Indirect Tax Alert - CBIC issues instructions concerning procedural aspects for issuance of summons and power to arrest and bail under GST/Customs law

Instructions issued by the Central Board of Indirect Tax & Customs (CBIC):

I. Guidelines¹ for arrest and bail for offences punishable under the GST laws

1. The Honorable Supreme Court in the case of Siddharth Vs. State of Uttar Pradesh and Ors. [2022 (1) SCC 676] had made various observations regarding arrest provisions. Considering these observations, the GST Investigation Wing of CBIC has issued the following instructions for exercising the power to arrest:

2. Condition precedent to arrest:

a. Section 69(1) of the CGST Act empowers the Commissioner or any other officer authorised by him to arrest a person where he has reasons to believe that the alleged offender has committed any specified offences. It has been expressly provided that such reasons to believe to arrive at a decision to place an alleged offender under arrest must be unambiguous, amply clear and based on credible material.

b. The power to arrest must be exercised carefully. Mere fulfilment of the legal conditions provided under Section 69(1) of the CGST Act cannot automatically result in arrest.

c. Even if all the legal conditions to arrest are fulfilled, the Commissioner or the competent authority must determine whether the answer to any or all of the following questions are in the affirmative:

• Whether the person was concerned in the non-bailable offence or credible information has been received or a reasonable suspicion exists of his having been so concerned​​
• Unless such a person is arrested, his presence before investigating officer cannot be ensured
• Whether a person is a mastermind or key operator effecting proxy/benami transaction in the name of dummy GSTIN or non-existent persons, etc. for passing fraudulent input tax credit (‘ITC’), etc.
• Whether the person, if not restricted, is likely to tamper with the course of further investigation or is likely to tamper with evidence or intimidate or influence witnesses
• Whether the arrest is necessary to ensure proper investigation of the offence

d. Given the above, the approval to arrest should be granted only where the intent to evade tax or commit acts leading to availment or utilisation of wrongful ITC or fraudulent refund of tax or failure to pay the amount collected as tax provided under Section 132(1) of the CGST Act is evident, and the element of mens rea/guilty mind is palpable.

e. Thus, the important elements to consider before deciding to arrest a person is the need to ensure proper investigation and to prevent the possibility of tampering with evidence or witnesses. The co-operation of the alleged offender in the investigation is also a factor to be considered. It has been specifically clarified that arrest should not be resorted to in cases of technical nature i.e., where the tax demand is based on a difference of opinion regarding the interpretation of the law.

3. Procedure for arrest

a. The Principal Commissioner/Commissioner shall record on the file after considering the nature of offence, the role of person involved and evidence available, he has reason to believe that the person has committed an offence as mentioned in Section 132 and may authorize an officer of Central Tax to arrest the concerned person(s). Arrest memo must be issued in compliance with the directions of the Hon’ble Supreme Court in D.K. Basu Vs. State of West Bengal [1997 (1) SCC 416]. Further, the arrest memo must be issued in the format provided in CBIC Circular no:128/47/2019-GST dated 23 December 2019.

b. An arrest memo must be separately issued to each individual/arrested person, and must indicate the following information:

• Relevant provisions of the CGST Act/other legislations which have been invoked in respect of the case and the arrested person. Inapplicable provisions, if any, should be struck off from the arrest memo
• The grounds of arrest must be explained to the arrested person and the same must be noted in the arrest memo
• The nominated or authorised person of the arrested person should be informed-of and this fact must be mentioned in the arrest memo;
• The date and time of arrest must be mentioned in the arrest memo.

A copy of the arrest memo should be given to the arrested person under proper acknowledgment.

c. Generation and quoting Document Identification Number (“DIN”) is mandatory on communications issued by officers of CBIC to taxpayers and other concerned persons for investigations. Any lapse will be viewed seriously.

d. Key modalities to be complied with at the time of arrest and thereafter:

• A woman should be arrested only by a woman officer (Section 46 of the Code of Criminal Procedure, 1973)
• A medical examination of the arrested person should be conducted by a designated medical officer/registered medical practitioner (as the case may be). In a case where the arrested person is female, the medical examination is to be conducted by a female officer/practitioner
• Reasonable care for the health and safety of the arrested person must be taken by the person having custody of the arrested person
• Arrest should be made with minimal use of force and publicity and without violence. The person arrested should be subjected to reasonable restraint to prevent escape

