Chapter 24: Arrest and Prosecution

The power of arrest under GST is an exceptional tool, intended to be exercised only in cases of grave offences involving intent to defraud the Government. It should never be used as a measure of routine enforcement.

Statutory Basis: Section 69 and Section 132 of the CGST Act, 2017.

1.1 Power to Arrest (Section 69)

The Commissioner has the authority to order arrest if he has reason to believe that a person has committed an offence under Section 132, which is punishable with imprisonment.

The order of arrest must be in writing, stating clear reasons.

The arrest is executed by a proper officer authorised by the Commissioner.

1.2 Offences for Which Arrest Can Be Made

Arrest can be made only for offences specified in clauses (a) to (d) of Section 132(1) involving: 1️⃣ Supplying goods/services without invoice with intent to evade tax. 2️⃣ Issuing invoices without actual supply (fake invoicing). 3️⃣ Availing or utilising ITC without receipt of goods/services. 4️⃣ Collecting tax but failing to remit to the Government beyond 3 months.

Monetary Threshold: Arrest is permitted only if tax evaded exceeds ₹2 crore (as per CBIC Circular No. 122/41/2019–GST dated 5 Nov 2019).

1.3 CBIC Arrest Guidelines

To prevent misuse of powers, CBIC has issued detailed arrest guidelines:

Arrest must be based on credible evidence, not suspicion.

Approval of Principal Commissioner/Commissioner mandatory.

Arrest memo must contain identity of person, grounds, and time/date of arrest.

Medical examination and copy of memo to be provided to the arrestee.

Immediate intimation to family member or lawyer is mandatory.

Judicial Safeguards: In P.V. Ramana Reddy v. Union of India (2019, Telangana HC), the Court upheld arrest powers but emphasised strict adherence to due process and constitutional safeguards under Articles 21 and 22.

The bail mechanism depends on whether the offence is cognizable or non-cognizable, and whether it is bailable under Section 132(4).

2.1 Bail Classification

2.2 Procedure for Bail

If offence is bailable, the Deputy/Assistant Commissioner may grant bail in accordance with Section 436 of the CrPC.

If non-bailable, the accused must approach a Magistrate or Sessions Court.

2.3 Bail Conditions (Judicially Recognised):

1️⃣ Execution of bond with sureties. 2️⃣ Surrender of passport (in serious cases). 3️⃣ No tampering with evidence or influencing witnesses. 4️⃣ Mandatory cooperation in ongoing investigation.

Case Law: In MakeMyTrip (India) Pvt. Ltd. v. UOI (Delhi HC, 2021), the Court held that arrest should be last resort, not a pre-emptive coercive step.

Statutory Reference: Section 132 of the CGST Act, 2017.

3.1 Meaning

Prosecution under GST refers to criminal proceedings initiated for wilful and fraudulent offences where imprisonment or fine is prescribed.

3.2 When Prosecution Is Launched

Prosecution can be initiated only after adjudication, unless the Commissioner records reasons of urgency (for example, flight risk or evidence destruction).

3.3 Offences Punishable with Imprisonment

Repeat Offenders: If convicted earlier under GST → imprisonment may extend up to 5 years and fine up to ₹5 lakh.

3.4 Sanction for Prosecution

No prosecution can be launched without prior sanction of the Commissioner (Section 132(6)).

3.5 Compounding of Offences

As per Section 138, offences (other than serious/fraudulent ones) may be compounded by paying prescribed compounding amount, avoiding imprisonment.

The distinction determines how arrest and investigation are carried out.

4.1 Classification Under GST (Section 132(4))

4.2 Meaning

Cognizable: Officer can arrest without warrant, and investigation follows procedure under CrPC Sections 154–157.

Non-Cognizable: Officer cannot arrest without warrant; investigation requires prior approval of Magistrate.

Example:

Issuing invoices without actual supply for ₹6 crore → cognizable, non-bailable.

Failure to pay collected tax within 3 months (₹1 crore) → non-cognizable, bailable.

Indian courts have repeatedly emphasized the need for proportionality and due process in exercising arrest powers.