Safeguarding Liberty: Examining the Power of Arrest under GST Law

Power of Arrest under the GST Law

Under Section 69 of the CGST Act and the related provisions of the Finance Act, enforcement agencies are granted the authority to arrest individuals suspected of significant tax evasion. However, the power to arrest has been subject to misuse, leading to arbitrary detentions without proper justification. A notable example is the Make My Trip (India) Pvt. Ltd. vs Union of India &Ors. [2016 SCC OnLine Del 4951], where the Delhi High Court cautioned against unnecessary arrests. The Court emphasized the necessity of conducting proper inquiries before making an arrest, asserting that arrests should be a last resort, used only when absolutely necessary. This stance was upheld by the Supreme Court [2019(01)LCX0242], which stressed the importance of following prescribed procedures under Sections 73A(3) and (4) of the Finance Act before proceeding with an arrest under Sections 90 and 91 of the Finance Act, 1994.

Importantly, arrest can only occur when the officer has a genuine belief, supported by evidence, that the individual has committed an offense under Section 132 of the CGST Act. A mere assumption or unsupported suspicion is insufficient to justify an arrest. The judiciary has consistently reinforced that arrests must adhere to due process, and arbitrary actions infringe upon personal liberty.

Judicial Scrutiny and Precedent

Several key judicial pronouncements have shaped the framework for arrest under GST. In Siddharth vs. State of Uttar Pradesh and Othersdated 16th August, 2021(Criminal Appeal No. 838 of 2021, arising out of SLP (Crl.) No. 5442/2021), the Supreme Court emphasized the need for due diligence before an arrest is made. The Court outlined key considerations that must be met before an arrest can be justified:

The Court further clarified that mere suspicion or the existence of arrest powers is not enough to justify detaining an individual. If the accused cooperates with the investigation and there is no risk of evading legal procedures, arresting them would unjustifiably harm their reputation and personal dignity. This decision underscores the constitutional mandate of due process and proportionality when exercising arrest powers.

Procedural Safeguards in Arrests under GST

Given the potential for misuse of arrest powers, procedural safeguards have been introduced to prevent arbitrary action. Instruction No. 02/2022-23 [GST - Investigation], issued on 17.08.2022, aims to ensure that arrest powers are exercised judiciously and only when absolutely necessary. This instruction stresses the importance of conducting thorough investigations, adhering to legal procedures, and safeguarding personal liberty before resorting to arrest. The instruction outlines three key areas that guide the process:

(A) Conditions precedent to arrest

Before an arrest can be made under GST law, several stringent conditions must be met:

1. Reason to Believe: The officer must have concrete evidence or reasonable suspicion that the person has committed an offense under Section 132(1) of the CGST Act. This belief must be based on credible, tangible material, not vague assumptions.

2. Caution in Exercising the Power: Arrest curtails an individual’s fundamental right to liberty. Therefore, it must be exercised with caution and not as a routine procedure. Fulfilling the technical prerequisites alone does not justify arrest.

3. Circumstances Warranting Arrest: Arrest should only occur after considering several factors, including:

✓ Whether the individual is involved in a non-bailable offence, or whether credible information or reasonable suspicion exists regarding such involvement?

✓ Whether arrest is necessary to facilitate proper investigation of the offence?

✓ Whether there is a likelihood that the individual, if left at large, may interfere with the investigation, tamper with evidence, or influence/intimidate witnesses?

✓ Whether the individual is the mastermind or a key operator involved in proxy or benami transactions through dummy GSTINs or non-existent entities to fraudulently pass input tax credit?

✓ Whether arrest is essential to secure the individual's presence before the investigating officer?

4. Clear Evidence of Fraud: Arrest should be justified only when there is clear evidence of deliberate fraud, demonstrating a guilty mind (mens rea). It should not be used to address technical disputes or differences in legal interpretation.

(B) Procedure of arrest

Once arrest is deemed necessary, strict procedural guidelines must be followed:

1. Authorization: Before an arrest is authorized, the Principal Commissioner or Commissioner must confirm in writing that the nature of the offense and available evidence has been reviewed, and there is sufficient reason to believe that the individual has committed an offense under Section 132 of the CGST Act.

