SC puts safeguards in GST, Customs arrests
New Delhi, Feb 28, 2025
Supreme Court upholds GST and Customs officers' arrest powers, mandates judicial safeguards against arbitrary detention, ensuring constitutional rights.
The Supreme Court on Thursday upheld the power of officers to arrest individuals under the Goods and Services Tax (GST) and Customs Acts but introduced key judicial safeguards to prevent arbitrary detention and clarified the extent and limits of enforcement under these special statutes.
A three-judge bench, led by Chief Justice of India (CJI) Sanjiv Khanna, emphasised the necessity of procedural compliance to uphold constitutional rights, while issuing directives to ensure that arrests are not made on “mere suspicion” or “for the sake of investigation”.
Delivering the verdict on a bundle of 281 petitions that assailed the arresting powers under the central and state GST laws and the Customs Act, the bench, also comprising justices MM Sundresh and Bela M Trivedi, made several key determinations -- the right of a person to seek a pre-arrest bail even in absence of a first information report (FIR), the supply of grounds for arrest in writing, the right of legal counsel, and the applicability of the Criminal Procedure Code (now replaced with Bharatiya Nyaya Suraksha Sanhita) -- to guide lawful and valid arrests.
The bench also addressed concerns that taxpayers were being forced to make voluntary payments under threat of arrest, noting that payments under Section 74(5) of the GST Act must be truly voluntary and not extracted under coercion. It called for strict compliance with legal safeguards to prevent undue pressure on individuals, saying it would be “desirable” that the Central Board of Indirect Taxes and Customs promptly formulate clear guidelines to ensure that no taxpayer is threatened with the power of arrest for recovery of tax in the garb of self-payment.
With this ruling, the Supreme Court has struck a balance between empowering tax authorities to curb evasion and ensuring that individuals are protected against arbitrary detention. The judgment asserts the constitutional rights of the accused while requiring strict adherence to procedural safeguards. Going forward, all arrests under the GST and Customs Acts are likely to be subjected to heightened judicial scrutiny to prevent misuse of power.
Referring to Section 104(1) of the Customs Act, the bench clarified that while the provision does not explicitly mention possession of material evidence, a Customs officer cannot conclude that an offence has been committed without substantial justification. “The fact that Section 104(1) does not explicitly require a Customs officer to have ‘material in their possession’ does not imply that a customs officer can conclude that an offence has been committed out of thin air or mere suspicion,” noted the bench, while also reaffirming that Customs officers do not have the status of police officers and, therefore, cannot exercise unrestricted policing powers.
The court underscored that the threshold for arrest under this provision is higher than that under Section 41 of CrPC, which allows police officers to arrest individuals based on reasonable suspicion.
The judgment mandated that officers justify arrests with a computation or explanation regarding the monetary thresholds outlined in the Customs Act. It noted that an arrest must be based on cogent evidence, and not simply to investigate whether an offence has been committed.
Similarly, under Section 69 of the GST Act, arrests must be backed by explicit reasoning and material evidence demonstrating the commission of a non-bailable offence. The commissioner must record the “reasons to believe” in writing, ensuring transparency and accountability.
“An arrest must proceed on the belief supported by reasons relying on material that the conditions specified in subsection (5) of Section 132 (for tax evasion or illegal availment of input tax credit)are satisfied, and not on suspicion alone. The arrest is to be made on the formulation of the opinion by the Commissioner, which is to be duly recorded in the reasons to believe,” the court ruled.
It, however, dismissed the petitioners’ contention that an arrest under GST laws can only follow a completed assessment under Section 73, clarifying that an arrest can be justified even before a formal assessment is completed in cases where the department has sufficient certainty about tax evasion. However, such power must be exercised cautiously, it said.
Laying down procedural safeguards that must be followed by Customs and GST officers while exercising their arrest powers, the court extended the principles laid down in the DK Basu judgment (1997) — related to the rights of arrested persons — to Customs and GST arrests, reinforcing that officers must maintain records of all statutory functions performed during the arrest.
The court mandated that individuals must be informed of the grounds of their arrest in writing before being produced before a magistrate. This ensures that the accused have the opportunity to challenge their detention and seek bail. It reiterated that people arrested under the Customs and GST Acts have the right to meet an advocate of their choice during interrogation, though not throughout the entire interrogation process.
Authorised officers, the bench held, must maintain detailed records, including the name of the informant, nature of the information received, time of arrest, seizure details, and statements recorded. The bench emphasised that compliance with these requirements must be reflected in official records.
The court further ruled that provisions such as Section 41-B and 41-D of the CrPC — originally applicable to police officers — also apply to customs and GST officers. Officers must wear identification indicating their name and designation to ensure transparency in enforcement actions.
The court, however, rejected the petitioners’ challenge to the amendments in the Customs Act and GST Acts, dismissing the reliance on earlier judgments such as Om Prakash Vs Union of India, which necessitated a magistrate’s permission before making arrests. It held that subsequent legislative changes in the years 2012, 2013 and 2019 had aligned the provisions with constitutional safeguards, thereby addressing concerns about arbitrary arrests. The court also referred to its recent ruling in the Arvind Kejriwal case (2024), cautioning against “unbridled exercise of arrest powers” without adequate justification.
The judgment follows extensive scrutiny by the Supreme Court on the scope of arrest powers granted under the central and state GST laws and Customs Act. The petitioners had challenged provisions empowering tax authorities to arrest individuals for alleged tax evasion and fraud, arguing that such powers exceed the legislative intent and violate constitutional protections under Articles 20(3) (right against self-incrimination) and 21 (liberty).
The government had defended the provisions, arguing that arrests under the CGST Act were based on an officer’s assessment of “more than suspicion but less than grave suspicion”.
[The Hindustan Times]
