- By Riya Poddar, student at Amity University, Noida
I. Introduction
The very intent of the legislature to introduce the Goods and Service Tax (hereinafter “GST”) framework was to substitute the complex tax regime with a unified system in order to enhance compliance efficiency and to further economic development. There is no denying the fact that the rapid implementation of GST has significantly transfigured the tax landscape in India, but at the same time, it has raised several apprehensions with regard to its legal and procedural aspects. One such issue is the abuse of power by the appropriate authorities to arrest a person without informing the grounds or giving prior notice or detailed intimation. The debate surrounding the issue attracted prominent attention in light of recent judicial decisions, leaving taxpayers and the authorities grappling for clarity.
The Indian judicial system has, from time to time, weighed in on the issues, especially in cases that raise concerns about balancing enforcement goals with the Principles of Natural Justice. The recent judgment of the Delhi High Court in the case of Kshitij Ghildiyal v. Director General of GST Intelligence (hereinafter “DGGI”) (16th December 2024) deals with the same issue. The judgment emphasises the fact that the law enacted must be in consonance with the Constitutional principles and provisions. This blog seeks to analyse the given case and to review the relevant judicial precedents in order to provide a comprehensive understanding of the legal framework surrounding procedural fairness and transparency.
Right to Inform the grounds of arrest is a procedural safeguard, bounded by the Principles of Natural Justice and enshrined in the Constitution of India, but whether this right extends to GST law? This blog seeks to critically scrutinise the legal framework surrounding the issue of the absence of procedural fairness, its implications, as well as the recent reform brought in by the Central Board for Indirect Taxes (hereinafter “CBIC”).
II. Unlocking Ambiguities in Arrest Procedure
In the case of Kshitij Ghildiyal v. DGGI (supra), the Petitioner, the Director of a Private Limited Company engaged in the business of E-waste management, was arrested and taken into custody without any reason or information on account of availing Input Tax Credit (hereinafter “ITC”) against fake invoices. The Hon’ble High Court held the Petitioner’s arrest to be illegal as a major discrepancy was noticed in the arrest procedure followed by the appropriate authorities/department. The case flagged an issue with regard to the absence of procedural as well as pre-arrest safeguards under the Central Goods and Service Tax Act, 2017 (hereinafter “CGST Act”).
Natural Justice vis-à-vis GST Enforcement
The central question that arises is whether the departmental officers are obligated to inform the person of the grounds of arrest prior to detention. Several truths must be established first before a proper answer can be crafted. Legislation points out the principles that lead to correctness in a law in this particular respect.
Article 22(1) of the Indian Constitution states that no person shall be arrested or otherwise detained on a procedural basis: the grounds of the arrest or the action need to be communicated to the person once arrested, and also the information must be reasonable enough in which the duty of an arrested person serves a larger objective. In consonance with the Constitutional Principles, Section 69(1) of the CGST Act, 2017, sets out that the Commissioner may authorize any officer of the central tax to arrest a person if he has reasons to believe the person to be liable for punishment under Section 132 of the Act. A bare reading of the Tax Evasion provisions under Section 132 of the CGST Act, 2017 provides that:
(1) "A person who commits any of the following offences: -
(a) supplies any goods or services without issuance of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;
(b) issues any invoice or bill without supply of goods or services in violation of the provisions of this Act, or the rules made thereunder leading to wrongful utilisation or availment of input tax credit or tax refund;
(c) avails input tax credit using invoice or bill as referred to in clause (b)
……
……
(5) The offences specified in the above-mentioned clauses shall be cognizable and non-bailable."
It needs to be noted that the forgeries committed are nothing but a combination of several component offences. Another fact that must be clarified is the procedure of arrest specified in the GST Law, unlike in other civil or criminal laws, which nowhere obligates the officer/authority to inform the alleged about the grounds of arrest at the time of the arrest. Such absence of reference to arrest in the same has been acting against the spirit of the Principles of Natural Justice.
