At the core of taxation lies the well-being of the populace. While indirect tax laws primarily aim at recovering revenue and imposing fines, they also grant the authorities the power to take stringent actions, including making arrests, against those who exploit the provisions of these laws. The ability to arrest an individual traces its origins back to the period before the advent of GST. This provision has invited controversy due to instances where its application remains legally debatable.
Under the GST regime, a commissioner holds the authority to apprehend or authorize the apprehension of an individual if there exists substantial “reason to believe” that the said person has engaged in unlawful activities. These activities encompass:
- Supplying goods or services (or both) without proper invoicing, with the intention to evade taxes.
- Issuing invoices or bills without actual supply, leading to improper utilization of input tax credit or fraudulent tax refunds.
- Illegally claiming input tax credit, with or without relevant invoices or bills.
- Failing to remit collected taxes for a period beyond three months.
These offenses are categorized as cognizable and non-bailable if the evaded tax amount surpasses Rs 5 crore. Other arrests fall under the non-cognizable and bailable category as per the Act. A cognizable offense allows for the arrest of a taxpayer without a warrant, while in a non-bailable offense, the taxpayer must be presented before a judicial magistrate within 24 hours, who decides on their release.
Of particular interest is the term “reason to believe,” which forms the bedrock of GST-related arrests, yet remains undefined in the CGST Act, 2017. The judiciary consistently asserts that this term does not give license to the arbitrary satisfaction of an officer; some level of subjectivity must underlie the exercise of such powers. If the GST commissioner possesses a “reason to believe” that an individual has committed an offense involving tax evasion exceeding 5 crore, they can decree their arrest. The officials then apprehend the taxpayer and present them before a judicial magistrate.
Notably, the mechanics of arrests in the GST framework differ from conventional apprehensions. These measures have been introduced to facilitate investigations into GST-related crimes, curb tampering of evidence, and prevent suspects from fleeing. They serve as tools for investigative purposes and should only be deployed under exceptional circumstances. Their misuse for meeting revenue targets can inadvertently lead to harassment of taxpayers, counter to the intended spirit of these laws.
It is crucial that all departments adhere to the landmark D.K. Basu v. State of West Bengal judgment, wherein the Supreme Court outlined guidelines for conducting arrests. The provisions under GST have sparked renewed conversations about tax-related apprehensions and appear to diverge from the government’s vision of fostering a tax administration that genuinely benefits and safeguards taxpayers’ interests.