Inspection, search and seizure, summons, prosecution, and arrest provisions are placed in tax legislations in order to tackle tax evaders and protect government revenues, but these are stringent provisions which have a disruptive effect for businesses and for an individual. Therefore, they should be couched in checks and balances and adequate safeguards have to be built in. The Hon'ble Supreme Court of India in an important judgement1 specifically on the issue of arrest, observed that personal liberty is an important aspect of our constitutional mandate; merely because an arrest can be made because it is lawful, does not mandate that arrest 'must' be made. A clear distinction has to be made between the existence of the power of arrest and the justification for exercise of it. Furthermore, the court observed that, on the aspect of prosecution, the importance of the availability of adequate evidence to launch a prosecution cannot be stressed enough.

In wake of the above, it is important to delve into the aspect of coercive actions under the GST law, in the context of recent instructions2 issued by the Central Board of Indirect Taxes & Customs ("CBIC"). The CBIC vide the instructions has clarified certain aspects of launching arrest and prosecution provided under section 132, section 137, section 138, section 159 and section 69 of the Central Goods and Services Tax Act, 2017 ("CGST Act, 2017").


2.1 On arrest

a) Conditions Precedent to Arrest

  • All legal requirements must be fulfilled before placing a person under arrest, the "reason to believe" to arrive at a decision to place an alleged offender under arrest must be unambiguous and amply clear and must be based on credible material.
  • Once the legal ingredient of the offence is made out, it must be clubbed with affirmative answers to some basic questions which among others include the following: whether the arrest is necessary to ensure proper investigation of the offence? Also, the approval to arrest should be granted only when the intent to evade tax is evident along with the element on mens rea.

b) Procedure for Arrest

  • The provisions of the Code of Criminal Procedure, 1973 ("CrPC") along with the provisions of the CGST Act, 2017 must be adhered to.
  • Arrest memo must be in compliance with the directions as prescribed which among others should indicate the relevant sections of the CGST Act, 2017 or other laws as may be applicable, grounds of arrest, and the nominated or authorized person to be informed about the arrest on an immediate basis. Additionally, date and time of arrest must be mentioned in the arrest memo.
  • In the event of several arrests in a single case, a separate memo must be made and provided to each arrested person. Other modalities such that arrest has to be made with minimal use of force and publicity, without violence, women should be arrested only by a woman officer in accordance with the relevant provisions of the CrPC, have to be followed. The person having custody of the arrested person to take reasonable care of the health and safety of the arrested person.

c) Post Arrest Formalities

  • For an arrest for an offence specified under section 132 (4)3 of the CGST Act, 2017, the concerned officer is bound to release the person on bail against a bail bond. Bail conditions to be communicated to the arrested person in writing as well as to the nominated person via telephone. No restrictions to be placed on the arrested person in case he/she wants to speak to the nominated person.
  • In the event the conditions of the bail are not fulfilled, the arrested person is to be produced before the appropriate magistrate without unnecessary delay and within 24 hours of arrest. In the event of circumstances preventing the production of the arrested person before a Magistrate, if required, the arrested person may be handed over to the nearest police station for his/her safe custody under a proper challan and produced before the Magistrate on the next day. Documentation to be filed in appropriate format as prescribed like the bail bond, challan etc.
  • Post the arrest, efforts should be made to file the prosecution complaint before the competent courts at the earliest and/or within a definitive timeframe as prescribed.
  • Every Commissionerate should maintain a bail register containing the details of the case, arrested person, bail amount, surety amount etc. The money/instrument/document received as surety should be kept in safe custody of a single nominated officer who shall ensure that these documents received as surety are kept valid till the bail is discharged.

