GST officers can arrest evaders without completion of assessment: Gujarat High Court

The Gujarat High Court in a recent order has armed GST Commissioners with the power to authorise arrest of a person if he has reasons to believe that the person has committed a cognisable and bailable offence, and that the power can be exercised even before completion of assessment and determination of tax evaded.

The Gujarat High Court's order has caused some concern among taxpayers, who have reasons to believe that the order would add to harassment of taxpayers at ground level.

The High Court in its order has said: "We are of the opinion that the power to arrest as provided under section 69 of the CGST Act can be invoked if the Commissioner has reason to believe that the person has committed offences as provided under the clauses (a), (b), (c) or (d) of sub-section(1) of section 132 of the CGST Act without there being any adjudication for the assessment."

The High Court further said in its order that the arrest order should be based on some credible materials or information and also should be supported by a supervening factor. "It is not any and every material, howsoever vague and indefinite or distant remote or far-fetching, which would warrant the formation of the belief," it said.

While giving the order, the Gujarat High Court has disagreed with the High Courts of Delhi, Madras, Haryana and Punjab, which have in different instances maintained that the commissioner has no power to arrest in every case during the investigation and that too without determination of the tax evaded.  

Tax and legal experts fear that the recent order would lead to brazen misuse by the tax authorities and lead to further harassment of taxpayers.

"While the High Court has reiterated several safeguards before the power of arrest can be exercised, the judgment seems to overlook the practical considerations where powers of arrest can be brazenly misused by authorities and are used as a coercive measure of effecting recoveries of tax," says Tarun Gulati, Senior Advocate, Supreme Court.

He says that the Delhi High Court view in MakeMyTrip's case in the service tax regime where it had been held that arrests can be made only after adjudication was upheld by the Supreme Court and ought not to have been departed from.  "It provided an important safeguard to assessees that their explanation would be considered before such drastic action is taken. Without these safeguards, they can be subjected to unwarranted threats of deprivation of personal liberty which should not be allowed," he believes.

Rajat Mohan, partner, AMRG and Associates, says, "Arrest adds muscle to tax authorities but it needs to be used sparingly. This blanket permission to arrest before completion of adjudication would add to the nightmares of innocent taxpayers and it would add to the harassment at ground level."

Experts raised more fundamental issues arising out the Gujarat High Court arrest order. Abhishek Rastogi, partner at Khaitan & Co, who is arguing more than a dozen writ petitions on GST arrest provisions, says that any argument concerning GST arrest and particularly concerning reason to believe should take into consideration the provisions of article 21 of the Indian Constitution, which provides that the law should be reasonable, fair and just.  

"The moot point is that the arrest provisions should be invoked only in rarest cases when there are chances that the revenue leakage will happen in case the taxpayer is not taken in judicial custody. The option of blocking the credit to protect revenue is now available after the recent amendment ", added Abhishek Rastogi. 

Also read: GST evasion: Govt to create database of 'risky' companies