4. Post arrest formalities:

a. An offence under Section 132(4) of the CGST Act

• The Assistant Commissioner or Deputy Commissioner is bound to release the person on bail against a bail bond. The bail conditions should be informed in writing to the arrested person and also by telephone to the nominated person of the arrested person
• Bail conditions inter alia include execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer and not leaving the country without informing the officer. It must be ensured that the amount of Bail bond/Surety should not be excessive and should be commensurate with the financial status of the arrested person
• On fulfilment of bail conditions, the arrested person shall be released by the concerned officer on bail. In cases where the bail conditions are not fulfilled, the arrested person shall be produced before the appropriate Magistrate without unnecessary delay and within twenty-four hours of arrest. If necessary, the arrested person may be handed over to the nearest police station for his safe custody, during the night under a challan, before he is produced before the Court

b. An offence under Section 132(5) of the CGST Act

• The officer authorized to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty-four hours.
• If necessary, the arrested person may be handed over to the nearest Police Station for his safe custody under a proper challan and produced before the Magistrate on the next day, and the nominated person of the arrested person may also be informed accordingly. In any case, it must be ensured that the arrested person should be produced before the appropriate Magistrate within twenty-four hours of arrest, exclusive of the time necessary for the journey from the place of arrest to the Magistrate's Court.

c. After the arrest of the accused, efforts should be made to file a prosecution complaint under Section 132 of the CGST Act, before the competent Court at the earliest, preferably within sixty days of arrest, where no bail is granted. In all other cases of arrest also, a prosecution complaint should be filed within a definite time frame.

d. Every Commissionerate/Directorate should maintain a Bail Register containing the details of the case, arrested person, bail amount, surety amount, etc.

Guidelines on the issuance of summons under Section 70 of the CGST Act

1. Another guideline² has been issued for the issuance of summons

2. It has been clarified that it needs to be ensured that the exercise of the power to issue summons is done judiciously and with due consideration. The instruction further advises the officers to explore instances when instead of resorting to a summons, a letter for requisition of information may suffice

3. CBIC has now issued the guidelines to be followed, which are as under:

• Summons should be issued by Superintendents only after obtaining prior written permission from an officer not below the rank of Deputy/Assistant Commissioner with the reasons for issuance of summons to be recorded in writing
• Where it is not possible to obtain prior written permission, oral/telephonic permission should be obtained, and the same should be reduced to writing and intimated to the officer granting permission at the earliest opportunity
• The officer issuing summons should record in a file about appearance/non-appearance of the summoned person and place a copy of the statement recorded in a file
• Summons should indicate the name of the offender against whom the case is being investigated (except where the revelation of the offender’s name is detrimental to the cause of investigation) so that the recipient of summons has a prima-facie understanding of whether he has been summoned as an accused, co-accused or as a witness
• Issuance of summons may be avoided to call upon statutory documents which are digitally/online available in the GST portal
• Generally, senior management officials of any company or a PSU should not be issued a summons in the first instance. They should be summoned when there are clear indications in the investigation of their involvement in the decision-making process which led to a loss of revenue
• Generation and quoting DIN is mandatory on communications issued by officers of CBIC to taxpayers and other concerned persons for the purpose of investigations
• The summoning officer must be present at the time and date for which the summons is issued. In case of any exigency, the summoned person must be informed in advance in writing or orally
• All persons summoned are bound to appear before the officers concerned, except women who do not by tradition appear in public or privileged persons
• Issuance of repeated summons without ensuring service of the summons must be avoided. Where the summoned person fails to join the investigation, despite having a reasonable opportunity of being heard (generally three summons at reasonable intervals), a complaint should be filed with the jurisdictional magistrate alleging that the accused has committed an offence under Sections 172 and/or 174 of the Indian Penal Code (45 of 1860). Before filing such a complaint, it must be ensured that a summons has adequately been served upon the intended person as per Section 169 of the CGST Act.

II. Amendment to the guidelines³ for arrest and bail

1. The existing nominal monetary limits for arrest and bail matters were provided in circular no:28/2015 dated 23 October 2015. The aforesaid threshold limits for various categories of arrest cases have been revised as under:

• Cases involving unauthorised importation in baggage/cases under Transfer of Residence Rules, where the market value of the goods involved is INR 5 Mn. or more (erstwhile threshold – INR 2mn)
• Cases of outright smuggling of high-value goods such as precious metals, restricted items or prohibited items or goods notified under section 123 of the Customs Act or offence involving foreign currency where the value of offending goods is INR 5mn or more (erstwhile threshold – INR 2mn)
• Cases related to the importation of trade goods (i.e. appraising cases) involving willful misdeclaration in the description of goods/concealment of goods or goods covered under section 123 of Customs Act to import restricted or prohibited items and where the market value of the offending goods is INR 20mn or more (erstwhile threshold – INR 10mn)
• Cases involving fraudulent evasion or attempt at evasion of duty involving INR 20mn or more (newly inserted)
• Cases involving fraudulent availment of Drawback or attempt to avail of Drawback or any exemption from duty provided under the Customs Act, in connection with the export of goods, if the Drawback or exemption from duty is INR 20mn or more (erstwhile threshold – INR 10mn)

