As India Inc continues to demand respite from ‘tax terrorism’, the one power bestowed upon tax officials that is now back in the spotlight is the power to arrest. Be it I-T department officials or the GST commissioner, multiple legal provisions allow tax officials to make arrests without even securing a warrant from court.
But, under what circumstances can tax officials wield their powers to put individuals behind the bars? Read on to find out.
Can GST Officers Arrest People?
Section 69 of the Central Goods and Services Act 2017 (CGST) empowers the GST commissioner to order the arrest of a person. In certain cases, depending on the offence committed, the arrest can be cognisable and non-bailable. The commissioner also has the power to authorise an officer to make the arrest, reported Cleartax.
When read along with Section 132 of the CGST Act, 12 different types of offences have been listed out that could lead to an individual’s arrest. Some of these include:
- Supplying goods or services without any invoice
- Issuing false invoice or bill
- Evading tax and fraudulently availing input tax credit or refund
- Falsifying or substituting financial records or producing fake accounts
- Obstructing or preventing any officer in the discharge of his duties
- Tampering with or destroying any material evidence or documents
According to lawyers, the CGST Act also lists out the punishments that violators of the clauses stand to face. In cases where the tax amount evaded exceeds Rs 5 crore and falls under four specified offences, the person faces imprisonment for a term which may extend to five years and with fine. In this case, there is no provision of bail unless the court grants it. Here, the arrested person will be produced before magistrate within 24 hours.
If the tax amount involved exceeds Rs 2 crore but does not exceed Rs 5 crore, the person could face three years imprisonment and must pay a fine. In this case, there is provision for bail.
In cases where the amount is over Rs 1 crore but doesn’t exceed Rs 2 crore, the individual could be slapped with a fine and imprisonment up to one year. Here too, there is provision for bail.
Legal Instances When Power to Arrest Was Evoked
1. Manpasand Beverages MD, CFO Arrested
In May 2019, GST officers arrested Abhishek Singh (MD) and Paresh Thakkar (CFO) of Gujarat based Manpasand Beverages for tax evasion worth Rs 40 crore and availing fraudulent credit. The CSGT authorities stated that they had ‘unearthed a huge racket of creating fake/dummy units’.
The authorities released a statement that said, “The continuing investigation has unearthed a network of more than 30 fake units located in various parts of the country which were used for committing fraud by availing illegal credit. The investigation regarding the ultimate beneficiary of the fraud and web of shell companies is under progress,” reported Business Today.
2. Telangana High Court Refused To Grant Relief Against Arrest
In April 2019, the Telangana High Court refused to grant any relief against arrest to the petitioners accused of claiming fraudulent input tax credit. The court stated that it was refusing this ‘in light of summons issued by Superintendent (anti-evasion) of the Hyderabad GST Commissionerate under the Central Goods and Services Tax Act, 2017’, reported Business Today.
The Supreme Court dismissed the same plea and refused to interfere with the Telangana High Court’s order.
3. SC Agrees To Examine CGST Powers to Arrest Individuals
In May 2019, the apex court agreed to examine the powers held by GST authorities with regards to arresting an individual. A bench comprising of Chief Justice Ranjan Gogoi and Justice Aniruddha Bose stated that the reason for this was because different high courts have taken divergent views in the matter in the past. The Supreme Court sought to clarify the matter for good, reported The Economic Times.
I-T Officials Given the Power to Arrest
Tax officials have been bestowed with the powers to arrest individuals since even before the implementation of the CGST Act. The Income Tax Department designated an official called the Tax Recovery Officer (TRO) to detain and arrest tax defaulters under provisions of the IT Act.
“The Tax Recovery officer enters the scene when there is a tax demand which lies either uncontested or the appellate forum does not grant a stay. If I have appealed, I can seek permission of the tribunal or the court for stay of demand. If I don’t get a stay of demand, then I have no option but to pay up, even though I am in appeal.”Mukesh Butani, founder, BMR Legal Advocates
Experience With Tax Officials: India Vs Abroad
While speaking to The Quint, Chairman of Manipal Global Education and former Infosys Director, Mohandas Pai, compared his experience with tax officials in India and foreign countries.
“When I was in Infosys, I filed tax returns in 30 countries. We had some dispute in the United States of America with the IRS. We’ve had disputes in France and Japan because this does tend to happen due to problems with interpretation, but everyone treated us with courtesy and respect. No one treated us like tax officials in India do.”Mohandas Pai
Advocate Abhishek A Rastogi points out the loopholes in the GST system that often lead to arrest of individuals who are not even directly involved in the case.
“It is disturbing that for an offence committed by someone else, summons have been issued to another person who has introduced this person to the bank or any other business dealings. How is that person relevant when it comes to a situation of the offence committed by some sole proprietary firm? When it comes to personal liberty, the procedures are ought to be followed.”Abhishek Rastogi, Partner at Khaitan & Co
“People have just been taken into judicial custody and locked up for 60 days. The authorities have not filed charge sheet in most of the cases. This trauma for any business is not a good sign especially when it can be proved that there is no tax leakage. I don’t think that happens anywhere else. We haven’t heard of such cases,”
Rastogi adds.
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