Customs Act, 1962 – Finance Act, 2012 – Finance Act, 2013 – Finance Act, 2019 – ss.104(4), 104(6) – Central Goods and Services Tax Act, 2017 – ss.69, 70, 132 – Code of Criminal Procedure, 1973 – ss.4, 5, 50; Chapter XII – Constitution of India – Articles 246-A, 21 22(1), 32, 226 – Om Prakash case held that the offences under the Customs Act were noncognizable and, therefore, the customs officers were required to obtain prior approval from a Magistrate before making an arrest – Subsequently, amendments made – Challenge to the constitutional validity and the right of the authorised officers under the Customs Act as well as the GST Acts to arrest: Held: [Per Sanjiv Khanna, CJI (for himself and M.M. Sundresh, J.)] Challenge to the amendments as well as provisions of the Customs Act, rejected – The amendments made to the Customs Act in 2012, 2013 and 2019 are substantive and were introduced to modify the application of Om Prakash case, which required a customs officer to obtain prior approval from a Magistrate before making an arrest – These amendments designated specified offences as cognizable and non-bailable, while also imposing certain preconditions and stipulations for making arrest – Petitioners’ reliance on Om Prakash case is misconceived as the statutory provisions have undergone amendments to bring them in consonance with the law of the land – Moreover, the provisions themselves provide enough safeguards against arbitrary and wrongful arrests – Further, challenge to the vires of ss.69 and 70 of the GST Acts is also rejected – Under Article 246-A of the Constitution, the Parliament has the power to make laws regarding GST and, as a necessary corollary, enact provisions against tax evasion – The impugned provisions lay down the power to summon and arrest, powers necessary for the effective levy and collection of GST – A penalty or prosecution mechanism for the levy and collection of GST, and for checking its evasion, is a permissible exercise of legislative power – The GST Acts, in pith and substance, pertain to Article 246-A of the Constitution and the powers to summon, arrest and prosecute are ancillary and incidental to the power to levy and collect goods and services tax – Therefore, challenge to the constitutional validity as also the right of the authorised officers under the Customs Act and the GST Acts to arrest are dismissed – The pre-conditions and when and how the power of arrest is to be exercised, elucidated and clarified. [Paras 22, 48, 60, 75, 77] – [Per Bela M. Trivedi, J. (Concurring)] When the legality of an arrest made under the Special Acts like Customs Act, GST Acts etc. is challenged, the Court should be extremely loath in exercising its power of judicial review – The safeguards provided in the Special Acts against the arrest of a person, are provided keeping in view the fundamental rights of life and personal liberty of a person enshrined in the Constitution of India – The safeguards are the requirement to have “material” in possession of the authorized officer, to form an opinion and record in writing the “reasons to believe” that the person arrested is guilty of an offence or has committed an offence as the case may be, under the provisions of the concerned Act, and the requirement to inform the person arrested, as soon as may be, of the grounds of arrest – There has to be due compliance of the Constitutional and Statutory mandates, whenever an arrest is made of a person under the Special Acts – Power of judicial review in cases of arrest under such Special Acts should be exercised very cautiously and in rare circumstances to balance individual liberty with the interest of justice and of the society at large – Any liberal approach in construing the stringent provisions of the Special Acts may frustrate the very purpose and objective of the Acts – The powers of judicial review may not be exercised unless there is manifest arbitrariness or gross violation or non-compliance of the statutory safeguards provided under the special Acts, required to be followed by the authorized officers when an arrest is made of a person prima facie guilty of or having committed offence under the special Act – Judicial Review. [Paras 6, 9, 12, 13] Constitution of India – Article 246-A – Lists I and II of the Seventh Schedule – Entry 93, List I – Doctrine of pith and substance – Central Goods and Services Tax Act, 2017 – ss.69, 70 – Power to summon and arrest; powers necessary for effective levy and collection of GST – Relying on Entry 93 of List I, Seventh Schedule, the petitioners argued that the Parliament can enact criminal provisions only for the matters in List I – It was also argued that the power to summon, arrest and prosecute are not ancillary and incidental to the power of levying GST and therefore, beyond the legislative competence of the Parliament u/Article 246-A:
Held: Argument rejected – Article 246-A is a comprehensive provision – The Parliament, u/Article 246-A has the power to make laws regarding GST and, as a necessary corollary, enact provisions against tax evasion – While deciding the issue of legislative competence, entries should not be read in a narrow or pedantic sense but given their broadest meaning and the widest amplitude because they are intrinsic to a machinery of government – The ambit of an entry or article laying down the legislative field extends to all ancillary and subsidiary matters which fairly and reasonably can be said to be comprehended in it – This settled dictum regarding the interpretation of legislative entries equally applies to the special provision of Article 246-A. [Para 75]
Customs Act, 1962 – Code of Criminal Procedure, 1973 – ss.50, 50A, 41-D, 41-B, 55A – Pre-conditions and safeguards against arbitrary and wrongful arrests to protect the life and liberty of arrestees, enumerated – Constitution of India – Article 22(1) – Discussed. [Paras 23-28, 47]