Cases related to the exportation of trade goods (i.e. appraising cases) involving (i) willful misdeclaration in value/description; (ii) concealment of restricted goods or goods notified under section 11 of the Customs Act, where the market value of the offending goods is INR 20mn or more (erstwhile threshold – INR 10mn)

• Cases involving obtaining an instrument from any authority by fraud, collusion, willful misstatement or suppression of facts and utilisation of such instrument where the duty relatable to such utilisation of the instrument is INR 20mn or more (newly inserted)
• The aforesaid criteria of value mentioned in sub-para (a) to (f) would not apply in cases involving offences relating to items such as FICN, arms, ammunitions and explosives, antiques, art treasures, wildlife items and endangered species of flora and fauna. In such cases, arrest, if required, based on facts and circumstances of the case, may be considered irrespective of the value of offending goods involved.

III. Amendment to the guidelines⁴ for launching prosecution

1. The existing nominal monetary limits for launching prosecution and related matters were provided in circular no:27/2015 dated 23 October 2015. The aforesaid threshold limits for various categories of cases for launching prosecution have been revised as under:

a. Baggage and outright smuggling cases:

• Cases involving unauthorised importation in baggage/cases under Transfer of Residence Rules, where the market value of the goods involved is INR 5mn or more (erstwhile threshold – INR 2mn)
• Outright smuggling of high-value goods such as precious metals, restricted items or prohibited items notified under section 11 of the Customs Act or goods notified under section 123 of the Customs Act or foreign currency where the market value of offending goods is INR 5mn or more (erstwhile threshold – INR 2mn)

b. Appraising Cases/ Commercial Frauds:

• Cases related to the importation of trade goods (i.e. appraising cases) involving willful misdeclaration in value/description or concealment of restricted goods or goods notified under Section 11 of the Customs Act, where the market value of offending goods is INR 20mn or more (erstwhile threshold – INR 10mn)
• Cases related to fraudulent evasion or attempt at evasion of duty under the Customs Act, if the amount of duty evasion is INR 20mn or more (newly inserted)
• Cases related to fraudulent availment of Drawback or attempt to avail of Drawback or any exemption from duty provided under the Customs Act, in connection with the export of goods, if the amount of Drawback or exemption from duty is INR 20mn or more (erstwhile threshold – INR 10mn)
• Cases related to the exportation of trade goods (i.e. appraising cases) involving willful misdeclaration in value/description or concealment of restricted goods or goods notified under Section 11 of the Customs Act, where the market value of offending goods is INR 20mn or more (erstwhile threshold – INR 10mn)
• Obtaining an instrument from any authority by fraud, collusion, willful misstatement or suppression of facts and utilisation of such instrument where the duty relatable to utilisation of the instrument is INR 20mn or more (newly inserted threshold)

2. In respect of cases involving non-declaration of foreign currency by foreign nationals and NRIs (normally visiting India for travel/business trips, etc.) detected at the time of departure from India, exceeding the threshold limit of INR 5mn as prescribed above, if it is claimed that the currency has been legally acquired and brought into India but not declared inadvertently, the prosecution need not be considered as a routine.

3. The aforesaid modifications in the threshold limits will apply to all cases where sanction for prosecution is accorded after 16 August 2022. Cases where the prosecution has been sanctioned but no complaint has been filed before the magistrate shall also be reviewed by the prosecution sanctioning authority in light of the provisions of this Circular.

BDO Comments

The issuance of the above instructions to streamline summons and arrest processes in GST/Customs is a welcome move that clearly spells out the procedural nuances for the summons process, before, during and after the arrest. The instruction for summons reiterates the position of not summoning senior functionaries at the first instance and also provides relaxation when documents are available with the tax authorities. The instruction for arrest re-emphasises the important point of not resorting to arrest on issues involving interpretation of the law. While the instructions are welcome, the on-ground implementation of such instructions is important. These instructions emanating under Central Tax Authorities are to be followed by State authorities and similar instructions coming from States would settle the matter.

The upward revision of monetary limit for prosecution/arrest under Customs law is welcome.

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