Apex Court Upholds The Arrest Provisions Under Customs And GST With Emphasis On The Need For Procedural Rigor And Fairness To Exercise Such Powers

Radhika Agarwal v. Union of India and Ors. [Writ Petition (Criminal) No. 336 of 2018 dated 27 February 2025]

BRIEF ISSUES BEFORE THE SUPREME COURT

• The issue before the Apex Court for consideration was whether the arrest provisions provided under the Customs Act, 1962 and Goods and Services Tax Law [GST Law] [hereinafter referred to as 'Special Laws' collectively] are constitutional and whether the statutory and constitutional safeguards are followed by the authorized officers while exercising the powers of the arrest under the Special laws.
• The Court also delved into the following issues:
  • Exercise of powers of arrest by the officers in case of cognizable and non-cognizable offences;
  • The extent of power of judicial review of Courts in cases where the parties challenge the exercise of the power of arrest by the authorized officers under the Special Laws, specifically in context of examination of facts and merits that form the basis of 'reasons to believe' recorded by the authorized officers before making an arrest?
  • Whether the powers of arrest under the Customs Act and GST Act align with the fundamental rights guaranteed under Articles 21 and 22 of the Constitution of India, particularly concerning procedural safeguards, the right to life and personal liberty, protection against arbitrary detention, and the requirement for informed grounds of arrest.

KEY OBSERVATIONS OF THE HON'BLE SUPREME COURT

• The Hon'ble Supreme Court analyzed the legislative competence of Sections 69 and 70 of the CGST Act rejecting arguments that these provisions exceed Parliament's authority under Article 246A of the Constitution. The court reaffirmed that arrest and prosecution powers are ancillary to the effective levy and collection of GST, applying the doctrine of pith and substance to uphold the constitutional validity of these provisions. The Court held that Article 246A is a special provision that defines both the source of power and the filed of legislation making it unnecessary to rely on the Seventh Schedule. The Court cited Union of India v. VKC Footsteps (India) Pvt. Ltd.¹ affirming that the power to impose tax includes the authority to enforce compliance through penal measures.
• The judgment also clarified that the Special Laws [both Customs Act and the GST Act] distinguish between cognizable and non-cognizable offences restricting arrests without a warrant only for cognizable and non-bailable offences. The Court relied on the various instructions² and guidance circular issued by CBIC to state that laws provide adequate protection against abuse. It also dismissed reliance on OmPrakash v. Union of India³ noting that subsequent amendments [in the Customs Act] have addressed concerns regarding arbitrary arrests. Ultimately, the Court upheld the validity of the amendments while reinforcing the need of due process and constitutional safeguards in arrests
• The Court has held that the Officers must record and disclose the reasons to arrestee except in exceptional cases where limited redactions may be justified. The Court emphasized that arrest powers must be exercised with caution, ensuring compliance with statutory safeguards to prevent arbitrary detention. Relying on the case of Arvind Kejriwal vs. Directorate of Enforcement⁴ , the court highlighted that procedural transparency is essential when depriving an individual of liberty. The Court has held that the following processes need to be followed by the authorized officers:
  • In compliance with Section 167 and Section 172 of the Code of Criminal Procedure, the authorised officers are required to maintain a case diary, which must be a duly paginated volume, as held in Directorate of Enforcement v. Deepak Mahajan⁵