Central Goods and Services Tax Act, 2017 – ss.132(1) Clauses (a) to (d); 132(1)(i), 132(5) – Arrest when illegal, stated – ‘‘material’’; “reasons to believe”:
Held: To pass an order of arrest, in case of cognizable and non-cognizable offences, the Commissioner must satisfactorily show, vide the reasons to believe recorded by him, that the person to be arrested has committed a non-bailable offence and that the pre-conditions of s.132(5) are satisfied – Failure to do so would result in an illegal arrest – With regard to the submission made on behalf of the Revenue that arrests are not made in case of bailable offences, the Commissioner, while recording the reasons to believe should state his satisfaction and refer to the ‘material’ forming the basis of his finding regarding the commission of a non-bailable offence specified in clauses (a) to (d) of sub-section (1) to s.132 – The computation of the tax involved in terms of the monetary limits under clause (i) of sub-section (1), which make the offence cognizable and non-bailable, should be supported by referring to relevant and sufficient material – The aforesaid exercise should be undertaken in right earnest and objectively, and not on mere ipse dixit without foundational reasoning and material – The arrest must proceed on the belief supported by reasons relying on material that the conditions specified in s.132(5) are satisfied, and not on suspicion alone – An arrest cannot be made to merely investigate whether the conditions are being met – The arrest is to be made on the formulation of the opinion by the Commissioner to be duly recorded in the reasons to believe – The reasons to believe must be based on the evidence establishing to the satisfaction of the Commissioner that the requirements of s.132(5) of the GST Act are met – The findings and the ratio recorded in paragraphs 30 to 47 with reference to the Customs Act would equally apply insofar as maintenance of records as well as obligations of the arresting officer and rights of the accused/person arrested are concerned – Compliance in this regard must be made – Circular dtd. 17.08.2022 of Central Board of Indirect Taxes and Customs (GST-Investigation Wing); Instruction No. 01/2025-GST dated 13.01.2025 (GST/INV/Instructions/21-22) by Central Board of Indirect Taxes and Customs (GST Investigation Wing), discussed – Customs Act, 1962. [Paras 56, 57, 60-62]
Constitution of India – Arts. 32, 226 – Judicial Review – Arrest – Challenge to – Exercise of power of judicial review – Scope – Discussed. [Per Bela M. Trivedi, J.]
Central Goods and Services Tax Act, 2017 – ss.73, 132(1) clauses (a) to (d), 132(1)(i), 132(5) – Petitioners contended that the power u/s.132(5) cannot be exercised unless the procedure u/s.73 is completed and an assessment order is passed quantifying the tax evaded or erroneously refunded or input tax credit wrongly availed:
Held: Contention cannot be accepted as a general or broad proposition – Normally the assessment proceedings would quantify the amount of tax evaded, etc. and go on to show whether there is any violation in terms of clauses (a) to (d) to sub-section (1) of s.132 and that clause (i) to sub-section (1) is attracted – But there could be cases where even without a formal order of assessment, the Revenue is certain that it is a case of offence u/clauses (a) to (d) to sub-section (1) of s.132 and the amount of tax evaded, etc. falls within clause (i) of sub-section (1) to s.132 with sufficient degree of certainty – In such cases, the Commissioner may authorise arrest when he is able to ascertain and record reasons to believe – The reasons to believe must be explicit and refer to the material and evidence underlying such opinion – There has to be a degree of certainty to establish that the offence is committed and that such offence is non-bailable – The principle of benefit of doubt would equally be applicable and should not be ignored either by the Commissioner or by the Magistrate when the accused is produced before the Magistrate – The findings and the ratio recorded in paragraphs 30 to 47 of the present judgment with reference to the Customs Act would equally apply insofar as maintenance of records as well as obligations of the arresting officer and rights of the accused/person arrested are concerned – Compliance in this regard to be made – Customs Act, 1962. [Paras 59, 60] Customs Act, 1962 – Customs officers, if are police officers: Held: No – An officer can be deemed to be a police officer within the meaning of s.25, Evidence Act only if the officer is empowered to exercise all the powers of a police officer including the power to file a report u/s.173, CrPC – Customs officers are not police officers – Evidence Act, 1872 – s.25 – Code of Criminal Procedure, 1973 – s.173. [Paras 15, 16]
Circular/Notices – Circular F.No.GST/INV/Instructions/2022-2023 (Instruction No. 01/2022-23) dated 25.05.2022 issued by the Central Board of Indirect Taxes and Customs – Taxpayers depositing partial or full GST liability during the course of search, inspection or investigation – Central Goods and Services Tax Act, 2017 – ss.79, 74(5), 73(5) – Petitioners submitted that the assessees are compelled to pay tax as a condition for not being arrested – Data as regards the number of people arrested, tax demanded and collected, analysed: Held: The data reflects that the number of arrests is inversely proportional to the percentage of amount recovered against the amount detected. i.e., when payments are made, the power of arrest is not being exercised – The authorities must exercise due care and caution as coercion and threat to arrest amount to a violation of fundamental rights and the law of the land – s.74(5) gives an option to the assessee and does not confer any right on the tax authorities to compel or extract tax by threatening arrest – Assessees being compelled to pay tax as a condition for not being arrested is unacceptable and violative of the rule of law – Central Board of Indirect Taxes and Customs to formulate guidelines to ensure that no taxpayer is threatened with the power of arrest for recovery of tax in the garb of self-payment – If there is a breach of law and the assessees are put under threat, force or coercion, they would be entitled to move the courts and seek a refund of tax deposited by them – The department would also take appropriate action against the officers in such cases. [Paras 65, 67-69] Code of Criminal Procedure, 1973 – ss.4(1), (2), 5 – Customs Act, 1962:
