An arrest can be made in GST related offences only if the amount exceeds Rs 2 crore and the tax officials have reason to believe that the person concerned can tamper with evidence. Also, the top management will not be summoned at the first instance.

New guidelines issued by the Central Board of Indirect Taxes and Custom (CBIC) clarify the criteria for bail, arrest and summons in GST related cases.

The GST investigation wing of the board has issued two sets of instructions – one on guidelines related to arrest and bail, and the second on issuance of summons. Experts believe these instructions will not only bring clarity for officers, but also ensure that businesses do not face ad-hocism.

Summons

Summons should be issued only after obtaining prior approval from an officer not below the rank of DC/ AC. The reason for the summons has to be recorded in writing. Summons should be avoided for calling documents available on the GST portal. Also, the senior management should not be issued summons in the first instance. They can be summoned only upon clear indication of involvement

Rajat Bose, Partner, Shardul Amarchand Mangaldas & Co, said the guidelines are the “need of the hour” as there was an increased trend among field formations to summon the senior management in a routine manner, even when information was either available online or through other means of communication.

“The guidelines mandating a strict approval process and recording of reasons, among others, will go a long way in preventing undue harassment of senior company officials, particularly when they may not be involved in routine compliance matters,” he said.

Arrest

On the terms of arrest and bail, the guidelines have followed a Supreme Court ruling in the matter of Siddharth Vs The State of Uttar Pradesh (2021), and, accordingly prescribe the conditions precedent to arrest. For example, the Commissioner should have reason to believe (based on credible material and must be unambiguous) that the offender has committed the offences related with making a supply without issuing an invoice or issuing invoice without any supplyor fraudulently availing of input tax credit and the amount involved exceeds Rs 2 crore. 

Also, before arresting a person, the commissioner must determine whether an arrest is essential to ensure proper investigation or the person is likely to tamper with the investigation or evidence, or the person may be involved in passing fraudulent input tax credit, etc.

Further, the element of ‘mens rea’ (intent) should exist for taking the person into custody. Arrest should not be resorted to in cases of a technical nature, i.e. when there is a difference of opinion in the interpretation of law.

Once the person is arrested and if the offence is non-cognisable and bailable, then the person arrested is to be released on bail against bail bond. Such a person needs to be produced before a magistrate within 24 hours of arrest only in cases where the conditions for granting bail are not fulfilled. The same will be followed in case of an offence that is cognizable and non-bailable.

Saurabh Agarwal, Tax Partner with EY, says the High Courts have followed principles laid down in the judgement of Make My Trip to uphold that provisions of arrest should be invoked rarely and not to be exercised arbitrarily or for the sake of recovery. “The instruction clarifies that the power to arrest should be invoked in exceptional circumstances, such as where the person is involved in tampering with documents, fraudulent activities, etc. Power of arrest should not be invoked for routine or technical matters,” he said.

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