SC extends criminal law safeguards to GST, Customs Act

Introducing necessary safeguards against coercive actions under the Central Goods and Services Tax (CGST) Act and the Customs Act, the Supreme Court on Thursday ruled that authorities must establish “reasons to believe” before initiating proceedings, ensuring that arrests are not made arbitrarily.

A three-judge bench comprising Chief Justice of India Sanjiv Khanna and Justices M.M. Sundresh and Bela M. Trivedi held that individuals accused under GST and customs laws would be entitled to the same legal protections as those accused under criminal law.

The apex court clarified that the safeguards provided by the Code of Criminal Procedure (CrPC), 1973, now replaced by the Bharatiya Nagarik Suraksha Sanhita (BNSS), apply to arrests under these tax laws.

The top court took a firm stance against threats and coercion by enforcement officers during search and seizure operations, ruling that such misconduct must result in departmental action. 

It also expressed concern over the broad enforcement powers granted under GST and customs laws, with petitioners arguing that tax officials frequently exceeded their authority by making arrests without proper justification. They contended that such actions violated Articles 20(3) and 21 of the Constitution, which safeguard the right against self-incrimination and guarantee personal liberty.

“We have commented on the basis of data about allegations that there was force and coercion in the payment of taxes. We have said there may be some merit in it. Wherever a person is disposed to pay, he can go to the writ court and get an order. And the officers will have to be dealt with departmentally also. This cannot be permitted; it is contrary to the law. We have referred to the Nandini Satpathy case in that regard,” the Chief Justice of India remarked.

The apex court also ruled that anticipatory bail will now be available under GST and customs laws, allowing individuals to seek protection even in the absence of a first information report (FIR). 

Additionally, the top court ruled that circulars issued by the GST department regarding arrest must be strictly adhered to, and it rejected the argument that customs officers are equivalent to police officers.

The ruling came while hearing a batch of 279 petitions challenging the penal provisions of these laws. The petitioners argued that these provisions were inconsistent with the Constitution and CrPC/BNSS, asserting that tax authorities had been given excessive powers that could lead to misuse.

The judgement is expected to bring relief to individuals and businesses facing the threat of coercive action under these tax laws, likely safeguarding them from arbitrary arrests, and prompt the government to amend these indirect tax laws to make them compatible with the existing criminal laws in the country.

During the hearings, the government defended the CGST Act’s arrest provisions, arguing that enforcement officers act based on “more than suspicion but less than grave suspicion”. However, the court rejected this justification, emphasizing that the power to arrest must be exercised sparingly and should not be confused with the framing of charges.

The court referenced the Arvind Kejriwal case and applied the principle that arrests under the Prevention of Money Laundering Act (PMLA) must be made only if there are “reasons to believe”. The court noted that Section 19(1) of the PMLA and Section 104 of the Customs Act are virtually identical, both dealing with the power of arrest. The court applied the same reasoning to the arrest provisions under the GST Act.