2.2 On prosecution

  1. One of the important considerations for deciding the initiation of prosecution is the availability of evidence as is the case in arrest. The standard of proof required in a criminal prosecution is higher than adjudication proceedings as the case must be established beyond reasonable doubt.
  2. Prosecution should not be lodged where additional claim of tax is based on a difference of opinion regarding the interpretation of law or is of a technical nature. Prosecution complaint may be filed before adjudication of the case, especially where offence involved is grave, or qualitative evidences are available.
  3. Usually, a prosecution is launched where the amount of tax evasion, misusing input tax credit facility or fraudulently obtained refund is more than 500 lakhs, except in cases of habitual offenders and arrest cases, wherein monetary limit is not applicable.
  4. In cases of arrest where no bail is granted, efforts should be made to file prosecution complaint in the court within sixty days of arrest. In all other cases, prosecution complaint should also be filed within a definitive time frame.
  5. In case of companies, when it is proved that the offence has been committed with the consent or connivance of or is attributable to any neglect on the part of any director, manager, secretary or other officer of the company, such person shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Thus, in such scenarios both legal person and natural person is liable for prosecution under section 132.
  6. In all cases (other than the arrest matters where prosecution complaint has already been filed before adjudication), the adjudicating authority should invariably indicate at the time of passing the order itself whether it considers the case fit for prosecution, so that it can be further processed and sent to the Principle (Pr.) Commissioner/Commissioner for obtaining his sanction of prosecution. The Pr. Commissioner/Commissioner may also on his own motion, take into consideration inter alia, the seriousness of the offence, examine whether the case is fit for sanction, for prosecution irrespective of whether the adjudication authority has recommended prosecution or not.
  7. In case where prosecution has been sanctioned but complaint has not been filed and new facts or evidence come to light necessitating review of the sanction for prosecution, the relevant authority should immediately bring the same to the notice of the sanctioning authority. After considering the new facts and evidence, the sanctioning authority, if satisfied, may recommend to the jurisdictional Pr. Commissioner/ Chief Commissioner that the sanction for prosecution be withdrawn who shall thereafter take a decision.
  8. Prosecution provisions also grants power to the Pr. Commissioner/Chief Commissioner, or any other officer authorized by him on his behalf to publish name and other particulars of the person convicted under the CGST Act, 2017.
  9. Prosecution once launched, should be vigorously monitored at regular intervals. Also, corrective action is to be taken wherever necessary to ensure that the progress of prosecution is satisfactory.
  10. The provisions regarding compounding of offence should be brought to the notice of persons being prosecuted and such persons be given an offer of compounding by the Pr. Commissioner/Commissioner or Pr. Additional Director General/ Additional Director General of Directorate General of Goods and Services Tax Intelligence, as the case may be.
  11. Director General, Directorate General of Performance Management and Pr. Chief Commissioner are required to inspect the Commissionerates, should specifically check whether instructions in this regard are being followed scrupulously and make a mention of the implementation of the guidelines in their inspection report apart from recording of statistical data.


These instructions come as a relief to the employees of the Companies, wherein the department is instructed not to make arrest/prosecution in a routine and mechanical manner, as was the case earlier. Providing utmost importance to "mens rea" along with fulfillment of various other conditions to lead to the arrest/ prosecution of a person, ensures a check on the otherwise unfettered and wide powers of the tax authorities. This is also supported by various judicial precedents4 under the erstwhile regime wherein it is observed that mere suspicion, however strong it may be, cannot be substituted for strong proof/evidence. Requirement of strong evidence is given utmost importance to levy penalty to the officials/ relevant employees of the firm.

Moreover, arrest and/or prosecution is not called for in the event the tax evasion or incorrect credit availment is on account of interpretational issue and there is no malafide intention behind it.

Because an arrest infringes on an individual's personal liberty, the authorities vide these instructions are directed to use this power with utmost care and caution. While the intention remains that the threat of arrest/prosecution ought to act as deterrence for commissioning of any tax crime, these instructions avoid any undesirable action on the part of the authorities. It may be noted that while circulars and instructions are binding on the departmental authorities, time and again, we have seen courts come down heavily on erring officers, who jump the gun in haste leading to deprivation of personal liberties.


1 In the case of Sidharth vs. State of Uttar Pradesh & Ors, Criminal appeal no 838 / 2021 arising out of SLP (Crl.) no. 5442/2021. See also, Instruction no 2/2022-2023 GST Investigation dated 17 August 2022

2 Instruction no 4/2022-2023 GST Investigation dated September 1, 2022; and Instruction no 2/2022-2023 GST Investigation dated August 17, 2022.

3 S132 (4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, (2 of 1974) all offences under this Act, except the offences referred to in sub-section (5) shall be non-cognizable and bailable. (5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.

4 Associated Plastics & Rayons v. CCE, Vapi, 2007 (215) ELT 309 (Tribunal); Jaybee Industries v. Commissioner, 2004 (168) ELT 316 (Tribunal); Bijendra Kedia v. Commissioner, 2001 (133) ELT 791 (Tribunal).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.