A significant legal battle is currently unfolding before the Supreme Court concerning the constitutional validity of arrests made under the Goods and Services Tax framework. In a batch of more than two hundred writ petitions, the provisions granting authorities the power to arrest and prosecute individuals for GST and customs-related offences have been challenged. These petitions raise serious questions regarding the legislative competence of the Union and State Governments, the compatibility of such provisions with the Constitution of India, and their potential to infringe upon fundamental rights. The outcome of this litigation has the potential to reshape the way tax enforcement is carried out in the country and to redefine the scope of legislative power under the GST regime.
Section 69 of the Central Goods and Services Tax Act empowers tax authorities to arrest individuals suspected of committing certain offences, such as tax evasion and fraudulent activities. Section 132 specifies a list of offences under the Act for which prosecution may be initiated, some of which are punishable with imprisonment. While these provisions are intended to strengthen tax administration and deter non-compliance, they have been met with serious criticism. The primary contention is that they have been enacted without explicit constitutional authority to legislate on matters concerning criminal offences and procedures, which are generally governed by the Code of Criminal Procedure. As a result, the debate extends beyond tax law into the very foundation of constitutional separation of powers.
Constitutional Framework and Legislative Competence
The power to enact laws concerning taxation and offences associated with taxation originates from the Constitution of India. Article 246 outlines the distribution of legislative powers between the Union and State Governments, with subjects divided into the Union List, State List, and Concurrent List contained in the Seventh Schedule. Entry 93 of the Union List grants Parliament the authority to legislate on offences against laws concerning any of the matters enumerated in that List. Similarly, Entry 64 of the State List gives State Legislatures the power to legislate on offences against laws related to matters in the State List. These entries provide a general framework for legislative competence on criminal matters in connection with specific subjects.
The introduction of Article 246A through the 101st Constitutional Amendment Act significantly altered the taxation landscape in India by empowering both Parliament and State Legislatures to make laws concerning goods and services tax. However, the scope of Article 246A is at the heart of the current dispute. Petitioners argue that Article 246A only empowers the Union and States to levy and collect GST and does not extend to legislating on arrest, prosecution, or criminal procedures. Matters related to criminal law and procedure are addressed in other entries and fall within the jurisdiction provided under Article 246, read with the relevant lists in the Seventh Schedule. Therefore, any provisions authorising arrest and prosecution within GST law may be considered outside the constitutional competence of the legislature.
The Challenge Under the GST Framework
The petitioners maintain that the powers under Sections 69 and 132 of the CGST Act amount to an unconstitutional extension of authority. Their argument is grounded in the principle that legislative competence is not unlimited and must be derived from the Constitution. Since Article 246A does not expressly confer the power to create criminal offences or provide for arrest, they contend that these provisions are ultra vires. This argument gains weight when contrasted with the Customs Act, where similar provisions exist but are backed by explicit legislative entries related to offences involving the import and export of goods. As such, while customs-related provisions may withstand scrutiny under constitutional validity, GST provisions may not enjoy the same protection.
The debate also touches upon the question of whether enforcement powers under GST should be treated differently from those under customs or excise laws. GST is primarily a consumption tax applicable to goods and services within the domestic economy, whereas customs law involves international trade, which falls squarely under the Union List. Petitioners argue that this difference in scope means GST enforcement cannot rely on the same constitutional justification as customs enforcement.
Fundamental Rights Concerns
One of the central pillars of the challenge is the alleged violation of fundamental rights, particularly Article 21 of the Constitution, which guarantees the right to life and personal liberty. Petitioners assert that Sections 69 and 132 enable the deprivation of liberty without adequate safeguards and due process. The authority to arrest based merely on a “reason to believe” without stringent procedural checks is seen as arbitrary and capable of misuse. In the absence of requirements such as recording reasons in writing, judicial oversight before arrest, or strict compliance with the procedural guarantees of the Code of Criminal Procedure, these provisions may be considered draconian.
The lack of procedural alignment with the CrPC is particularly troubling to critics. Under the CrPC, arrest powers are accompanied by detailed guidelines to ensure that they are exercised judiciously and sparingly. The GST framework, however, vests significant discretion in tax officials without subjecting them to the same procedural discipline. Furthermore, GST officers are not recognised as police officers under the CrPC, raising questions about the applicability of safeguards designed to protect individuals from arbitrary detention in criminal cases.
