The Supreme Court on Thursday upheld the Constitutional validity of arrest and prosecution provisions under Goods and Services Tax Act and the Customs Act but provided safeguards against coercive actions including arrest. Experts highlight that the ruling is a significant development in tax enforcement and will help curb tax terrorism.
The ruling, by a Special Bench comprising Chief Justice Sanjiv Khanna, Justice Bela M. Trivedi, and Justice M.M. Sundresh, held that customs officials are not police officials and rights will be available to those arrested under the GST and Customs Acts.
The Court further clarified that these arrests cannot be used for recovery purposes, clarifying that arrests cannot be used for recovery and the accused can access remedies under Article 226 in such cases.
A total of 279 petitions were taken up by the Bench challenging the penal provisions under the Customs Act and the State and Central GST Act. The ruling also overruled the MakeMyTrip case on quantification before arrest. The matter is scheduled for final disposal next month on March 17.
Sudipta Bhattacharjee, Partner, Khaitan & Co said, that the Supreme Court upholding the Constitutional Validity of such arrests was not completely unexpected but it has provided for critical checks and balances, which should hopefully go a long way in curbing instances of tax-terrorism and providing some level of protection for taxpayers.
For example, the Court emphasised the requirement for authorities to document their ‘reasons to believe’ before initiating an arrest, in line with principles laid down in Arvind Kejriwal’s case. The Supreme Court has also held that people facing arrest under GST or Customs law will be entitled to safeguards available under the Code of Criminal Procedure and that anticipatory bail can be allowed in cases of imminent arrest under GST law, overruling a contrary judgment, he pointed out.
Abhishek A Rastogi, Founder of Rastogi Chambers said, “In an alleged tax evasion case, any arrest before the conclusion of proceedings and finalisation of tax demand is manifestly arbitrary. Arrests should only be undertaken when the proceeding is completed, and the tax evasion has been proved.”
Amit Maheshwari, Tax Partner, AKM Global said that the decision empowers authorities to take strict action against serious tax fraud, it also ensures legal safeguards for businesses and individuals, including the right to anticipatory bail even before an FIR is filed.
“The decision underscores the need for businesses to strengthen GST compliance, as arrests can occur even if the exact tax liability is not fully determined. This ruling strikes a balance between preventing tax evasion and protecting taxpayer rights, making it crucial for industry stakeholders to adopt a proactive approach towards regulatory compliance,” he underlined.