View | The power of summons and arrests under GST

The instructions issued by the Central Board of Indirect Taxes & Customs (CBIC) on August 17, on summons and arrests in respect of investigations initiated under the Goods and Services Tax (GST), are welcome. Similar instructions were there earlier in the Central Excise and Service Tax regimes but given that summons and arrest involve the exercising of powers that impinge a citizen’s rights, they need repetition to sensitise both the officers of the department as well as the taxpayer.

But are these powers required in fiscal laws? To put matters in perspective, we do have a serious problem of evasion. The proof of that is the regular detection of cases of humongous value. The month of August itself witnessed detection of GST frauds in excess of Rs 5,500 crore.

We cannot have laws which require the taxpayer to adhere to its legal requirements and ignore somebody who chooses to disregard the laws with impunity. There has to be a legal mechanism to bring such offenders to book.

The process of inquiry starts with the summons. Summons issued under the provisions of the CGST Act are deemed to be judicial proceedings within the meaning of sections 193 and 228 of the IPC. It has substantial statutory force-all persons summoned are bound to appear.

The instruction stresses the fact that these powers should be used judiciously and after due approval. Summons should not be resorted to in the first instance but used only where a letter seeking the information does not work. Senior management should be summoned only if there is an indication to suggest their involvement. The instruction also states that the official summoning should be present at the time/date for which the summons has been issued.

The trigger for the second instruction issued with regard to arrest and bail is apparently the observations made by the Supreme Court (SC) in a recent judgment. Incidentally, these observations were made by the SC in a seven-year-old non-GST-related case.

The instruction quotes the SC mentioning that "merely because an arrest can be made because it is lawful it does not mandate that an arrest must be made. A distinction must be made between the existence of the power to arrest and the justification for the exercise of it".

The instructions state that the powers can be exercised in terms of the provisions of the CGST act where the Commissioner has ‘reason to believe’ that the alleged offender has committed any offence as specified in CGST law. ‘Reason to believe’ which finds mentions in several fiscal laws has not been defined. The Supreme Court has in other matters interpreted the phrase to observe that a person is said to have 'reason to believe' a thing, if he has sufficient cause to believe that thing, but not otherwise."

The circumstances under which the powers of arrest can be exercised have been spelt out categorically in the CGST Act and are reiterated in the instructions. The power of arrest can be exercised only after due approval.

Incidentally, the issue of arrest was discussed extensively in a GST Council meeting. While there was consensus about the need for these powers, concerns were expressed about their exercise. Hence the Act stipulates several safeguards in the form of threshold limits – evasion of up to Rs 1 crore, Rs 2 to 5 crore and above 5 crore, having different punishments.

The statute divides offences into non-cognizable and bailable -in which case the bail can be given with suitable conditions by the officer. And into cognisable and non-bailable which relate to the more serious offences- clandestine supply, issue of invoice without goods or receipt of goods without invoice and collecting tax but not passing it on to the government. In these cases, the arrested person has to be produced before the magistrate. The provisions of the Criminal Procedure Code (CrPC) would kick in.

It may be noted that the magistrate in cases of arrest under CGST is not burdened with the twin conditions viz- namely that the accused is not guilty of the offence and that he is not likely to commit any offence while on bail, having to be fulfilled like in the PMLA or NDPS Acts. The onus is on the magistrate whether to accept the department’s argument that the accused is likely to tamper with evidence or intimidate witnesses.

Arrest at this stage is not a punishment. The punishment in the form of imprisonment or fine happens only when the prosecution has been launched and the charges established and a conviction obtained from the court. Thus it is important that in all cases of arrest a prima facie understanding is there that the case is also fit for prosecution. Once this yardstick is also kept in mind the number of cases in which arrest is warranted would reduce.

Instructions have also been issued separately on the customs side -both for arrest and prosecution. The significant difference here is that the threshold limits are different. An arrest is to be done only in cases of outright smuggling where the value is above Rs 50 lakh and Rs 2 crore in cases of commercial frauds. The value limits would not apply in certain types of cases like smuggling of arms, antiques, CITES related offences. These instructions both on the GST and customs side should standardise the procedure.

The fact of the matter remains that GST revenue has been on the upswing. Given a large number of detections and consequential arrests made by the department, obviously, these measures have acted as a deterrent and ensured compliance. The credibility of the CBIC would depend upon how judiciously these powers are exercised.