In a pivotal decision on Thursday, the Supreme Court introduced critical safeguards aimed at curbing coercive measures, including arrests, under the Central Goods and Services Tax (CGST) Act and the Customs Act. The court decreed that tax authorities must substantiate their actions with “reasons to believe” before proceeding with arrests.
The three-judge bench, led by Chief Justice of India Sanjeev Khanna, has significantly bolstered the rights of individuals, asserting that they can seek pre-arrest bail even when no first information report (FIR) has been filed. The court’s decision extends the provisions of the Criminal Procedure Code (CrPC) to cases under GST and Customs laws, ensuring that these actions are not exempt from judicial scrutiny.
In a critique of current enforcement practices, the bench, which also includes Justices MM Sundresh and Bela M Trivedi, emphasized the inappropriateness of “threat and coercion” in search and seizure operations under the GST framework. The court clarified that such tactics are not only impermissible but should lead to departmental actions against the officers involved.
One of the key rulings included the court’s clarification that customs officers are not equivalent to police officers, thereby restricting their ability to exercise unchecked policing powers. This distinction is pivotal in limiting arbitrary enforcement actions under these acts.
The justices drew parallels with other legal statutes, determining that the safeguards that apply to arrests under laws like the Prevention of Money Laundering Act (PMLA) should also govern arrests under GST and Customs laws. Specifically, this requires a clear record of “reasons to believe” that an offense has been committed before any coercive action is taken.
This ruling arose from extensive challenges to the arrest powers granted under the central and state GST laws and Customs Act, which petitioners argued exceeded legislative intent and infringed upon constitutional rights, including the right against self-incrimination and the right to liberty.
Additionally, the proceedings involving the Directorate of Revenue Intelligence (DRI) under the Customs Act were scrutinized. Petitioners contended that these did not align with the CrPC and violated principles of natural justice and due process, a stance that the court upheld in its rejections of arbitrary arrest justifications presented by the government.
The government’s defense, which suggested that arrests could be based on an officer’s assessment of “more than suspicion but less than grave suspicion,” was insufficient to justify the breadth of powers previously exercised.
The Supreme Court’s verdict is poised to introduce significant procedural changes in the enforcement of GST and Customs laws, aiming to protect businesses and traders from undue harassment while ensuring tax enforcement adheres to constitutional and procedural norms.
The matter of Section 135 of the GST Act, which addresses presumptions of culpable mental state, remains unexamined but will return to the regular benches for further deliberation with hearings scheduled for March 15. The outcome of this decision marks a pivotal shift towards more accountable and just tax enforcement practices.