  • The authorized officers must look at whole material and cannot ignore material that exonerates the arrestee.
  • The authorized officer must provide a reasoning for the arrest, which must also show the how the monetary threshold as outlined by the provisions of the Special laws are met. Thus, the reason to believe must have a computation based on various measurable factors like goods seized etc. Adjudication / assessment are not preconditions to establish "reasons to believe" requiring arrest.
  • The authorized officer making the arrest must inform the arrested person of the grounds of arrest as required by Article 22(1) of the Constitution and Section 50 CrPC. Though not police officers, they have powers to arrest, investigate, seize, and interrogate under the Customs Act and GST Act and hence they must also maintain records of arrests, seizures, and key details of the case.
  • Relying on Section 41B of the CrPC, the Court held that the Authorized Officer under the Special Laws must clearly display their names in a legible and identifiable manner to ensure easy identification by arrestees.
  • The Court also held that section 41D of the CrPC is applicable for offences under the Special Laws, and hence a person arrested by an Authorised Officer has the right to meet an advocate of his choice during interrogation, but not throughout the interrogation. In holding so, the Court has placed reliance in case of Senior Intelligence Officer, Directorate of Revenue Intelligence vs. Jugal Kishore Samra⁶, wherein it has been held that an advocate/ authorized person may be present within visual distance during interrogation, but he cannot be within hearing distance of the proceedings nor can there by any consultations with such advocate/ authorized person during the course of interrogation.
  • When an arrest is made by the Authorised Officer, similar to the procedure followed by police officers, they shall comply with Section 50A of the Code of Criminal Procedure (CrPC) by promptly informing the arrested person's friends, relatives, or any other nominated individual about the arrest and the place of detention. Further, the Authorised Officer are required to ensure the reasonable health and safety of the accused in accordance with Section 55A of the Code of Criminal Procedure. The Court referred to Instruction No. 02/2022-23 (GST – Investigation), which mandates that a person nominated by the arrested individual must be informed immediately, the arrest memo must include details such as date and time, and medical examination must be conducted.
  • Sections 4 and 5 of the CrPC apply to Special Laws unless expressly excluded. It has been highlighted that Section 69 of the GST Act, which governs the power of arrest, incorporates CrPC provisions when the arrested person is presented before a Magistrate. The court also clarified that investigation, inquiry, and trial procedures under the GST Acts must align with the provisions and procedures prescribed under the CrPC, unless explicitly provided otherwise. The judgment reaffirmed that officers must maintain detailed records of arrests, including the informer's identity, nature of the offense, and grounds of arrest. The guidelines also emphasized that arrests should not be made routinely but only when necessary to ensure a proper investigation.
• The court made reference to the Makemytrip (India) Pvt. Ltd.⁷ case, affirming that arrests under the GST Act should not be made arbitrarily or merely for investigation purposes. It clarified that an assessment order is not always required before arrest, but there must be a clear, evidence-backed "reason to believe" that an offense under Section 132 of the GST Act has been committed. The court emphasized that the "benefit of doubt" principle should apply, and arrests must be supported by material evidence [even though the Special Laws do not specifically provide for this in the provisions], ensuring compliance with legal safeguards.

