The Supreme Court of India.
Credit: PTI Photo
New Delhi: The Supreme Court on Wednesday directed the Centre to not use "threat and coercion" during search and seizure operations against traders for recovery of Goods and Services Tax (GST) and instead persuade them to clear the dues voluntarily.
A bench of Justices Sanjiv Khanna, M M Sundresh and Bela M Trivedi, which is examining various provisions of the GST Act, said there is no provision under the law which empowers the authorities to exert force for payment of outstanding dues.
"There is no power under the Act to compel any person to pay the tax liability during the search and seizures. Ask your department that the payment should be voluntarily and there should not be use of any force. You have to give three-four days' time to the alleged offender to consult, think and clear the liability. It should be voluntary and there should not be use of any threat or coercion," the bench told Additional Solicitor General SV Raju, appearing for the Centre.
Raju did not discount the possibility of use of force in the past but said mostly the payment during search and seizure is voluntary.
"Yes, there is possibility of both ways but mostly the payment is done voluntarily or after a few days as the alleged offender wanted to consult his advocate for payment of liability. Yes, there may have been some instances in the past but that is not the norm," he said during the day-long hearing.
The bench said several petitioners have alleged that the authorities exercised threat and coercion during search and seizure operations.
It said, "We know what is on paper and what happens in reality when a person is subjected to search and seizure. If there is denial of payment, you can provisionally attach the properties but you have to give some time to consult, think and clear the liability. You can't put him under threat and coercion of arrest."
When Raju said many a time the alleged offenders adopt various methods to evade taxes, the bench told him, "Arrest him but it should be strictly under the procedure laid down under law." It said unlike the Income Tax Act, there is a provision for arrest under section 69 of the GST Act.
Senior advocate Sujit Ghosh, appearing for one of the petitioners, said safeguards provided under the law are not implemented and instead people are subjected to threat of arrest to pay up.
During the hearing on a batch of 281 petitions which have challenged various provisions of the GST Act, Customs Act and the Prevention of Money Laundering Act, the bench told Raju that the GST law provides for checks and balances.
"We agree there cannot be a broad-brush approach but we have to ensure that safeguards are there. There has to be a strict compliance of section 69 (power to arrest) and section 70 (power to summon). When the legislature has enacted safeguard provisions, then they need to be implemented strictly. You have to apply your mind at the time of summon or arrest," the bench told Raju.
The law officer spoke of instances when goods are transported in oil tankers, auto-rickshaws and various methods are adopted to evade liability.
Senior advocate Kavin Gulati, appearing for one of the petitioners, said in his nearly three-decade career, he never saw as many arrests and confiscations as have happened in the past five years under the GST regime.
"Thousands of petitions are pending in different high courts. I have never seen so many pre-conviction arrests happening in my career which has happened in this GST regime. We have seen Income Tax Act and Value Added Tax regime, which was also a multi-point tax regime, but what has happened under the GST regime is shocking," he said.
Raju intervened, contending it is not that the department is arresting every other person which is mostly done in tax fraud cases.
Gulati said in most cases, the officer threatens a person summoned under section 70 that he will be arrested if no payment is made.
He said under the existing regime, the show cause notice is issued by the same officer who records the statements and conducts the adjudication proceedings.
The bench told Raju if the allegation of same officers conducting the entire proceedings is true, then there will be a possibility of bias and it will have to examine this issue.
The hearing remained inconclusive and would continue on Thursday.
On May 2, the top court had asked the Centre to furnish details about issuance of notices and arrests done under the provisions of the GST Act saying it may interpret the law and lay down appropriate guidelines to avoid harassment of citizens by depriving them of their liberty.
It has voiced concern over the ambiguity in section 69 of the GST Act that deals with the powers of arrest.
The top court had said it would interpret the law to "strengthen" the liberty, if need be, but not allow citizens to be harassed.