Procedural Lapses and Inconsistencies
A major area of concern raised by the petitioners revolves around the procedural framework for arrests and prosecution under the GST regime. The provisions under Sections 69 and 132 of the CGST Act grant significant powers to tax officers without establishing clear, comprehensive procedures that align with the Code of Criminal Procedure. This discrepancy results in an enforcement mechanism that operates in isolation from established criminal law safeguards. Critics argue that this detachment from the CrPC undermines the principles of fairness, accountability, and uniformity in law enforcement.
Under the CrPC, the power to arrest is carefully regulated. Provisions mandate the recording of reasons for arrest, production before a magistrate within a fixed timeframe, and adherence to procedural safeguards that protect the accused from arbitrary deprivation of liberty. By contrast, GST provisions allow authorised officers to arrest based on their subjective “reason to believe” that a person has committed an offence. This phrase is not defined in the GST Act with the same precision as procedural safeguards in the CrPC, leaving room for discretionary interpretation. Moreover, the absence of an explicit requirement to record reasons in writing creates an environment where the exercise of power may not be adequately scrutinised.
The petitioners further point out that officers appointed under the CGST Act are not designated as police officers, which raises questions about their authority to investigate offences involving deprivation of liberty. In the criminal justice system, police officers are bound by specific statutory duties and are subject to oversight mechanisms. If GST officers are not classified as police officers, there is an argument that they cannot conduct investigations or arrests in a manner that leads to criminal prosecution without involving the regular police machinery. This procedural gap is one of the core aspects of the constitutional challenge.
Interpretation and Concerns Around “Reason to Believe”
The term “reason to believe” is a recurring feature in various Indian laws, often used as a threshold requirement for initiating investigative or enforcement action. However, its interpretation has significant implications in the context of GST prosecutions. In many statutes, this term is accompanied by requirements for reasons to be recorded in writing, enabling judicial review of the decision-making process. Under the GST framework, while “reason to believe” is mentioned, the requirement for contemporaneous written documentation is absent, making it difficult for courts to assess whether the arresting officer’s belief was based on objective evidence or mere suspicion.
From a constitutional perspective, vague and undefined terms in statutes that confer wide discretionary powers can be problematic. They can lead to inconsistent application, selective targeting, and abuse of authority. The petitioners stress that unless “reason to believe” is tied to verifiable and documented facts, it cannot serve as a valid safeguard against arbitrary action. In their view, the absence of such documentation transforms a procedural threshold into a subjective and potentially abusive tool of enforcement.
Past judicial interpretations in other contexts have emphasised that “reason to believe” must be grounded in tangible material rather than conjecture. Courts have also underscored the need for judicial oversight when personal liberty is at stake. By not incorporating these safeguards explicitly into the GST framework, the current provisions risk falling foul of constitutional guarantees under Articles 14 and 21.
Legislative Intent Versus Constitutional Limitations
Supporters of the GST arrest provisions argue that they are a necessary tool to deter tax evasion and maintain compliance. Tax evasion, especially in the indirect tax regime, can cause significant revenue losses and disrupt market fairness. In their view, empowering officers to take swift enforcement action is crucial to preserving the integrity of the tax system. They also highlight that similar provisions exist in other tax laws, such as customs and excise, where arrest powers have long been recognised as legitimate.
However, opponents counter that legislative intent cannot override constitutional limitations. Even if the objective is legitimate, the means employed must fall within the legislative competence granted by the Constitution and must respect the procedural and substantive rights of individuals. The GST framework, being a new and unique tax structure that replaced multiple indirect taxes, operates under a distinct constitutional mandate provided by Article 246A. This mandate, they argue, does not extend to criminal procedural matters unless expressly provided through a separate legislative entry.
The petitioners also point out that the framers of the 101st Constitutional Amendment could have explicitly included enforcement provisions, including arrest and prosecution powers, under Article 246A if they intended to do so. The absence of such explicit language, they argue, is a deliberate choice that should be respected by the courts. Expanding the scope of Article 246A to include criminal procedural powers would amount to judicial rewriting of the Constitution, which is impermissible.