Use of threat of arrest to make tax recovery

• The court also examined concerns regarding coercion in tax recovery, where taxpayers are allegedly forced to make payments under the threat of arrest. After evaluation the data submitted by the Revenue, the Court observed that there force in the petitioner's arguments that taxpayers are compelled to pay tax as a condition for being arrested. It was observed that provisions on voluntary payment [contained in the Special Laws] are an option given to the taxpayer / assessee and does not confer any right on the authorized officers to compel / extract tax from such assessee by threatening arrest.
• The Court referred to Circular F.No.GST/INV/Instructions/2022-23 (Instruction No. 01/2022- 23), which clarifies that tax payments made during searches or investigations should be voluntary. The court upheld that an arrest should not be used as a tool for forced tax recovery and that where such recoveries are made, the parties concerned can approach the Courts for a refund of amounts so paid.

Power to grant anticipatory bail

• The Supreme Court ruled that taxpayers / assessee can make an application for anticipatory bail, in case of apprehension of arrest under the Special Laws. Individuals can seek pre-arrest bail even before an FIR is filed.

Scope and extent of Court's power of judicial review in case of arrest

• The Court further focused on the scope of judicial review under Articles 32 and 226 of the Constitution, emphasizing that while these powers are broad, courts have imposed selfrestraints to ensure they are used sparingly and only in extraordinary circumstances. The fundamental rights under Part III of the Constitution, including Articles 21 and 22, must be read together, ensuring that deprivation of liberty follows due process and legal safeguards.
• The Court further elaborated that the judicial review of arrests under the Special Laws such as the Customs Act and PMLA should be limited to verifying procedural compliance rather than reassessing the merits of the arrest. The Hon'ble Supreme Court affirmed that judicial review of arrest is limited to examining whether the arresting authority had 'reasons to believe' based on material evidence in possession of the authorized officer. Courts should only intervene in cases where arrests are found to be mala fide, arbitrary, or in breach of statutory safeguards. The Hon'ble Court also relied on Additional Secretary to the Government of India v. Alka Subhash Gadia⁸ , reaffirming that preventive and punitive detention must adhere to constitutional safeguards and that minor procedural lapses should not undermine the enforcement of serious economic offenses

AURTUS COMMENTS

• A knock on the door from the tax authorities has always been a cause of concern for taxpayers. High Courts have historically taken divergent views on the grant of pre-arrest bail, leading to several matters being referred to the Supreme Court for a definitive ruling on the scope of arrest provisions. In Sapna Jain [WP 1996 of 2019 – Bombay High Court], the Court granted adinterim relief to the petitioner in a pre-arrest bail matter however simultaneously referred the case to the Supreme Court due to conflicting precedents. Arrest provisions have long been embedded in laws such as the Customs Act, PMLA, and the Finance Act, 1994. However, with the introduction of the GST regime, the industry has witnessed an increasing trend of tax authorities resorting to arrests in cases of alleged economic offenses. What was intended to be an exceptional measure now appears to be a frequently exercised tool, creating an environment of fear among taxpayers.
• The Supreme Court's decision is pivotal in the interpretation of arrest powers under the Customs Act and GST Law, reinforcing constitutional safeguards against arbitrary detention. In the past, enforcement authorities have exercised arrest powers as though they were absolute however, the ruling clarifies that such powers under Special Laws are not unfettered and must be exercised with caution, due process, and strict adherence to statutory procedures.
• The judgment further reiterates that arrest should not be the default response to alleged tax law violations. The requirement of "reasons to believe" before an arrest must be substantiated with tangible evidence, preventing officers from acting based on mere suspicion. The principle of proportionality is crucial, requiring officers to assess whether less intrusive measures, such as summons or inquiry, would suffice before resorting to arrest. The ruling enhances accountability by mandating written grounds of arrest, maintenance of detailed case diary, communicating these grounds in writing to the arrestee to enable them to challenge the basis of arrest. Though the judgment upholds the power of arrest [under the specified circumstances], it also emphasizes the importance of exercising these powers in confirmation with the constitutional rights enshrined under Article 21 and 22 of the Indian Constitution
• The judgment reinforces the distinction between tax collection and criminal prosecution, ensuring that arrests cannot be used as a tool for forcing compliance by taxpayers and assessee. It also affirms that courts have a limited role in reviewing arrests, but they can intervene in cases of mala fide intent or procedural violations where established. The ruling strengthens the legislative intent behind recent amendments to the Customs and GST Acts, ensuring that enforcement officers operate within constitutional boundaries.
• This judgment is a significant step towards balancing enforcement powers with individual liberty. Law enforcement agencies must recalibrate their approach, ensuring that arrests under economic laws remain an exception rather than the norm
• Arrests in unwarranted situations also goes against the fundamental policy of the Government of ease of doing business in India. What becomes key is implementation of the well laid down judiciary principles in true spirit at the ground level. It is often seen that despite multiple judgements and circulars on the aspect of arrest, it is often used as a tool to collect taxes

Footnotes

1 (2022) 2 SCC 603

2 Instruction No. 02/2022-23 [GST – Investigation] dated 17 August 2022, Instruction No. 01/2022-23 [GST – Investigation] dated 25 May 2022 and Instruction No. 01/2025-GST dated 13 January 2025

3 (2011) 14 SCC 1

4 CRIMINAL APPEAL NO. 2493 OF 2024

5 1994 AIR 1775 1994 SCR

6 (2011) 12 SCC 362

7 2016 SCC OnLine Del 4951

8 (2005) 4 SCC 303

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