CBIC directs GST officers to not summon senior execs in first instance

Also instructs them to not arrest a person if he has a different interpretation of law

Those not paying the goods and services tax (GST) because of differences in the interpretation of the law may not be arrested by the authorities, according to instructions issued by the investigation wing of GST under the Central Board of Indirect Taxes and Customs (CBIC).

It has also said that the top brass of companies may not be summoned in the first instance, unless there are genuine reasons to believe that they are involved in decision-making leading to loss of revenue to the exchequer. Only those who have the intention to evade tax or utilise wrong input tax credits, etc, will be arrested.

These guidelines or instructions will go a long way in allaying the industry’s fears of arbitrary arrests and summons by the GST authorities, say experts.

It says arrest should not be resorted to in cases that are technical in nature, where the demand of tax is based on a difference of opinion regarding the interpretation of the law.

Section 69 (1) of the CGST Act empowers commissioners to arrest a person who commits certain offences. However, before arresting a person, the commissioner must determine whether the arrest is required to ensure proper investigation or a person is likely to temper investigation or evidence or person is involved in taking fraudulent input tax credit, according to the circular. 

The instruction also clarifies procedures for arrest like adherence to provisions of the Code of Criminal Procedure, and that the arrest memo should indicate grounds of arrest, should intimate authorised person of arrested persons, date and time of arrest, mandatory quoting of Document Identification Number etc.

Besides, the chief commissioner needs to send a report of every arrest to member (compliance management) within 24 hours and a monthly report of all arrests to the directorate general of GST intelligence by 5th of the succeeding month.

The instruction says the arrest memo should be in compliance with directions of the Supreme Court in the D K Basu case. The court had observed that personal liberty is an important aspect of the constitutional mandate. It further observed, “The occasion to arrest an accused during investigation arises when custodial investigation becomes necessary or it is a heinous crime or where there is a possibility of influencing the witness or accused may abscond”.

The court had also observed that if arrest is made routine, it can cause incalculable harm to the reputation and self-esteem of a person.

However, the commissioner can still arrest a person if he believes that the accused has an intention to evade taxes.

Relief 

But experts believe that the instruction on arrests would provide a relief to industry.

Saurabh Agarwal, tax partner at EY, said the instruction brings clarity on mindful use of arrest provisions and is in line with a Supreme Court decision in August 2021, where it held that personal liberty is an important aspect and thus a custodial investigation is necessary only when the accused has carried out any heinous crime, can influence the witness, can run away from the country etc.

“It clearly lays down situations such as guilty mind, intent of tampering with the evidence or investigation, non-response to summons etc, which should be the deciding factors for arrests. This is a welcome move by the CBIC and would help in ensuring judicious use of arrest provisions and would go a long way in ensuring that a bonafide assessee does not undergo undue hardships,” he said.

Abhishek Jain, partner indirect tax at KPMG, said the GST officers should take due note of this instruction and follow the principles and procedures provided therein. “Also, the taxpayers should peruse these guidelines to understand their rights.”

The investigation wing has issued another instruction, prescribing procedures and dos and don’ts of issuing summons. It says chairmen, managing directors, chief executive officers, chief financial officers should not be issued summons to call documents or evidence in the first instance.

It also prescribes that summons by the superintendent should be issued after written permission from a senior officer. Summons may be avoided for calling statutory records as available on the GST portal.

Besides, a summoning officer must be present at the time and date for which the summons is issued.

The instruction also says repeated summons should be avoided without ensuring adequately whether these have been served properly. Alternatively, the department may issue a letter for requisition of information instead of summons.

Agarwal said the specific clarification on non-issuance of summons to senior management in the first instance would help in reducing the undue hardships faced by the taxpayer