2. Adherence to Legal Provisions: Arrest authorization must follow the procedures outlined in the Code of Criminal Procedure, 1973, read with Section 69(3) of the CGST Act. Officers making arrests must be familiar with these provisions.

3. Arrest Memo: The arrest memo must be prepared in the prescribed format under Circular No. 128/47/2019-GST, detailing the legal grounds for arrest, the arrested individual’s information, and the date & time of arrest. It must inform the person of their rights, including the ability to communicate with a nominated person. The relevant sections of the CGST Act must be clearly indicated, with inapplicable sections struck off. A separate memo must be prepared for each individual in cases involving multiple arrests.

4. Compliance Requirement: A Document Identification Number (DIN) must be generated and quoted on all arrest-related documents, as per Circular No. 122/41/2019-GST dated 05.11.2019.

5. Additional Safeguards: The dignity of the arrested individual must be respected, and minimal force should be used. Post-arrest medical examinations should be conducted to ensure the health and safety of the arrested person. A woman can only be arrested by a woman officer, in accordance with Section 46 of the CrPC. For female arrestees, medical examinations must be conducted by or under the supervision of a female medical officer.

(C) Post-arrest formalities

The procedure varies depending on the offense:

1. Non-cognizable and Bailable Offense (Section 132(4)):

(i) If a person is arrested u/s 69(1), the Assistant Commissioner or Deputy Commissioner must release the individual on bail against a bail bond.

(ii) Bail conditions must be communicated:

(iii) Conditionsof Bail:

(iv) Fulfillment of Bail Conditions:

2. Cognizable and Non-bailable Offense (Section 132(5)):

(i) The arresting officer must inform the individual the grounds of arrest and produce them before a Magistrate within 24 hours.

(ii) If production within 24 hours is not feasible due to circumstances, the individual may be handed over to the nearest police station for custody under a challan and produced the next day.

(iii) The nominated person should be informed accordingly. The 24-hour limit must be maintained, excluding travel time from the place of arrest to the court.

3. Documentation:

Bail bonds and police handover challans must adhere to the prescribed formats under the Code of Criminal Procedure, 1973.

4. Filing of Prosecution Complaint:

A prosecution complaint under Section 132 of the CGST Act should be filed within 60 days of arrest if bail is not granted.

5. Bail Register Maintenance:

(i) Every Commissionerate/Directorate must maintain a detailed Bail Register, recording details such as the case, arrested person, bail, and surety amounts.

(ii) Money, instruments, or documents received as surety must be securely stored by a nominated officer, who must ensure their validity until bail is discharged.

Persistent Misuse of Arrest Powers: Failure to Communicate Grounds of Arrest

Despite these procedural safeguards, there have been instances of misuse of arrest powers under the GST law. A critical issue is the failure to communicate the grounds of arrest to the arrested individual at the time of arrest, which violates their constitutional rights. The right to be informed of the grounds of arrest is enshrined in Article 22(1) of the Constitution and is reaffirmed under Section 50(1) of the Code of Criminal Procedure, 1973. The Supreme Court has made it clear that this right is not a mere formality

In the case of Pankaj Bansal v. Union of India dated 03.10.2023, the Supreme Court emphasized that furnishing the written grounds of arrest to an arrested person is not merely procedural but a constitutional imperative under Article 22(1). The Court held that oral communication or mere reading out of the grounds is insufficient, particularly when the grounds are detailed and voluminous. It observed that without a copy of the written grounds, an arrested person would be handicapped in seeking legal remedies such as bail under Section 45 of the PMLA. Stressing the need for meaningful communication, the Court mandated that henceforth, a written copy of the grounds of arrest must be furnished as a matter of course and without exception.

Further, in Prabir Purkayastha v. State (NCT of Delhi), dated 15.05.2024, the Supreme Court reaffirmed the principles laid down in Pankaj Bansal (supra) and made several important observations. It held that it is mandatory for the Investigating Officer to furnish the grounds of arrest in writing to the arrested person, and that no person can be deprived of this sacrosanct information. The Court reiterated that the right to be informed of the grounds of arrest is a fundamental right under Article 22(1) of the Constitution, essential for enabling the arrested person to seek legal consultation, challenge police custody and remand, and apply for bail. The Court also distinguished between "reasons for arrest" and "grounds for arrest," clarifying that while reasons for arrest are generic and relate to preventing tampering with evidence, influencing witnesses, or evading justice, the grounds for arrest must contain specific facts pertinent to the individual case. Thus, reasons for arrest and grounds for arrest cannot be equated.