Held: The provisions of the Code would be applicable to the extent that there is no contrary provision in the special act or any special provision excluding the jurisdiction and applicability of the Code. [Para 13]
Customs Act, 1962 – s.104(1) – Prevention of Money Laundering Act, 2002 – s.19(1) – Directorate of Enforcement’s power of arrest vis-à-vis customs officer’s power of arrest, discussed – “person guilty of an offence”; “person committing an offence”; “reasons to believe”; “material in their possession” – If there is any inconsistency between s.19(1), PML Act and s.104(1), Customs Act:
Held: No – Principles and ratio developed in the Arvind Kejriwal case and the principles specifically discussed and delineated in paragraphs 30 to 45 of the present judgment, are equally applicable to the power of arrest u/s.104, Customs Act – Respondent authorities to comply with the mandate of this judgment and that of Arvind Kejriwal – However, s.104(1) does not explicitly stipulate the requirement of a customs officer having “material in their possession” – s.104(1) also does not explicitly state that the customs officer must reasonably believe that the arrestee is “guilty of an offence” – Instead, s.104(1) states that the customs officer must have “reasons to believe” that the arrestee has “committed an offence” – There is no difference between a person being guilty of an offence and a person committing an offence – A person being “guilty” of an offence and a person “committing” an offence is self-same and identical insofar as s.19(1) vis-à-vis s.104(1) is concerned – The fact that s.104(1) does not explicitly require a customs officer to have “material in their possession” does not imply that a customs officer can conclude that an offence has been committed out of thin air or mere suspicion – The threshold for arrest u/s.104(1), Customs Act is higher than that u/s.41 of the Code – Given the framework of the Customs Act which explicitly classifies offences into bailable and non-bailable, as well as cognizable and non-cognizable, the “reasons to believe” must reflect these classifications when justifying an arrest – The reasoning must also state how the monetary thresholds outlined in the Act are met – The “reasons to believe” must include a computation and/or an explanation, based on factors such as the goods seized, from which a conclusion of guilt can be drawn – This level of detail is crucial as it facilitates judicial review of the exercise of the power to arrest – The department’s authority to arrest u/s.104 hinges on satisfying these statutory thresholds – Moreover, the framework of the Customs Act clearly reflects the legislative intent to establish a distinct and unique procedure for the exercise of arrest powers by a customs officer – Code of Criminal Procedure, 1973 – s.41 – Interpretation of Statutes. [Paras 40, 41, 43-46, 48]
Words and Phrases – “guilty”; person guilty of an offence; person committing an offence; “reasons to believe”; “material in their possession” – Customs Act, 1962 – ss.104(1), (4), (5), (6) – Prevention of Money Laundering Act, 2002 – s.19(1) – Code of Criminal Procedure, 1973 – s.41. [Paras 41-44] Central Goods and Services Tax Act, 2017 – ss.67, 69 – Code of Criminal Procedure, 1973 – ss.4, 5:
Held: The GST Acts are not a complete code when it comes to the provisions of search and seizure, and arrest – The provisions of the Code would equally apply when they are not expressly or impliedly excluded by provisions of the GST Acts. [Para 50] Central Goods and Services Tax Act, 2017 – ss.67, 69, 74, 132(1) clauses (a) to (d), 132(1)(i), 162(1) – Code of Criminal Procedure, 1973 – Petitioners submitted that s.162(1) permits compounding of offences and therefore, the ratio in Makemytrip be applied to the GST Acts:
Held: The decision in Makemytrip case itself carves out an exception when an assessment order under the Finance Act may not be required, namely cases where a person who is shown to be a habitual evader as one who has not filed service tax returns for a continuous period of time, who has a history of repeated defaults for which there have been fines, penalties imposed, and prosecutions launched, etc – It is possible to ascertain these facts from past records – It might be possible for the department to justify resorting to coercive provisions but the notes on the file must offer convincing justification for resorting to such an extreme measure – The contention of the petitioners that till an assessment order was passed u/s.74 of the GST Acts, the liability cannot be quantified and hence an assessee cannot move an application for compounding of offences is also rejected – There is a difference between the compounding of offences and the arrest of a person – Sufficient safeguards have been stipulated to ensure that no arrests are made till the Commissioner is able to show and establish, on the basis of material and evidence, that the conditions of clauses (a) to (d) as well as clause (i) of sub-section 1 to s.132 are satisfied and therefore the offences are non-bailable – Anticipatory bail. [Para 71]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.