Only Commissioner Can Record Reasons To Believe For GST Arrest, Not Inspector: Punjab & Haryana High Court

The Punjab and Haryana High Court has recently ruled that only the Commissioner can record "reasons to believe" before authorising an arrest under Section 69 of the Central Goods and Services Tax (CGST) Act, 2017. Reasons recorded by an Inspector cannot substitute the Commissioner's satisfaction.

Justice Shalini Singh Nagpal ruled,

"The language used in Section 69 of the CGST Act, leaves no room to doubt that it is the 'Commissioner' and the 'Commissioner', alone, who is required to form an opinion, on the basis of credible material that a person has committed an offence under Section 132 of CGST Act and it is necessary to arrest such person for the alleged offence."

The court was hearing a plea filed by Chartered Accountant Sahil Chandna, who was arrested over an alleged GST fraud involving 28 shell firms. The GST Department accused him of using these firms to fraudulently avail and pass on Input Tax Credit (ITC) without any actual supply of goods or services.

Chandna challenged his arrest, arguing that the reasons to believe were recorded by the Inspector instead of the Commissioner. He also contended that the grounds of arrest and reasons to believe did not carry the mandatory Document Identification Number (DIN).

The GST Department maintained that the Commissioner had authorised the arrest. It claimed that his satisfaction was recorded in the departmental file, even though the Inspector had signed the detailed reasons to believe and grounds of arrest.

The court rejected this explanation. It found that the Commissioner's arrest authorisation merely contained a line stating that he had reasons to believe that Chandna had committed an offence.

The court observed, "Suffice to note that a solitary line in the authorisation for arrest that the Commissioner has 'reasons to believe' that the petitioner has committed an offence without anything more, would not amount to 'reasons to believe' within the meaning of Section 69 of CGST Act."

It held that the Commissioner must record reasons based on relevant material and evidence. The reasons must also reflect due application of mind. Even though the Inspector's reasons were detailed, they could not satisfy the requirement under Section 69(1) of the CGST Act.

The court also found that the grounds of arrest and reasons to believe did not carry electronically generated DINs. The Department failed to explain the exceptional circumstances warranting their issuance without DIN. It also did not establish that the documents had been regularised within the prescribed 15 working days.

Allowing the petition, the court declared Chandna's arrest, detention, subsequent remand and continued custody illegal and arbitrary. It directed his immediate release.

The court clarified that the prosecution could seek his remand or custody again, if required, after supplying the reasons to believe and grounds of arrest in writing, in accordance with law.

For Petitioner: Senior Advocate R.S. Rai, along with Advocates Radhika Mehta, Jasmeet S. Kang and Isha Janjua,

For CBIC: Dr. Neha Awasthi, Senior Standing Counsel, Akash Yadav, AAG Punjab, also appeared.