These rulings reinforce the notion that failure to provide clear and written grounds of arrest compromises an individual’s ability to challenge the arrest or seek justice effectively.

Additionally, in Arvind Kejriwal v. Union of India, the Supreme Court aligned with the earlier rulings, emphasizing that arrest without a warrant and without initiating a criminal case is an extreme measure. The Court upheld the view that such powers must be exercised under stringent conditions to protect individual liberty. The relevant extract is reproduced here asunder:

“18.……We respectfully agree with the ratio of the decisions in Pankaj Bansal (supra) and PrabirPurkayastha (supra), which enrich and strengthen the view taken in Vijay MadanlalChoudhary(supra), on the interpretation of Section 19 of thePML Act. Power to arrest a person without a warrant from the court and without instituting a criminal case is a drastic and extreme power. Therefore, the legislature has prescribed safeguards in the form of exacting conditions asto how and when the power is exercisable. The conditions are salutary and serve as a check against the exercise of an otherwise harsh and pernicious power.”

……………emphasis supplied

The Delhi High Court, in KshitijGhildiyal v. Director General of GST Intelligence, Delhi,W.P.(CRL) 3770/2024 decided on 16-12-2024, examined the legality of arrest and detention procedures under the CGST Act. The Court scrutinized the validity of an arrest made in contravention of procedural safeguards, as set out in Section 69(2) of the CGST Act and Article 22(1) of the Constitution of India. The Court ruled that the petitioner’s arrest on 30.11.2024 was illegal and quashed the remand order, finding that the failure to provide written grounds of arrest violated both Section 69(2) of the CGST Act and Article 22(1) of the Constitution.

Key observations from the Court included:

(i) Section 69(2) requires the officer authorized to make an arrest to inform the individual of the grounds for the arrest. The Court noted that the Respondent had failed to meet this requirement, as no written grounds were provided to the petitioner either at the time of arrest or prior to remand.

(ii) The Court held that oral communication of the grounds was insufficient to satisfy the statutory requirement of providing written grounds. It emphasized that under Article 22(1), an arrestee must be informed of the grounds of arrest "as soon as may be," and that this information must be provided clearly, categorically, and in writing to allow the individual a meaningful opportunity to challenge the arrest.

(iii) The Court rejected the Respondent’s argument that the submission of the remand application during the court hearing fulfilled the obligation under Section 69(2). It stressed that the procedural safeguards outlined in Section 69(2) and Article 22(1) are fundamental and cannot be overlooked, even in cases involving serious economic offenses.

(iv) Drawing on established legal precedents, the Court affirmed that these procedural safeguards are vital to protecting personal liberty. The failure to comply with these requirements made the arrest and subsequent detention legally untenable.

(v) The Court ordered the immediate release of the petitioner from judicial custody unless required for other reasons, clarifying that its decision focused solely on the legality of the arrest and remand, without commenting on the merits of the case.

In response to the ruling in KshitijGhildiyal v. Director General of GST Intelligence, Delhi, the Instruction No. 02/2022-23dated 17th August 2022 has been amended to reflect the judgment's requirements. The updated Instruction No. 01/2025-GST dated 13.01.2025 now mandates that the grounds for arrest must be provided in writing, along with an acknowledgment of receipt from the arrested individual.

The relevant paragraph from the judgment dated 15th May 2024 is as follows:

"49. It may he reiterated at the cost of repetition that there is a significant difference in the phrase 'reasons for arrest 'and 'grounds of arrest . The 'reasons for arrest 'as indicated in the arrest memo are purely formal parameters, viz., to prevent the accused person from committing any further offence; or proper investigation of the offence; to prevent the accused person from causing the evidence of the offence to disappear or tempering with such evidence in any manner; to prevent the arrested person for making inducement, threat or promise to any person acquainted with the facts of the case so as to dissuade him from disclosing such facts to the Court or to the Investigating Officer. These reasons would commonly apply to any person arrested on charge of a crime whereas the 'grounds of arrest ' would be required to contain all such details in hand of the Investigating Officer which necessitated the arrest of the accused. Simultaneously, the grounds of arrest informed in writing must convey to the arrested accused ll basic facts on which he was being arrested so as to provide him an opportunity of defending himself against custodial remand and to seek bail. Thus, the 'grounds of arrest' would invariably be personal to the accused and cannot be equated with the reasons of arrest 'which are general in nature.”