The Customs Act Contrast
One of the more interesting aspects of this legal battle is the comparison between GST and customs laws. While similar arrest powers under the Customs Act have also been challenged, they are less vulnerable to constitutional invalidation because customs enforcement is covered under specific entries in the Union List. The import and export of goods are subjects under the Union’s exclusive legislative competence, and offences in connection with them can be legislated upon under Entry 93 of the Union List. This constitutional backing ensures that customs officers have clear authority to arrest and prosecute offenders.
In contrast, GST is a concurrent subject under Article 246A, with both the Union and States empowered to legislate on the levy and collection of tax. Petitioners contend that this concurrent power does not automatically carry with it the power to create and enforce criminal offences, particularly those involving arrest and deprivation of liberty. The distinction between the two legal frameworks highlights the core constitutional tension at the heart of the current dispute.
Judicial Precedents Influencing the Debate
The challenge to Sections 69 and 132 of the CGST Act does not exist in a vacuum. Indian constitutional jurisprudence has, over the decades, developed a rich body of case law concerning legislative competence, interpretation of fundamental rights, and procedural safeguards in matters involving arrest and prosecution. These precedents provide both the petitioners and the respondents with ammunition to strengthen their respective positions.
One important precedent is the series of Supreme Court judgments emphasising that deprivation of liberty must be accompanied by just, fair, and reasonable procedure as mandated by Article 21. In Maneka Gandhi v. Union of India, the Court expanded the meaning of “procedure established by law” to include the requirement that such procedure must be reasonable and not arbitrary. This principle applies equally to arrest powers under any law, including tax laws. If the arrest provisions under GST fail to provide adequate procedural safeguards, they risk being struck down as unconstitutional.
Another relevant precedent is Kartar Singh v. State of Punjab, where the Supreme Court upheld certain stringent provisions under the Terrorist and Disruptive Activities (Prevention) Act but stressed the necessity of safeguards to prevent misuse. The Court’s reasoning highlights that even in the case of grave offences, procedural protections cannot be dispensed with entirely. Applying this reasoning to GST, if provisions granting arrest powers lack comparable safeguards, their constitutional validity becomes doubtful.
In the tax law context, courts have often upheld enforcement powers, including arrest, provided they are backed by clear legislative authority. In cases relating to the Customs Act and the Central Excise Act, the Supreme Court has recognised the necessity of such powers to combat evasion and fraud. However, these cases are distinguishable because the legislative entries supporting customs and excise laws are explicit in granting authority over offences, whereas the GST constitutional framework does not contain such explicit authority.
Arguments Presented by the Petitioners
The petitioners’ primary argument is that Article 246A does not authorise the legislature to enact provisions relating to arrest and prosecution. They maintain that the constitutional design separates the power to levy and collect GST from the power to legislate on criminal procedure. Since the GST regime operates under a special constitutional provision, its scope should be interpreted narrowly to prevent overreach. They caution that allowing the legislature to read arrest powers into Article 246A would create a precedent for expanding special taxation provisions into unrelated areas of law.
From a rights perspective, the petitioners highlight that the provisions violate Articles 14 and 21 by enabling arbitrary arrest without adequate safeguards. They emphasise that “reason to believe” is too vague a standard unless supplemented by objective criteria and written justification. The absence of mandatory judicial oversight before arrest, they argue, leaves individuals vulnerable to abuse of power by enforcement authorities.
The petitioners also draw attention to the non-compliance with the CrPC. They contend that even if GST officers are empowered to arrest, they must do so in conformity with the procedural safeguards laid down in the CrPC. Since the current provisions operate independently of these safeguards, they undermine the rule of law and create an inconsistent enforcement landscape.
Arguments Presented by the Respondents
On the other side, the Union Government and other respondents argue that the power to arrest under GST is an essential tool for ensuring compliance and preventing tax evasion. They point out that tax evasion under GST can involve significant sums of money and complex fraudulent schemes that cannot be effectively addressed without strong enforcement measures. They also highlight that similar arrest powers exist in other tax laws, including the Income Tax Act, the Customs Act, and the Central Excise Act, and have withstood constitutional scrutiny.
