Guidelines For Arrest and bail under GST law

Post implementation of GST, the GST Department gets to expose cases of fraudulent ITC through fake invoices every or the other day involving crores of amount. And during the investigation, considering the severity of the offenses, GST Authority resorts to the arrest of persons involved in the offense. However, GST Authority is alleged of illegitimate use of its arrest power and also GST authority fails to follow the post-arrest procedure as defined in the Code of Criminal procedure, 1973. Therefore, Arrests by GST authorities are getting challenged before Hon’ble Courts often.

Hon’ble Apex Court delivered the judgment on frequent arrest and considering the severity of the issue, the GST Investigation Wing has examined the judgment and issued guidelines related to Arrest and Bail in relation to offenses punishable under CGST Act, 2017 vide Instructions No. 2/2022-23 (GST-Investigation).

A detailed analysis of such instructions is as follows:

1. Judgment of Hon’ble Apex Court

Hon’ble Supreme Court of India in its judgment date. 16/08/2021 in Criminal Appeal No. 838 of 2021, arising out of  SLP (Crl.) No. 5442/2021, has delivered the following precedence:

• Personal freedom is an important aspect of the constitutional mandate.
• The occasion to arrest an accused during investigation arises in any of the following cases:
  • The custodial investigation becomes a necessity; or
  • Accused is involved in a heinous crime; or 
  • where there is a possibility that the accused will influence the witnesses; or 
  • accused may abscond. 

• Merely because all conditions given under law related to arrest are fulfilled it does not mandate that an arrest must be made. A distinction must be made between the existence of a power to arrest and justification for exercising such power.
• If an arrest is made routine, it can cause incalculable harm to the reputation and self-esteem of a person. 
• Therefore, If the Investigating Officer has no reason to believe that the accused will abscond or disobey summons and has cooperated with the investigation throughout then why should there be a compulsion on the officer to arrest the accused.

2. Conditions precedent to arrest

2.1 Legal requirements must be fulfilled.

• Section 132(1) of the CGST Act, 2017 deals with the punishment for offenses specified therein. 
• Also, Section 69(1) of CGST Act 2017 provided Power to the commissioner to Arrest a person where he has reasons to believe that the alleged person has committed any offense specified under Section 132(1)(a)/(b)/(c)/(d) and the such offense is punishable under Section 132(1)/(2) of CGST Act.
• Therefore, before exercising the power to arrest, the legal requirement of arrest should be fulfilled.
• The reasons to believe to arrest a person must be unambiguous and amply clear and must be based on a reliable material fact.

2.2 Events triggering Arrest after legal requirements are fulfilled

2.2.1 Points to keep in mind before ordering an arrest

• Since arrest affects the personal liberty of an individual, the power to arrest must be exercised very carefully. 
• The arrest should not be made in a routine and mechanical manner. 
• Therefore, even if all the legal conditions to arrest mentioned in Section 132 of the CGST Act are fulfilled it will not by default means that an arrest should be made.

2.2.2 Grounds when an arrest can be made

• Once the legal ingredients of the offense are made out, the Commissioner or the competent authority must then determine that the answer to any or some of the following questions is in the affirmative to trigger arrest:

1. Whether the person was concerned in the non-bailable offense or credible information has been received, or a reasonable suspicion exists, of his having been so concerned?
2. The arrest is necessary to ensure proper investigation of the offense.
3. Whether the person, if not restricted, is likely to tamper with the course of further investigation or is likely to tamper with evidence or intimidate or influence witnesses?
4. Whether the person is the mastermind or key operator affecting proxy/ Benami transactions in the name of dummy GSTIN or non-existent persons, etc., for passing fraudulent input tax credit, etc.?
5. As unless such a person is arrested, his presence before the investigating officer cannot be ensured.

2.2.3 Conditions for Arrest

• Approval to arrest should be granted only where both of the following are fulfilled:
  • the intent to evade tax or commit acts leading to ailment or utilization of wrongful Input Tax Credit or fraudulent refund of tax or failure to pay the amount collected as tax is evident; and 
  • Element of mens rea (i.e., guilty mind) is available.

• Accordingly, The relevant factors before deciding to arrest a person must be the need to ensure proper investigation and prevent the possibility of tampering with evidence or intimidating or influencing witnesses exists.
• Arrests should not be resorted to in offenses of technical nature such as where demand is based on a difference of opinion regarding the interpretation of the law.
• The prevalent practice of assessment could also be one of the determining factors while ascribing intention to evade tax to the alleged offender.
• Other factors which made influenced the decision to arrest could be the cooperation of the person during the investigation such as compliance with the summons, furnishing documents called for, not giving evasive replies, voluntary payment of tax, etc.