As a result, Para 4.2.1 of Instruction No. 02/2022-23 GST (Investigation) dated 17th August 2022 has been amended as follows:

Before the amendment: “4.2.1The grounds of arrest must be explained to the arrested person and this fact must be noted in the arrest memo;”

After the amendment:“4.2.1The grounds of arrest must be explained to the arrested person and also furnished to him in writing as an Annexure to the Arrest Memo. Acknowledgement of the same should be taken from the arrested person at the time of service of the Arrest Memo.”

Under the revised Para 4.2.1, the grounds of arrest must now be explicitly explained to the arrested person and provided in writing as an annexure to the arrest memo. The arrested individual must acknowledge receipt of these grounds when the arrest memo is served. This revision ensures greater transparency and protects the rights of the arrested person, giving them an opportunity to understand and challenge the basis of their arrest.

This change highlights the critical distinction between 'reasons for arrest' and 'grounds for arrest,' as emphasized by the Hon'ble Supreme Court in PrabirPurkayastha v. State (NCT of Delhi). While 'reasons for arrest' are general and formal, 'grounds for arrest' are specific to the individual and provide detailed information justifying the arrest.

The amendment strengthens the procedural safeguards in GST-related arrests, ensuring that individuals are fully informed of their legal standing and have the opportunity to defend themselves effectively.

Reasons to Believe vs. Grounds of Arrest under GST

With the amendment to Instruction No. 02/2022-23, it becomes crucial to differentiate between reasons to believe and grounds of arrest. Understanding this distinction ensures both procedural accuracy and protection of individual rights. Let’s explore how these concepts play out in GST-related arrests.

A. Reasons to Believe

Under Section 69 of the CGST Act, before making an arrest, the Commissioner or the arresting officer must have a reasonable belief that an offence has been committed under the Act. This belief does not need to be backed by a full-fledged investigation but must be based on credible sources or materials that suggest tax evasion or fraud.

The term “reasons to believe” is more abstract and formal. It involves a preliminary evaluation by the officer that there is sufficient cause to initiate action. This stage is pivotal for internal documentation and provides the basis for proceeding further, but it is not the point at which the individual is informed of their arrest.

B. Grounds of Arrest

While "reasons to believe" justify the initiation of an investigation, "grounds of arrest" are far more specific and detailed. According to the Supreme Court’s ruling in the case of PrabirPurkayastha vs. State (NCT of Delhi), grounds of arrest must outline the individual’s direct involvement in the offence, such as specific acts or omissions that led to the alleged tax evasion or fraudulent activity.

The grounds for arrest should include:

As per the revised Instruction No. 02/2022-23 (amended by Instruction No. 01/2025-GST), these grounds must be provided in writing and attached to the arrest memo. The arrested individual must acknowledge receipt of this information at the time of service of the arrest memo, ensuring transparency and providing the person an opportunity to understand and challenge the grounds for their arrest.

Legal Implications of the Distinction

This distinction is crucial because "reasons to believe" can be relatively general or formal, while "grounds of arrest" require a detailed, factual justification specific to the individual’s actions. Courts have consistently stressed that arrests under GST should not be arbitrary and must adhere to the principle of due process. The grounds for arrest must be legally sound, adequately disclosed, and serve as a safeguard to prevent wrongful detention, ensuring accountability and fairness in the process.

Conclusion
The safeguards and procedural guidelines for arrest and bail under GST law are designed to balance the need for enforcement with the protection of individual rights. Judicial precedents emphasize that arrest powers must be exercised with caution, and due process should always be followed to avoid arbitrary detentions. The necessity for clear, written grounds of arrest, as mandated by the courts, is fundamental in ensuring fairness and upholding constitutional rights. While the power to arrest is critical in addressing tax evasion, it must be applied judiciously, adhering to legal provisions and safeguarding personal liberty. Continuous judicial scrutiny and adherence to these procedures are essential to prevent misuse and ensure justice in the GST enforcement process.

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.