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The Finance Act, 2013 gave way for arrest for offences involving evasion of service tax. The power to arrest has been introduced with effect from 10-05-2013, in cases which involve evasion of service tax in excess of fifty lakh rupees. However recently by circular no. 1010/17/2015-CX dated 23-10-2015, the said limit of 50 lakhs has been raised to one crores.

Newly introduced section 90 and 91 by the Finance Act, 1994 (w.e.f. 10th May, 2013) deals with provisions of cognizance of offences and power to arrest respectively. Apart from above, CBEC has also issued Guidelines for arrest and bail in relation to offences punishable under the Finance Act, 1994a circular no 171/6/2013 dated 17-09-2013. 

Cognizable and Non-cognizable Offence and Bailable and Non-bailable Offences:
Before proceeding further on the subject, let's see what is a cognizable or a non-cognizable offence as per Code of Criminal Procedure (CPC) 1973.

The offences under any law including the Indian Penal Code have been classified as cognizable and non-cognizable, as bailable or non-bailable. These are given and defined in the First Schedule of the CPC, 1973.

Cognizable and Non-cognizable Offence:
the word "cognizable" stands for a "a police officer may arrest without warrant" the word "non-cognizable" stands for "a police officer shall not arrest without warrant".

Bailable and Non-bailable Offence:
"bailable" means the person shall be offered to be released on suitable bail upon his arrest [by the police or the court] [informing about his right to be so released]

"non-bailable" means shall not be automatically entitled to be released on bail [but does not mean that the court may not order him to be released on a suitable bail - with or without any conditions] 

Offences liable for arrest under Service Tax:
Section 89 of the Finance Act, 1994 lists the following offences which attract the powers to arrest where the amount involved exceeds fifty lakh rupees.

Subsection (1) clause (a) to (c) lays down offences which under section 90 are non-cognizable and bailable as under:
(a) knowingly evading the payment of service tax, or
(b) availing and utilising credit of taxes or duty without actual receipt of taxable service or excisable goods either fully or partially in violation of the rules, or
(c) maintaining false books of accounts or fails to supply any information which is required to supply or supplying false information

Subsection (1) clause (d) lays down offence which under section 90 are cognizable and non-bailable as under:

(d) collecting any amount of service tax but failing to pay the amount as collected to the credit of the Central Government beyond a period  of six months from the date on which such payment becomes due. 

Exercise of Power to arrest as per Section 91:
In case of offences covered under clause (a) to (d) above the Commissioner of Central Excise, authorise any officer of Central Excise, not below the rank of Superintendent of Central Excise, to arrest the offender. All arrests under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 relating to arrests. To authorize the arrest, the Commissioner should have reason to believe that the person proposed to be arrested has committed the offence liable for arrest. The reason to believe must be based on credible material which will stand judicial scrutiny.

Non-cognizable and bailable offences:
In the case of a non-cognizable and bailable offence, the Assistant Commissioner, or the Deputy Commissioner, as the case may be, shall, for the purpose of releasing an arrested person on bail or otherwise e, have the same powers and be subject to the same provisions as an office in charge of a police station has, and is subject to, under section 436 of the Code of Criminal Procedure, 1973. 

Cognizable and non-bailable offences: 
In case of a cognizable offence, every officer authorised to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within twenty-four hours.

Applicability of Code of Civil Procedure 1973, Hon'ble Supreme Court Guidelines and other modalities:
As per section 91, all arrests shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 relating to arrests. 

Further the guidelines set up by Hon'ble Supreme Court in D.K Basu vs State of West Bengal reported in 1997(1) SCC 416 (paragraph 35-36) must be followed while effecting an arrest.

Read Guidelines >>             Read Full Judgement >>

Apart from the above, CBEC has also prescribed the following modalities which are required to be followed:

1. A female should be arrested by or in the presence of a woman officer;
2. Medical examination of an arrested person should be conducted by a medical officer in the service of Central or State Governments and in case the medical officer is not available , by a registered medical practitioner, soon after the arrest is made. If an arrested person is a female then such an examination shall be made only by, or under supervision of a female medical officer, and in case the female medical officer is not available, by a female registered medical practitioner.
3. It shall be the duty of the person having the custody of an arrested person to take reasonable care of the health and safety of the arrested person.

Bail of arrest person:
The following post arrest formalities have been prescribed in the said CBEC Circular:

In cases of non-cognizable and bailable offence, covered under clause (a) to (c) above, the commissioner is bound to release a person on bail against a bail bond. The bail conditions should be informed in writing to the arrested person and also informed on telephone to the nominated person of the person (s) arrested .The arrested person should be also allowed to talk to a nominated person. The conditions will relate to, inter alia, execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer when required and not leaving the country without informing the officer. The amount to be indicated in the personal bail bond and security will depend, inter alia, on the amount of tax involved. If the conditions of the bail are fulfilled by the arrested person, he shall be released by the officer concerned on bail forthwith. However, only in cases where the conditions for granting bail are not fulfilled, the arrested person shall be produced before the appropriate Magistrate without unnecessary delay and within twenty-four (24) hours of arrest. The arrested person may be handed over to the nearest police station for his safe custody, within 24 hours, during the night under a challan, before he is produced before the Court.

In the case of cognizable and non-bailable offence as under clause (d) above, and only in the event of circumstances preventing the production of the arrested person before a Magistrate without unnecessary delay, the arrested person may be handed over to nearest Police Station for his safe custody, within 24 hours, under a proper challan, and produced before the Magistrate on the next day, and the nominated person of the arrested person may be also informed accordingly.

Section 436 of CPC >>             CBEC Circular No 171/6/2013 >>        Service Tax Act >>

Arrest of first person under the provisions of Service Tax
The first arrest under service tax act was made in the month of August, 2013. Mr. Sudip Das, owner of courier company, M/s Bluebird was arrested for alleged   default of collecting and not depositing service tax for four financial years 2008-09 to 2011-12, amounting to Rs. 79,30,,384/-.
However, Hon'ble High Court of Calcutta, after considering the facts, considered the offence as bailable at the time when it originated. Read More >>

Power and Guidelines for Arrest and Bail under Service Tax and CBEC Circulars

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