3. Procedure for arrest under GST

• Where Pr. Commissioner/ Commissioner has reasons to believe that person has committed the offense mentioned under section 132 of CGST Act and he may have to authorize his arrest then Pr. Commissioner/ Commissioner shall record the role of the person involved and the evidence available.
• Provisions of Code of Criminal Procedure, 1973 read with Section 69(3) of CGST Act related to arrest, and the procedure is given therein must be adhered to.
• Therefore, Pr. Commissioner/Commissioner should ensure that all officers are fully familiar with the provisions of CPC.
• An arrest memo should be made as directed by the Hon’ble Apex court in the matter of D.K. Basu Vs State of West Bengal 1997(1) SCC 416.
• Format of Arrest memo should be as prescribed under Board’s Circular No. 128/47/2019-GST dated 29th December 2019.
• The arrest memo should indicate the following information:
  • Relevant Sections of the CGST Act or other law attracted to the case and inapplicable provisions should be struck off.
  • The grounds of arrest must be explained to the arrested person and the same must be noted in the arrest memo.
  • A nominated or authorized person (as provided by the arrested person) of the arrested person should be informed immediately and this fact shall be mentioned in the arrest memo;
  • The date and time of arrest shall be mentioned in the arrest memo and the arrest memo should be given to the person arrested under proper acknowledgment.

• In case of several arrests in a single case, it must be kept in mind that a Separate arrest memo should be made for every individual arrested 
• Further, it is mandatory to mention the Document Identification Number (DIN) on every communication issued by an officer to the taxpayer or any other person for investigation. (board’s Circular No. 122/41/2019-GST dated 5th November 2019). Any lapse in this regard will be reviewed seriously.
• Further, there are certain rules which should be complied with at the time of arrest, which include the following:
  • A woman should be arrested only by a woman officer in accordance with section 46 of the Code of Criminal Procedure, 1973
  • Medical examination of an arrested person should be conducted by a medical officer in the service of the Central or State Government 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 medical examination shall be made only by or under the supervision of a female medical officer, and in case the female medical officer is not available, by a female registered medical practitioner.
  • It is the duty of the person having custody of an arrested person to take reasonable care of the health and safety of the arrested person.
  • Arrests should be made with minimal use of force and publicity and without any violence.

4. Post-arrest formalities

• Procedure post-arrest is separately outlined for different categories of offenses under Section 132(4) and (5) of the CGST Act.

4.1 Bailable Offense (Section 132(4) of CGST Act)

• In the case where a person is arrested under Section 69(1) of the CGST Act for offenses specified under Section 132(4) of the CGST Act then the Assistant/ Deputy Commission 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 by telephone to the nominated person of the person(s) arrested
• The arrested person should also be allowed to talk to the nominated person.
• Bail Bond and Surety:
  • The conditions will relate to the execution of a person’s 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 of bail bond and surety will depend on the facts and circumstances of each case and the amount of tax involved,
  • Further, the amount of bail bond should not be excessive and should be commensurate with the Financial status of the arrested person.

• If conditions of bail are fulfilled then he shall be released by the officer concerned on bail forthwith.
• However, where conditions for granting bail are not fulfilled, the arrested person shall be produced before the appropriate Magistrate without unnecessary delay and within 24 hours of arrest.
• Whenever required, an arrested person can be handed over to the nearest police station for his safe custody, during the night under a challan, before he is produced before the court.

4.2 Non-Bailable Offense (Section 132(5) of CGST Act)

• In the case where a person is arrested under Section 69(1) of CGST Act for offenses specified under Section 132(5) of CGST Act then the officer authorized for arrest shall inform the person about the grounds of arrest.
• The arrested person shall be produced before a magistrate within 24 hours of arrest.
• However, where a person can’t be presented before Magistrate due to circumstances then he shall be handed over to the nearest police station under a challan for his safe custody and the nominated person shall be informed accordingly.
• The arrested person shall be produced before the magistrate the next day.
• The arrested person should be produced before a magistrate within 24 hours of arrest, exclusive of time necessary for traveling from a place of arrest to the Magistrate’s Court.

4.3 Other Points to be kept in mind

• Format of relevant documents, i.e., bail bond and challan for handing over the person to police station should be followed.
• Post arrest, prosecution complaint shall be filed under Section 132 of the Act before a competent court preferably within 60 days where no bail is granted.  
• In all other cases, it shall be filed within a definite time frame.
• Every Commissionerate/Directorate shall maintain a bail register containing details of the case, arrested person, bail amount, surety amount, etc. Amount/ Documents received as surety shall be kept in the safe custody of a single nominated person who shall ensure that documents are kept valid till the bail is discharged.

5. Reports to be sent in case of arrest

• Pr. Director-General (DGGI)/ Pr. Chief Commissioner(s)/ Chief Commissioner(s) shall send a report on every arrest to Member (Compliance Management) as well as to the Zonal Member within 24 hours of the arrest giving details.
• To maintain an all-India record of arrests made in CGST, from September 2022 onwards, a monthly report of all persons arrested in the Zone shall be sent by the Principal Chief Commissioner(s)/ Chief Commissioner(s) to the Directorate General of GST Intelligence, Headquarters, New Delhi.
• DGGI, Headquarters, Delhi shall compile the monthly reports received from Formations and shall send the zone-wise report to the Commissioner (GST Investigation), CBIC.
• Reports shall be sent by email only and no hardcopies should be sent.