Wrongful arrests by Goods and Services Tax (GST) officers have increasingly come under scrutiny, raising concerns about misuse of authority and violation of procedural safeguards. The arrest powers granted to GST officials under Section 69 of the CGST Act, 2017, have been criticized for instances where arrests have been conducted without adequate grounds or proper adherence to due process.
One of the cases in which the citizen, namely Mishal J. Shah became prey in the hands of GST officers. Here is the chronology:
What Happened?
It was alleged by the department that the accused/businessman was indulged in fraudulent activities of wrongfully availing or utilising input tax credit using invoices from GSTIN cancelled suppliers who have issued invoices or bills without supply of goods or services.
The taxpayer has affected inward supplies of Rs. 53.02 crores without actual movement of goods or services in violation of provisions of MGST Act, 2017 leading to wrongful availment or utilisation of non genuine input tax credit at Rs. 9.54 crores.
The department has filed an application before Additional Chief Judicial Magistrate, Mumbai seeking judicial custody of the accused till completion of pending investigation by the complainant.
Dr. Sujay Kantawala, the Counsel for the accused submitted that the summons was issued to the accused calling for recording his statement on 30.12.2024. The writ petition was pending in the Bombay High Court challenging the bank account freezing. Accused has been co-operating and attended the officers in his office on 28.11.2024 and 29.11.2024 when officers conducted inspection of premises. Hence, no reason to believe existed for arresting illegally and hasty manner.
The lower court strongly observed that the arrest is in a hasty and illegal manner and so arrest is illegal. Hence, accused cannot be taken in judicial custody and is liable to be released.
The Petitioner, Mishal J Shah has been placed under arrest. This is despite the fact that by communication dated 19 December 2024, Mr. Chandar Kamble, the Assistant Commissioner of State Tax, had issued a summons to the Petitioner Mishal Jaswant Shah to remain present for recording his statement at 30 December 2024 at 11.00 am. This summons was served upon the Petitioner at 6.00 pm on 19 December 2024 i.e. after the hearing before the Court.
From the Arrest Memo dated 20 December 2024, it is apparent that this Arrest Memo is signed again by Mr. Chandar T Kamble, the Assistant Commissioner of State Tax. The Arrest Memo shows that the authorisation for this arrest was obtained on 20 December 2024 itself and the Petitioner Mishal J Shah was arrested at 7.55 am 20 December 2024 on itself.
The court prima facie, observed that it amounts to interference with the administration of justice and consequently, might amount to a Contempt of Court.
First Day Bail Within Few Hours Of Arrest To Accused Involved In Wrongful ITC Availment : ACJM Terms Arrest Illegal
The Additional Chief Judicial Magistrate, Mumbai has granted bail first day bail within few hours of arrest to accused involved in wrongful Input Tax Credit (ITC) availment citing it to be in an illegal and hasty manner.
The bench of G. R. Dhepe, Additional Chief Judicial Magistrate has observed that the offence under Section 132 of the GST Act is punishable upto 5 years. Pursuant to the second summons accused could have attended the office of the complainant for recording his statement. Therefore, the arrest of the accused was in a hasty manner though issued second summons for recording his statement on 30.12.2024.
The Bombay High Court has issued contempt notice to state tax officer for illegal arrest of a businessman who was allegedly involved in wrongful availment of Input Tax Credit (ITC) worth Rs. 9.5 crores.
The bench of Justice M.S. Sonak and Justice Jitendra Jain has observed that as per the Arrest Memo the authorisation for this arrest was obtained on 20 December 2024 itself and the Petitioner Mishal J Shah was arrested at 7.55 am on 20 December 2024 itself, amounts to interference with the administration of justice, and consequently, might amount to a Contempt of Court.
The Bombay High Court has accepted the GST Officer’s apology for arbitrarily arresting alleged tax evaders even before recording statements.
The bench of Justice B. P. Colabawalla and Justice Firdosh P. Pooniwalla has observed that accepted the apology tendered by the two officers and discharged the Show Cause Notice issued to them, however cautioned the officers that in future they should be careful before any arrest is made and to follow the letter of the law before any arrest memos are issued.
CBIC Guidelines Of Arrest By GST Officers
The Central Board of Indirect Taxes and Customs (CBIC) has issued the guidelines pertaining to the arrest and bail in relation to offences punishable under the GST Act, 2017. The board has stated that the grounds of arrest must be explained to the arrested person and also furnished to him in writing as an Annexure to the Arrest Memo. Acknowledgement of the same should be taken from the arrested person at the time of service of the Arrest Memo.
The Board has stated that Arrest should, however, not be resorted to in cases of technical nature i.e. where the demand of tax is based on a difference of opinion regarding interpretation of 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 influencing the decision to arrest could be ifthe alleged offender is co-operating in the investigation, viz. compliance to summons, furnishing of documents called for, not giving evasive replies, voluntary payment of tax etc.
- Reason To Believe
Pr. Commissioner/Commissioner shall record on file that after considering the nature of offence, the role of person involved and evidence available, he has reason to believe that the person has committed an offence as mentioned in Section 132 and may authorize an officer ofcentral tax to arrest the concerned person(s). The provisions of the Code of Criminal Procedure, 1973 (2 of 1974) read with section 69(3) of CGST Act relating to arrest and the procedure thereof, must be adhered to. It is, therefore, advised that the Pr. Commissioner/Commissionershould ensure that allofficers are fully familiar with the provisions of the Code of Criminal Procedure, 1973 (2 of 1974). The arrest memo must be in compliance with the directions of the Supreme Court.
