A recent Gujarat High Court judgment interpreting the power of GST officers to make arrests is likely to set the cat amongst the pigeons. By disagreeing with the view taken by other High Courts, the judgment states that arrests can be made even prior to issuance of a show-cause notice(“SCN”) or its adjudication. In short, a person can be arrested even before his liability to pay tax is finally determined. The judgment deals with GST offences which are cognizable and non-bailable. In such cases, the GST officers can arrest a person even without the issuance of a warrant on a mere prima facie determination by a Commissioner that GST has been evaded.   

The judgment has reiterated some safeguards against the abuse of power. The Commissioner has to record reasons based on credible or cogent material before ordering the arrest. An arrest is an extreme step and should be used by the GST authorities sparingly. While safeguards may exist, the question is whether such powers should at all be available to GST officers. 

The earlier judgments were approved by the Supreme Court, with which the Gujarat High Court has disagreed, were based on a simple and sound logic- first, determine the liability of a person by following the process of law and only then take drastic action. The tax-payer should be informed of the allegation and be allowed an opportunity to defend himself before any action is taken against him.  These judgments provided a shield to the tax paying public from being condemned unheard.  

The justification for allowing arrests prior to adjudication is that the power to arrest is in a different chapter under the GST statute and is different from adjudication. While the power of arrest may be different from adjudication, some relevant questions deserved to be answered. How can the liability of a tax-payer be ascertained without adjudication of a SCN? On a mere allegation of evasion, can it be said that a person has committed an offence? Can the personal liberty of a person be taken away on the basis of a one-sided allegation?  Is not the tax-payer entitled to a defense before being punished? Is it fair to ask a person to approach a criminal court for relief even before his tax liability is determined? Will the criminal court which has no expertise in taxation matters and is presented with a one sided version be able to objectively provide relief to a person wrongly arrested? 

In any other ordinary criminal investigation, a confession made before a police officer is not admissible as evidence as per the safeguards under the Constitution of India and the Indian Evidence Act. It is ensured that the police officer who has the power to arrest should not use it to extract an unfair confession. Under GST, the officer who has arrest powers can also record confessions which are admissible in evidence. Thus, even the Constitutional safeguards against misuse of arrest powers are not available, which make the issue even more serious.  

The issue is not only of legal interpretation but there are several practical questions which have remain unanswered. Why is arrest necessary for a fair investigation? Income tax law does not have provisions of arrest before conviction. Why is it important to give such powers to GST officers?  If the same person is vested with the power to record a confession and also the power to arrest, is it not a toxic cocktail of powers which is open to misuse? Is it not likely that a GST officer will coerce a tax-payer to admit liability, failing which, he will be arrested? Will such confessions and admission of liabilities, made on the threat of arrest, be regarded as voluntary?   If a person is arrested wrongly without even being heard, how will the irreversible damage to his reputation and business be remedied? 

Neither fraud nor tax evasion can be condoned. A person guilty of committing an offence must be punished. But it is certainly not proper to inflict punishment before finally concluding that there is an evasion of tax. Allowing arrests even prior to issuance of SCNs merely on the basis of a prima facie determination by a Commissioner is not only unfair but is also open to flagrant misuse. 

The Government is taking several steps to ensure a business-friendly environment. Recent changes for decriminalizing offences under the Companies Act, steps for making faceless income tax assessments and appeals are examples of such robust measures. Allowing unrestricted powers of arrest in GST undermine the Government’s efforts in enhancing the ease of doing business. It is for the business community and the corporate world to raise its voice against such draconian laws which can be misused. Courts will only interpret the law, but it is for the Government of the day to ensure that powers which are open to abuse are not granted to the authorities in the first place.