From a constitutional standpoint, the respondents argue that Article 246A, read in conjunction with Article 246 and the relevant entries in the Union List, permits Parliament to legislate on all matters necessary to give effect to GST, including enforcement and prosecution. They contend that the power to levy and collect tax inherently includes the power to prevent and penalise evasion. Therefore, arrest provisions are not beyond legislative competence but are a natural extension of the taxing power.
Addressing the rights-based concerns, the respondents argue that the “reason to believe” standard has been used in multiple statutes and has been judicially recognised as a valid safeguard against arbitrary action. They further point out that GST officers, when making arrests, are still subject to certain constitutional requirements such as producing the arrested person before a magistrate within twenty-four hours, thus ensuring a measure of judicial oversight.
Balancing Enforcement Needs with Constitutional Safeguards
The Supreme Court’s eventual decision will likely hinge on how it balances the state’s need to enforce tax laws effectively against the individual’s right to liberty and due process. The Court will have to consider whether the arrest powers under GST are proportionate to the objective sought to be achieved and whether they incorporate adequate procedural safeguards to prevent abuse. If the Court finds that the current framework is deficient, it could either strike down the provisions or read in additional safeguards to align them with constitutional requirements.
Possible Outcomes from the Supreme Court
The Supreme Court’s ruling on the constitutional validity of arrest provisions under the GST framework could take several forms. The Court may uphold the provisions entirely, recognising the need for strong enforcement tools to safeguard the tax system. In this scenario, the Court might accept a broad interpretation of Article 246A and find that powers ancillary to tax collection, including arrest and prosecution, are constitutionally valid.
Alternatively, the Court may strike down or read down the provisions to the extent that they conflict with fundamental rights or exceed legislative competence. It could direct the legislature to incorporate clearer procedural safeguards such as requiring prior approval for arrests, mandatory recording of reasons in writing, or judicial oversight before detention. Such a decision would seek to balance effective enforcement with protection of individual liberty.
A third possibility is that the Court might partially uphold the provisions but require alignment with the Code of Criminal Procedure and constitutional mandates. This could involve clarifying the status of GST officers in the investigative process or imposing stricter guidelines for arrest and prosecution powers to prevent abuse.
Broader Implications for Tax Enforcement and Constitutional Law
Beyond the immediate impact on GST enforcement, the Court’s decision will set a precedent for the scope of special taxation legislation and the limits of legislative power under constitutional amendments. A broad interpretation of Article 246A could empower legislatures to embed substantive criminal provisions within tax laws without explicit constitutional entries, potentially altering the balance between state power and individual rights.
Conversely, a narrow interpretation emphasising procedural safeguards could compel legislatures to draft tax enforcement laws with greater precision and constitutional compliance. This may promote transparency and accountability, but could also constrain rapid action against complex tax fraud.
The case also underscores the tension between modern tax administration’s demands and the constitutional framework designed decades ago. Legislatures and courts may need to rethink how best to reconcile these competing interests in a rapidly evolving economic and legal environment.
Potential Legislative and Procedural Reforms
Irrespective of the Court’s ruling, there is a clear need for legislative and procedural reforms to clarify enforcement powers under GST. The government may consider amending the CGST Act to incorporate explicit procedural safeguards consistent with the Code of Criminal Procedure. Such reforms could include mandatory recording of arrest reasons, clear definitions of terms like “reason to believe,” and the establishment of an oversight mechanism.
Training and empowering GST officers with appropriate investigative authority, including classification as police officers for limited purposes, could address procedural lacunae while preserving constitutional protections. Legislative clarity on the limits of arrest and prosecution powers would reduce litigation and build trust among taxpayers.
In addition, fostering alternative dispute resolution mechanisms and strengthening administrative penalties could reduce dependence on criminal prosecution, reserving arrest powers for truly egregious violations.
Conclusion
The ongoing constitutional challenge to prosecution provisions under GST raises fundamental questions about the balance between legislative competence, enforcement efficacy, and protection of individual rights. While the government’s interest in deterring tax evasion is undeniable, it must be pursued within the constitutional framework that safeguards liberty and due process. The Supreme Court’s decision will play a pivotal role in defining the contours of tax enforcement in India, shaping legislative drafting, and reinforcing constitutional governance in the years to come.