[Opinion] Arrest under GST laws – Dilemma for Professionals

Rajiv Nigam & Anant Nigam – [2022] 139 taxmann.com 565 (Article)

1. Introduction

After seeing a significant rise in arrest of “professionals or businessmen” by “GST authorities” all around the Country, there has come a need to shed some light on this topic, as it is the need of the hour to understand the intent of the legislature as well as how the same has to be dealt by the professionals if push comes to shove. In this article, I have tried to encapsulate the what’s, the who’s and the when’s of provision of adjudication of liability by the department and the use of draconian provision of arrest under the CGST Act, 2017 against the professionals. Once a notice or summon come to client place then in turn professional’s role starts which gives them a dilemma that how to handle this situation and what are pros & cons etc. This article will revolve around the scenario given below:

(a) For Businessmen – Accused of any offence under section 132 of the CGST Act, 2017
(b) For Professionals – Either are unaware or are indulged in commissions of any offence under section 132 of the CGST Act, 2017

2. The Dilemma may bifurcate further

2.1. Dilemma for handling the situation related to discussions in investigation rooms / premises:
During investigation or search or in the office of GST department any professional very often comes across a situation where either he understands or explains to businessman that the IO is tending towards calculation of evasion crossing the limit of bailable offence and they may issue arrest memo at any time i.e. excess utilisation of ITC or evasion of GST liability more than 5 cr.

Here, it is pertinent to understand one myth that the arrest can be done during search & seizure only. The Act has not defined any such linkage with type of checking and arrest, it depends on quantum of evasion only that may be disclosed during normal departmental enquiry, Audit or Anti Evasion or DGGSTI etc.

2.2. Dilemma for applicability of provisions of law:
Further dilemma of professionals is that they assume that investigation under section 73 or 74 or 76 or 132 (a) to (d) etc of CGST Act is worrisome and/or it’s consequences are bad. Even sometimes, it worries the professionals that just because the professional has certified some documents during his tenure with the client or he was associated with the client in his good old days or he may be part of clients’ current accounting system etc., the professional himself may be roped in the investigation by the GST department, which ultimately would result into arrest under section 132 of the CGST Act, 2017.

3. Jurisprudence/philosophy behind the power to arrest under GST regime

We must understand the law in its letter and spirit and the intent of the legislature before blaming the authorities and claiming clients’ innocence. One might understand the plight of the GST department for resorting to the extreme measures of arrest with an example given below:

Example: Suppose, A sell to B, B to C, C to D and finally ultimate consumer is E. Here I am taking E as a really a genuine and actual consumer.

Situation 1 – Now what may happen A purchased goods from nontax paid buyer [Attracts 132(1)(a)] and took fake ITC claim in selling to B and so on and goods reached to E actual physical goods. Now the chain of ITC from B to D is good because they have paid full amount by banking channel, proper E Way Bill, Toll slips even photos of goods when loaded/unloaded in trucks. Therefore, B, C, D & E are very genuine buyers & seller & consumer.

But in above example except on margins no GST paid to Government by B to E while A is totally eating the GST at first point. – now as a professional what do you think that the Govt should do?

Situation 2 – Now in second situation-when at the same premises or many companies made and maintain by some professionals and clients issues fake invoices [Attracts u/s 132(1)(b) & (c)] either sale or purchase – now it is being caught by Form 2A or 2B mismatch – another scrutiny or investigation matter. You are adviser or account handler of last person where you see genuine purchase Invoice, bank payment, supported by E way bill, ITC is also reflected in 2B. Now as a professional you think what Govt should do?

4. Analysis & role of professionals

In both situations – Govt is at loss and except on margins they do not get GST and before amendment in section – 75(12) with explanation Govt was not in position to ascertain liability mismatch in GSTR 1 & 3B. (w.e.f 1st Jan 2022) except letters of investigation or scrutiny. So, as advisor role of professionals is very critical and with full of understanding they should work and react.

5. Provisions of GST law related to arrest

This is important for professionals to understand provisions for arrest which are enumerated below:
Authorising Section – 69 of CGST Act, 2017
Charging Section – Offence under – 132 (1) – (a), (b), (c), (d) punishable – u/s (i) or (ii) of section 132(1) or 132(2)
Arrest Prevails – U/s 132 (4)(1) for admitted to bail or default of bail, forwarded to the custody of the Magistrate
No Arrest – Other than above is bailable or non-cognizable offence then DC or AC can release otherwise having all powers like Police Station OI.
Offences – U/s 132(1)(a) – Supply without Invoice NB
(NB – Non Bailable) U/s 132(1)(b) – Invoice without supply NB
U/s 132(1)(c) – Fraudulently ITC availed NB
U/s 132(1)(d) – Tax collected but not paid NB
Punishments – U/s 132(1)(i) evasion > 5crore imprisonment up to 5 years & with fine NB
U/s 132(1)(ii) <2 crores evasion <5 crores imprisonment up to 3 years & with fine
U/s 132(1)(iii) <1 crores evasion <2 crores imprisonment up to 1 years & with fine
U/s 132(1)(iv) – for clauses (f), (g) & (j) up to 6 months imprisonment or with fine or with both
Evasion Means – Amount of tax evaded or the amount of ITC availed or utilised or the amount of refund wrongly taken
Non Bailable – U/s 132(5) – Offences u/s 132(1)(a) to (d) & 132(1)(i) are non bailable.

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