Arrests under GST


A random search in  Google, You-tube, print and social media these days leads you to know that in a nationwide drive to curb the menace of fake invoicing, a large number of fraudsters, including few mastermind professionals, have been arrested for violating the provisions of GST law and are behind the bars. There is no denying the fact that white collar crime has felt the lethal power of the Sovereign like never before and Courts are very reluctant to grant bail in such cases, in spite of vehement arguments by legal luminaries.

GST is a new law and it has been introduced in India recently, several years after its implementation world over. Inherently, all the ‘games’ played by unscrupulous elements have been well taken care of by this latest legislation.

Several new ‘fundamentals’ have been adopted which are beyond the perception of even the traditional tax practitioners and there is widespread ‘confusion’ regarding the compliance of legal provisions. This confusion has been further confounded by frequent changes brought in by a constantly flowing ‘river’ of notifications and frequent compliance changes and extensions. Every person laying his hand on a GST return filing software flaunts his expertise, whereas, in real terms, he may turnout to be a simple quack, putting his innocent clients in a dark bottomless pit. 

A few businessmen treat Input Tax Credit (ITC) as a trading stock and for them the attraction of its encashment by fake invoices is too high to resist. Several others are engaged in this routing of fake invoices to increase their paper ‘turnover’ for availing higher credit limits from banks. Fake invoices are also in demand for booking higher purchases and expenses for reducing income and finally the income tax liability. Diversion of corporate funds and plain money laundering are also some of the other motives for using fake invoices.

However, these people fail to understand that GST is altogether a different piece of legislation which has vested wide powers in the hands of Officers, having tons of information, assisted by long arms of technology and backed by a firm resolve of the Government to eradicate the culture of fake invoicing. Every single transaction leaves/ leads to a long trail on the GST portal which is being analysed 24*7, day and night, round the clock by the builtin and regularly improving data mining and Artificial Intelligence (AI) under the watchful eyes of BIFA, DGGI, Anti-evasion wings of GST Commissionerates, besides several other agencies. ‘Intelligence’ is the new normal and it prefaces all ‘Investigations’. GST Officials have been vested with vast powers for Inspection, Audit, Search, Seizure, Confiscation etc. Further, the power of arrest, the most dreadful, under GST law is independent of any assessment, adjudication, determination of tax or any attachment, confiscation, fine or penalty. Once the Commissioner of GST has ‘reason to believe’ that the tax wrongly availed or utilised is above the specified threshold, he is empowered to issue the Arrest Memo. The Offence involving tax amount of more than Five Crores is Cognizable and Non-bailable, punishable with five years imprisonment and fine. Lodging of a FIR is not compulsory though there is no bar for the same. Further, every enquiry is deemed to be a ‘judicial proceeding’ within the meaning of Indian Penal Code and in prosecution proceedings the existence of ‘culpable mental state’ is presumed. On the issue of pre-arrest bail, High Courts have divergent views.

On the flip side, a few trigger happy GST officials, are misusing their newly found ‘police power’ for exploiting the situation for their own interests, sometimes putting genuine businesses under heavy stress. High Courts have taken note of several such instances of gross abuse of the powers by GST Officials, in flagrant disregard of the established legal norms and procedures. It is to be noted that the vires of the statue permitting arrest on the basis of simple ‘reason to believe’ of the GST Commissioner stand challenged as on date, though they have not been stayed.  

Thanks to the long list of Clarifications and Judicial pronouncements issued from time to time, the law relating to Inspection, Investigation, Scrutiny, Search and Seizure , recoveries etc. is more or less settled under the Income Tax but in the case of GST there is a sprawling vacuum. GST arrest provisions are interwoven with the provisions of Criminal Procedure Code. While the Chartered Accountants are trained in accounting and GST calculations and compliance on Portal, they are unable to handle the nuts and bolts of Criminal law procedures and in the like manner the basic concepts of ITC, Output tax, CGST, SGST, IGST etc. and their interplay with other accounting variables are aliens for most of the established Criminal lawyers.

For peace of mind the business community must fast learn and accept that this is phase of transformation to a new tax era where there shall be neither any  supply-less invoices nor any invoice-less supplies and any adventurism, which  cannot escape the watchful eyes of AI equipped system. At the same time Government must keep a close and strict watch on all the actions of GST officials and each one of them must be held accountable.

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Views expressed above are the author’s own.



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