GST arrests may need court nod: What it could mean for taxpayers | Economy & Policy News

The proposals could also raise the threshold for criminal prosecution to ₹5 crore and exclude certain interpretational disputes from criminal action. The precise legal framework is yet to be disclosed.

How does GST arrest work now?

Section 69 of the CGST Act, 2017 gives the Commissioner the power to authorise an officer to arrest a person when the Commissioner has “reasons to believe” that the person has committed specified offences under Section 132. The power applies to offences covered by Section 132(1)(a) to (d) that meet the prescribed punishment thresholds, as well as repeat offences under Section 132(2).

Where the amount of tax evaded, input tax credit wrongly availed or utilised, or refund wrongly taken exceeds ₹5 crore, the relevant offences can attract imprisonment of up to five years and are classified as cognisable and non-bailable. Other offences under Section 132 are non-cognisable and bailable.

In simple terms, the present process works broadly as:

(Chart 1)

Which GST offences can lead to arrest?

Section 132 covers offences including supplying goods or services without an invoice with an intention to evade tax, issuing invoices without a corresponding supply, fraudulently availing input tax credit, obtaining fraudulent refunds and collecting tax but failing to pay it to the government within the prescribed period.

Not every GST dispute can lead to arrest. The arrest power under Section 69 is restricted to specified offences under Section 132 and requires the Commissioner to have the requisite “reasons to believe”.

The reported proposals could alter the criminal prosecution framework. Reports have suggested raising the prosecution threshold to ₹5 crore and excluding certain interpretational disputes involving classification, valuation and input tax credit from criminal prosecution. The final provisions are yet to be determined.

What safeguards already exist?

Under the current system, a GST officer cannot arrest a person without following prescribed procedural requirements.

The Central Board of Indirect Taxes and Customs (CBIC) issued guidelines on arrest and bail under the CGST Act in 2022. The guidelines state that arrest should not be routine or mechanical. Officers must examine whether an arrest is necessary and record the reasons. The person arrested must also be informed of the grounds of arrest.

In cases covered by Section 69(2), the arrested person must be produced before a magistrate within 24 hours, excluding the time required for the journey to the court.

CBIC’s instructions also require prosecution complaints to be filed at the earliest after arrest. Where bail has not been granted, officers have been directed to make efforts to file the prosecution complaint within 60 days of arrest.

The Supreme Court has also held that the power to arrest must be exercised on the basis of material supporting the Commissioner’s “reasons to believe”.

Would GST evasion still attract penalties and prosecution?

A change in GST arrest powers would not by itself remove the tax liability or other consequences of tax evasion, an expert said.

Pranshu G, Partner at Ashok Pranshu & Co, said tax evasion could still result in assessment of the tax short-paid, recovery of the amount with applicable interest and statutory monetary penalties, even if GST officers lose their independent power of arrest.

Serious or fraudulent cases could also continue to face criminal prosecution, subject to the final statutory framework and thresholds, he said.

“Decriminalisation should not be confused with immunity from GST consequences,” Pranshu told Business Standard.

He said the different consequences under GST should be distinguished. Assessment determines the tax liability, recovery enforces that liability, interest applies to delayed payment and penalty is a civil consequence. Prosecution is a criminal proceeding before a court.

Arrest is separate from these processes. “Arrest is merely a coercive measure affecting personal liberty,” Pranshu said, adding, it is “neither assessment nor punishment by itself”.

This means that a change in the arrest procedure would not, by itself, prevent the tax authorities from assessing tax, recovering dues or imposing applicable interest and penalties. The impact on criminal prosecution would depend on the final statutory changes, including any revised thresholds.

How often has GST arrest power been used?

The power has been used hundreds of times since 2021-22.

A Lok Sabha reply shows that Central GST formations recorded 887 arrests between 2021-22 and 2024-25 up to December 2024.

(Chart 2)

The same data showed that Central GST formations detected 72,393 GST offence cases during the period. The total tax evasion detected, including input tax credit frauds, was ₹6.24 trillion, while recovery stood at about ₹1.10 trillion.

What would change if court approval is required?

According to experts, the main change would be the timing of judicial scrutiny.

At present, the Commissioner can authorise an arrest after forming the required “reasons to believe”, without first obtaining judicial sanction. Judicial scrutiny can follow the arrest through the court process.

If the reported proposal is enacted, the court would come into the process before the arrest.

Somesh Jain of Sachdev & Jain, Advocates, told Business Standard that “the power to authorise arrest may be transferred from the Commissioner to the court”, such that “no arrest may be effected without prior judicial authorisation.”

He said one possible model could be the Income-tax Act, under which tax authorities do not have an independent power of arrest. In specified cases, arrest may be made pursuant to “a warrant issued by a Magistrate”.

Under such a system, the court would have to examine the material presented by the tax authorities before authorising an arrest. Judicial scrutiny would therefore move from after the arrest to before it.

Jain said that “judicial scrutiny is presently post-arrest.” If the proposal is enacted, “judicial scrutiny would precede arrest, requiring the court to assess the sufficiency of the material at the threshold.”

For taxpayers, therefore, the central change would not be the removal of GST enforcement itself. The tax department could continue to investigate alleged evasion and pursue tax, interest and applicable penalties. Serious cases could also continue to face prosecution, depending on the final statutory framework.

The change would instead concern the point at which a court becomes involved in the decision to take a person into custody. The exact impact, however, will depend on the legislation eventually considered and approved by the GST Council and Parliament.