstances.

Prosecution Requires Sanction

Finally, as per Section 132(6), no prosecution can commence without the previous sanction of the Commissioner, which serves as a safeguard against arbitrary or excessive use of prosecutorial powers.

Conclusion

In conclusion, the provisions related to arrest and bail under GST are designed to strike a balance between holding tax evaders accountable and safeguarding the rights of taxpayers. The power to arrest under Section 69 of the CGST Act is carefully circumscribed, applying only to serious offences involving significant financial impact. It is not a tool for trivial infractions but a measure aimed at curbing substantial tax fraud.

Furthermore, the interplay between the CGST Act and the Code of Criminal Procedure (CrPC) ensures that the procedural rights of the accused are preserved. With clear guidelines for arrest, bail, and production before a Magistrate, these provisions prevent arbitrary use of power while allowing the law to take its course when fraud is evident.

Ultimately, while the threat of arrest under GST looms large for offenders, the system also provides ample safeguards to ensure that only those engaged in serious evasion face its consequences. A thorough understanding of the distinction between bailable and non-bailable offences, along with adherence to constitutional and procedural rights, is crucial for navigating the GST framework.

The safeguards available to the arrested person, including their rights during the arrest and bail process, will be discussed in detail in a subsequent article. Taxpayers and professionals alike must be well-versed in these nuances to mitigate risks and ensure compliance, while also safeguarding against undue persecution.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.