Constitutional validity of GST arrest provisions upheld by Supreme Court together with power of courts to grant anticipatory bail
In a recent judgment, Hon’ble Supreme Court upheld the constitutional validity of arrest under GST Act and also upheld the powers of courts to grant anticipatory bail and prohibiting coercion for tax recovery
ABCAUS Case Law Citation:
4435 (2025) (02) abcaus.in SC
The Hon’ble Supreme Court up held the constitutional validity of Sections 69 and 70 of the GST Act and held that a penalty or prosecution mechanism for the levy and collection of GST, and for checking its evasion, is a permissible exercise of legislative power. The GST Acts, in pith and substance, pertain to Article 246-A of the Constitution and the powers to summon, arrest and prosecute are ancillary and incidental to the power to levy and collect goods and services tax.
The Hon’ble Supreme Court observed that Sub-section (4) to Section 132, an important provision for our consideration, states that notwithstanding anything in the Code, all offences under the GST Act, except the offences referred to in sub-section (5), are non-cognizable and bailable. Thus, non-cognizable offences have been made bailable. Thus, only when the offence falls under the limited categories specified in clauses (a) to (d) of sub-section (1) to Section 132, and, when the amount of tax evaded, amount of input tax credit wrongly availed or utilised, or the amount of refund wrongly taken exceeds Rs. 500 lakhs, that the offence is non-bailable and cognizable.
The Hon’ble Supreme Court took note of the submission made on behalf of the Revenue that in cases of bailable and non cognizable offences, the central/state officers do not make arrests. Arrests are made only when the offence is non-bailable and cognizable, satisfying the conditions of sub-section (5) to Section 132, as specified in clauses (a) to (d) of sub-section (1) to Section 132 of the GST Act.
The Hon’ble Supreme Court laid that to pass an order of arrest in case of cognizable and non-cognizable offences, the Commissioner must satisfactorily show, vide the reasons to believe recorded by him, that the person to be arrested has committed a non-bailable offence and that the pre-conditions of sub-section (5) to Section 132 of the Act are satisfied. Failure to do so would result in an illegal arrest. The Commissioner, while recording the reasons to believe should state his satisfaction and refer to the ‘material’ forming the basis of his finding regarding the commission of a non-bailable offence specified in clauses (a) to (d) of sub-section (1) to Section 132. The computation of the tax involved in terms of the monetary limits under clause (i) of sub-section (1), which make the offence cognizable and non-bailable, should be supported by referring to relevant and sufficient material.
The Hon’ble Supreme Court stated that power of arrest should be used with great circumspection and not casually. Further, as in the case of service tax, the power of arrest is not to be used on mere suspicion or doubt, or for even investigation, when the conditions of subsection (5) to Section 132 of the GST Acts are not satisfied.
The Hon’ble Supreme Court opined that normally the assessment proceedings would quantify the amount of tax evaded, etc. and go on to show whether there is any violation in terms of clauses (a) to (d) to sub-section (1) of Section 132 of the GST Acts and that clause (i) to sub-section (1) is attracted. But there could be cases where even without a formal order of assessment, the department/Revenue is certain that it is a case of offence under clauses (a) to (d) to sub-section (1) of Section 132 and the amount of tax evaded, etc. falls within clause (i) of sub-section (1) to Section 132 of the GST Acts with sufficient degree of certainty. In such cases, the Commissioner may authorise arrest when he is able to ascertain and record reasons to believe. As indicated above, the reasons to believe must be explicit and refer to the material and evidence underlying such opinion. There has to be a degree of certainty to establish that the offence is committed and that such offence is non-bailable. The principle of benefit of doubt would equally be applicable and should not be ignored either by the Commissioner or by the Magistrate when the accused is produced before the Magistrate.
The Hon’ble Supreme Court referred to the Instruction No. 01/2022-23 issued by the Central Board of Indirect Taxes and Customs referring to the taxpayers depositing partial or full GST liability during the course of search, inspection or investigation. The circular noted that instances have been noticed where allegations of force and coercion were made by the officers for making recovery during the course of search, inspection and investigation. The Court held that Subsection (5) to Section 74 relates to voluntary payment, and does not postulate payment under force, coercion or threat of arrest. The aforesaid circulars are binding and should be adhered to in letter and spirit. The authorities must exercise due care and caution as coercion and threat to arrest would amount to a violation of fundamental rights and the law of the land. It is desirable that the Central Board of Indirect Taxes and Customs promptly formulate clear guidelines to ensure that no taxpayer is threatened with the power of arrest for recovery of tax in the garb of self-payment.
Based on the data furnished by the CBIC, the Hon’ble Supreme Court noted that the figures with regard to the tax demand and the tax collected would, in fact, indicate some force in the submission that the assessees are compelled to pay tax as a condition for not being arrested. Sub-section (5) to Section 74 of the GST Acts gives an option to the assessee and does not confer any right on the tax authorities to compel or extract tax by threatening arrest. This would be unacceptable and violative of the rule of law.
The Hon’ble Supreme Court clarified that a person summoned under Section 70 of the GST Acts is not per se an accused protected under Article 20(3) of the Constitution.
The Hon’ble Supreme Court further clarified that the power to grant anticipatory bail arises when there is apprehension of arrest. This power, vested in the courts under the Code, affirms the right to life and liberty under Article 21 of the Constitution to protect persons from being arrested.
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