How the Supreme Court limited the power of arrest under GST, Customs Acts

The court in Radhika Agarwal v Union of India ruled that the powers exercised by custom officers under these acts are “analogous” to the powers of arrest, search and seizure exercised by police, that is, they are subject to the same restrictions and procedural standards that apply to police under the Code of Criminal Procedure, 1973.

Among other things, these procedural standards include the right of an arrestee to be presented before a magistrate within 24 hours of her arrest, the obligation of an official to inform a friend or family member of the arrestee, and the right of an arrestee to have an advocate present in the vicinity during an interrogation.

The recent ruling comes as a part of the SC’s ongoing effort to limit the broad powers of prosecuting agencies under stringent laws such as the Prevention of Money Laundering Act, 2002. The apex court last year in Arvind Kejriwal v Directorate of Enforcement laid down requirements for ED to legally arrest someone under the PMLA. In Radhika Agarwal, the court effectively transplanted these requirements to arrests being made under the Customs and CGST Acts.

Power of arrest

Both the Customs and CGST Acts classify specific offences as being ‘cognisable’, for which arrests can be made without a warrant from the Magistrate. Section 104(4) of the Customs Act, for instance, classifies serious offences such as evading customs duty of over Rs 50 lakhs to be cognisable.

But this does not mean that agencies have unfettered power to make arrests in such cases, as the SC held in Kejriwal. While granting bail to the former chief minister, the court had made several observations regarding the ED’s powers of arrest under Section 19 of the PMLA.

The court referred to these in Radhika Agarwal, and expanded their scope to the Customs and CGST Acts.

“We have cautioned in Arvind Kejriwal how the unbridled exercise of the power to arrest without a warrant can result in arbitrariness and errors in decision making process. A similar error made by a customs officer can lead to a frustration of the constitutional and statutory rights of the arrestee,” the SC said.

The three requirements

The requirements under Section 19 of the PMLA , as expanded by the court in Kejriwal and applied in Radhika Agarwal, are as follows.

MATERIAL IN POSSESSION: The court in Kejriwal held that an arrest can only take place when the evidence in an officer’s possession “enables them to form an opinion, by recording reasons in writing that the arrestee is guilty”. The court said that all the material must be considered before making an arrest, and that an officer cannot ignore evidence that “exonerates” the arrestee.

In Radhika Agarwal, the SC applied this ruling to state that customs officers must also have material in their possession, and cannot “conclude that an offence has been committed out of thin air or mere suspicion”.

REASONS TO BELIEVE: The SC in Kejriwal held that the officer must record in writing their “reasons to believe” that an arrestee is guilty of an offence based on the material in their possession. While the court cannot examine the merits of these reasons, it can see if they are clearly connected to the case material, the court held.

While the Customs and the CGST Acts do not contain a requirement to record reasons, the SC held that this was implicit.

PROVIDING GROUNDS OF ARREST: The court in Kejriwal held that the grounds for arrest must be provided to the arrestee so that she can challenge the arrest or apply for bail in court. Without this information, the court said that an arrestee would be on the backfoot as she would not have the necessary information to file her case. The court reiterated this position in Radhika Agarwal.

Misuse of power of arrest

The court refused to strike down the powers of arrest for CGST and Customs Act officials as sought by the petitioners. However, it did consider data on the number of GST offence cases that have been instituted since 2017, the amount recovered, and the number of arrests made, to hold that there is “some force in the petitioners’ submission that the assessees are compelled to pay tax as a condition for not being arrested”.

The SC ruled that it was illegal and impermissible for tax officials to coerce someone into paying overdue taxes by threatening them with arrest. To curb such cases, it held that individuals who were so threatened or coerced “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.”

The apex court also directs the Central Board of Indirect Taxes and Customs to form guidelines to ensure that no taxpayers are threatened with arrest.