GST: A Strict Framework For Arrests, Bail, Summons Is Here

Senior management to be summoned only if there are clear indications of their involvement in decisions which lead to revenue loss.

<div class="paragraphs"><p>Person in handcuffs</p></div>
Person in handcuffs

Merely because an arrest can be made because it is lawful does not mandate that arrest must be made, notes the Goods and Tax Department in its recent guidelines articulating the conditions for arrest, bail and summons under the indirect tax law.

BQ Prime had reported last month that the government is working on a standard operating procedure for arrests and investigation under the GST. The guidelines have been prompted by the Supreme Court's observations in a criminal case last year emphasising that personal liberty is an important aspect of the constitutional mandate.

The apex court had also expressed its displeasure on the time taken by investigating authorities to conclude investigations, Jitendra Motwani, partner at Economic Laws Practice, said. The directives issued by the CBIC will ensure that the investigations are carried out in a structured manner leading to timely closure, he added.

GST@5: Government Working On SOP For Investigations, Arrests

Arrest under the GST law can be made for supplying goods or services without invoices, availing fraudulent tax credit, failure to deposit tax with the government, etc. A state or central GST commissioner is empowered to authorise any officer to arrest if there is 'reason to believe' that any of these offences have been committed.

The department has now laid down conditions that needs to be met before an arrest is effected and post-arrest procedures that need to be followed. Additionally, guidelines have also been laid down for issuing summons.

Arrests: Check For A Guilty Mind

Just because an offence has been committed doesn't mean arrest powers should be exercised. There should've been a clear intent to evade tax, avail or utilise credit wrongfully, fraudulent refund of tax or failure to deposit tax, etc. Approval to arrest must be granted if there's evidence and an element of "guilty mind", the guidelines said.

It can be made only in non-bailable cases where there is credible information on the participation of the concerned person in the offence. The authority must satisfy the necessity of arrest, for instance likeliness to tamper with evidence or intimidate witnesses. In technical cases, where there's a difference in opinion in interpreting the law, arrests should be avoided.

In terms of procedure, the guidelines point to the criminal procedure code which lays down detailed rules for arrest, manner of arrest and procedure of arrest. Arrest for an offence under the GST must also comply with the code, it said.

The arrest memo should also comply with apex court's guidelines in the DK Basu case, namely the person concerned should have complete information of the grounds of arrest, the arresting officer must identify himself, etc. Additionally, document identification number must be compulsorily included in the arrest memo and all communications.

Summons: Don't Start With The Senior Management  

The GST law allows summons to be issued to any person whose presence is necessary or for producing documentary evidence. Such power should be used judiciously, the department said.

To issue summons, superintendents have to seek prior written approval from an officer not below the rank of deputy or assistant commissioner Only in exceptional circumstances, oral permission would suffice.

The summons must mention the name of the offender to ensure clarity as to the status of the person—whether he has been summoned as an accused, co-accused or as a witness. No summons can be issued for records available on the GST portal.

Unlike the Code of Criminal Procedure, the GST law does not have provisions by which a recipient of summons can know if he has been summoned as an accused or a witness, Motwani said.

The issued directives will enable a recipient to know the exact basis for which his presence is required thereby enabling him to co-operate with the investigation in an objective manner.
Jitendra Motwani, Partner, ELP

Besides spelling out the procedure, the guidelines make it clear that senior management like the managing director, CEO, CFO should not be issued summons in the first instance.

This is perhaps one of the most important directions by the department given that several instances of coercive use of arrest powers against senior management have come to light.

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They [senior management] should be summoned when there are clear indications in the investigation of their involvement in decision-making process which lead to loss of revenue.

Bail And Bail Bonds

The assistant or deputy commissioner is required to release the accused on bail once a bail bond is furnished. Conditions of such bail must be communicated to the concerned person as well as his nominee.

The communication has to be be made in writing and through telephonic mode of communication. Bail must not be excessive and must be in line with the financial status of the arrested person. If conditions of bail are not fulfilled, arrested person should be produced before the nearest magistrate within 24 hours of arrest.

If no bail has been granted, a prosecution complaint must be filed within 60 days of arrest.