However, as the debate continues, timely clarifications from government and judicial pronouncements have mandated the need for clarifications. The Hon’ble High Court in the Kshitij Ghildiyal case (supra), placing reliance on the case of Pankaj Bansal v. Union of India, (2024) 7 SCC 576, and Pranav Kuckreja v. State NCT of Delhi, 2024, held that “an arrested person has a fundamental right of being informed of the grounds of his arrest and the same is imperative without any exception.”
Several cases studied by courts other than these showed one thing, and that is that neither any law nor any authority shall have the power or the will to strip or violate any of the fundamental rights of a citizen. This is with the appreciation to the turning point judgment of the Hon’ble Supreme Court, in D. K. Basu v. State of West Bengal (1997), wherein the Court clearly laid down the rights of an arrested person. Referring to the above judgement in the case of Kshitij Ghildiyal v. DGGI (supra), the Court upheld that arrest should be the last step and should not be taken lightly in case of an economic offence.
Grey Area of “Reason to Believe”
One can safely argue that Section 69(1) of the CGST Act, 2017 overwhelmingly hinges on the “belief that the taxpayer has committed a reasonable offence punishable under Section 132 of the CGST Act” by the Commissioner himself. Furthermore, this contention can be extended to an argument that the Legislature seeks to place undue weight on the subjective satisfaction of the Commissioner rather than prioritizing taxpayers’ interests.
While times innumerable, the Courts have emphasised the need for having a solid foundation for such belief, the GST law does not explicitly provide for a definition or guidelines on what constitutes reasonable belief. Such a lack of clarity gives rise to differing judicial interpretations and the possible threat of misuse of power by the appropriate authorities. The Calcutta High Court in the case of Sanjay Kumar Bhuwalka and Ors. v. Union of India in 2018, held that “reason to believe means subjective belief of the assessing officer that the suspect has committed an offence and the same conclusion would be drawn by any reasonable prudent man.”
Furthermore, the difference between ‘grounds of arrest’ and ‘reason to arrest’ has been duly laid down by the Courts in the case of Arvind Kejriwal v. Enforcement Directorate and V. Senthil Balaji v. State. The Court in the above cases also reiterated that ‘reason to believe’ must be based on material evidence and not just mere subjective satisfaction of the officer.
Therefore, while such ‘reason to believe’ is crucial to prevent any arbitrary action on account of taxpayers, at the same time, addressing ambiguities surrounding the same is essential to ensure that the tax law is in consonance with the Constitutional mandates.
III. Critical Evaluation and Roadmap for Legal Reform
Even though suitable and timely interventions had been administered by the Government, and recent judgments have interpreted relevant statutes to their advantage, pre-arrest rights still remain a complex issue. Yet, it has been discussed at great length with certain concerns following through. Invoking the order of the Hon'ble High Court under the case of Kshitij Ghildiyal (supra), the guidelines have been set by the CBIC through Instruction No. 01/2025-GST, stating the need for the grounds of arrest to be communicated to the arrestee in writing. It provides a much-needed break for those who are lawful taxpayers.
Tax legislation is highly complex to understand and properly requires the application of a proportionate touch by the government and the proper administrative machinery to ensure that no lawful taxpayer is unjustly burdened or penalised by the system. To address the issue of pre-arrest rights in order to align it with the constitutional principles, the government must provide clear guidelines defining “reason to believe” under Section 132 to prevent arbitrary actions by tax authorities. Regular training sessions for GST officials on procedural safeguards and taxpayers’ rights should be organized to prevent misuse of power and authority. Additionally, an independent grievance redressal mechanism to keep a check on enforcement actions would be effective in enhancing transparency and accountability. It is crucial for the administrative heads to be aware of the concerns that the taxpayers are facing at the grassroot level so that the original objective or the intent of the legislature in introducing a single tax structure is successfully accomplished.
IV. Conclusion
The core of the legislation establishing a unified tax law was very clear right from the beginning, but it is impossible to achieve without the right mechanism. The absence of a credible pre-arrest stage may undermine the very purpose of the law, and hence, a structured way to deal with tax disputes might foster people's confidence in administrative justice and the statute’s endeavours regarding tax legislation. Therefore, the objective of the law is to maintain a balance between statutory provisions, compliance measures, and the rights of the taxpayer.
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