treeviewThe Central Board of Indirect Taxes and Customs (CBIC) recently issued a summons and arrest instructions in connection with investigations launched under the Goods and Services Tax (GST). Instructions are intended for departmental personnel to obey, but because they are public, the taxpayer is also empowered and forewarned. Similar directives were issued before under the Central Excise and Service Tax regimes. Given that summons and arrests entail the use of authorities that infringe on a citizen’s rights, they bear repeating.
But do such harsh powers need to be included in budgetary laws? To put things into perspective, we pay our taxes unwillingly and have a significant evasion issue. The regular detection of examples of enormous worth demonstrates this. GST scams totaling over Rs 5,500 crore were discovered in August alone. This has a serious impact on the formal economy. We cannot have laws that force taxpayers to follow their rules but then overlook anyone who decides to flout them. There must be a legal framework in place to hold such violators accountable.
The investigation procedure begins with a summons. Summons issued under the terms of the CGST Act are regarded to constitute judicial proceedings under the Indian Penal Code. It has statutory force; all those called are required to present. The guideline emphasizes that these abilities should only be utilized with proper authorization. Summons should be used only when a letter seeking the information fails. Senior management should be called only if there is reason to suspect their involvement. The guideline also emphasizes the need of respecting the other person’s time; the official summoning should be present at the time/date for which the summons has been issued.
The Supreme Court’s recent views on arrest and bail appear to have triggered the second instruction. These observations were made by the Supreme Court in a non-GST matter seven years ago. According to the command, “merely because an arrest is authorized does not necessitate that an arrest is undertaken.” A difference must be drawn between the presence of the authority to arrest and the reason for exercising it.” This is something that all government investigation agencies and law enforcement should keep in mind.
Arrest powers can be used by the provisions of the CGST Act when the Commissioner has “reason to suspect” that the accused offender has committed a CGST-related offense. The term “reason to believe,” which appears in various tax legislation, has not been defined. In other cases, the Supreme Court has construed the word to mean that a person has “reason to believe” something if he has adequate reason to believe it.
The circumstances under which arrest may be used are clearly stated in the CGST Act and reinforced in the instructions. It is necessary to obtain the necessary supervisory permission. When the law was being finalized, the question of arrest was heavily debated in the GST Council. While there was agreement on the necessity for these powers, there were reservations about their use. As a result, the Act has many protections in the form of threshold restrictions, with penalties ranging from Rs 1 crore to Rs 2-5 crore and over Rs 5 crore.
The statute categorizes offenses as non-cognizable and bailable (in which case the officer can grant bail with appropriate conditions) and cognizable and non-bailable (which relate to the more serious offenses of clandestine supply, issue of invoice without goods, or receipt of goods without an invoice, and collecting tax but not remitting it to the government). In certain circumstances, the arrested individual must appear before a magistrate. The provisions of the CrPC would take effect.
It should be observed that, unlike the PMLA or NDPS Acts, the magistrate in situations of arrest under CGST is not burdened with the dual criteria of not being guilty of the offense and not being likely to commit any offense while on bail. The magistrate may accept or reject the department’s allegation that the accused is likely to tamper with evidence or intimidate witnesses.
It should be noted that, unlike the PMLA and NDPS Acts, the magistrate in CGST arrest situations is not saddled with the twin criterion of not being guilty of the offense and not being likely to commit any offense while on bail. The magistrate has the authority to accept or reject the department’s claim that the accused is likely to tamper with evidence or intimidate witnesses.
Separate instructions for arrest and prosecution have also been issued on the customs side. The important distinction here is that the threshold limitations are different. Arrests would be made only in situations of blatant smuggling with a value greater than Rs 50 lakh, and in cases of commercial fraud with a value greater than Rs 2 crore. The value limitations would not apply to certain types of crimes, such as the smuggling of weaponry, antiquities, or CITES violations. Both the GST and customs instructions should standardize the procedure.
GST income is increasing. The economy must be doing well, but given the enormous number of detections and subsequent arrests made by the department, it is clear that these measures have also resulted in greater compliance.
The CBIC’s credibility will be determined by how these exceptional powers are used.