GUIDELINES FOR ARREST UNDER SERVICE TAX

[Dr. Sanjiv Agarwal]

Contravention of specified provisions and default in payment of Service Tax in certain conditions shall now attract arrest provisions and the Government is all set to deal with the hard core offenders in Service Tax for contravening the provisions of Service Tax law, i.e. Finance Act, 1994.

Finance Act, 2013 has inserted new provisions to make certain offences cognizable and certain others as non-cognizable and bailable. Accordingly, following new provisions have been inserted w.e.f. 10.05.2013 -

Section 90                   Cognizance of offences

Section 91                   Power to arrest

Power to Arrest (Section 91)

Finance Act, 2013 has inserted new section 91 in the Finance Act, 1994 w.e.f. 10.05.2013 as follows :

"91. (1) If the Commissioner of Central Excise has reason to believe that any person has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of section 89, he may, by general or special order, authorise any officer of Central Excise, not below the rank of Superintendent of Central Excise, to arrest such person.

(2)  Where a person is arrested for any cognizable offence, every officer authorised to arrest a person shall, inform such person of the grounds of arrest and produce him before a magistrate within twenty-four hours.

(3)  In the case of a non-cognizable and bailable offence, the Assistant Commissioner, or the Deputy Commissioner, as the case may be, shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer in charge of a police station has, and is subject to, under section 436 of the Code of Criminal Procedure, 1973.

(4)  All arrests under this section shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973 relating to arrests."

Section 91 provide for power to arrest. It empowers the Commissioner of Central Excise, to authorize any officer of Central Excise not below the rank of Superintendent of Central Excise, to arrest a person for the offences specified in clause (i) or clause (ii) of sub-section 89. It further empowers the Assistant Commissioner or the Deputy Commissioner to release the person so arrested on bail in case of non-cognizable and bailable offences, and for this purpose, he shall have the same power as that of an officer-in-charge of a police station and shall be subject to provision under section 436 of the Code of Criminal Procedure, 1973. It also seeks to provide that the arrests so made shall be carried out in accordance with the provisions of the Code of Criminal Procedure, 1973, relating to arrests.

Thus, section 91 provide the power to arrest. Commissioner of Central Excise is empowered to authorize any officer of Central Excise not below the rank of Superintendent of Central Excise, to arrest a person for specified offences, particularly non-payment of collected service tax.

Arrest Guidelines

Central Board of Excise and Customs (CBEC) has recently issued guidelines (on 17 September, 2013 for arrest and bail in relation to offences punishable under Service Tax. The power to arrest is exercisable in cases involving evasion of Service Tax where amount of Service Tax evaded exceeds Rs. 50 lakhs. However, these ought to be exercised sparingly and with utmost care, keeping on mind the nature of offence and value of evasion. What is crucial is that legal stipulations must be strictly adhered to. To authorize the arrest, the Commissioner should have reason to believe that the person proposed to be arrested has committed an offence specified in clause (i) or clause (ii) of sub-section (1) of section 89. The reason to believe must be based on credible material which will stand judicial scrutiny. Further, the need to ensure proper investigation, prevention of the possibility of tampering with evidence or intimidating or influencing witnesses and large amounts of service tax evaded are relevant factors before deciding to arrest a person.

On arrest procedure, the provisions of Code of Criminal Procedure, 1973 relating to arrest must be taken care of. It is necessary for officers to be truly conversant with the same. Though there is no set format for arrest memo but an arrest memo should ideally include -

• brief facts of the case;
• details of the person arrested;
• gist of evidence against the person;
• relevant section (s) of the Finance Act, 1994 or other laws attracted to the case and to the arrested person;
• the grounds of arrest must be explained to the arrested person and this fact noted in the arrest memo;
• a nominated person (as per the details provided by arrested person) of the arrested person should be informed immediately and this fact also may be mentioned in the arrest memo;
• the date and time of arrest may be mentioned in the arrest memo and the arrest memo should be given to the person arrested under proper acknowledgment;
• a separate arrest memo has to be made and provided to each individual/arrested person. This should particularly be kept in mind in the event that there are several arrests in a single case.

At the time of arrest and pursuant to arrest, following points should be complied with –

• A female should be arrested by or in the presence of a woman officer;
• Medical examination of an arrested person should be conducted by a medical officer in the service of Central or State Governments and in case the medical officer is not available, by a registered medical practitioner, soon after the arrest is made. If an arrested person is a female then such an examination shall be made only by, or under supervision of a female medical officer , and in case the female medical officer is not available, by a female registered medical practitioner.
• It shall be the duty of the person having the custody of an arrested person to take reasonable care of the health and safety of the arrested person.

Bail

For non cognizable offences, the Assistant Commissioner or Deputy Commissioner is bound to release a person on bail against a bail bond. The bail conditions should be informed   in writing to the arrested person and also informed on telephone to the nominated person of the person arrested .The arrested person should be also allowed to talk to a nominated person. The conditions will relate to, inter alia, execution of a personal bail bond and one surety of like amount given by a local person of repute, appearance before the investigating officer when required and not leaving the country without informing the officer. The amount to be indicated in the personal bail bond and security will depend, inter alia, on the amount of tax involved.

If the conditions of the bail are fulfilled by the arrested person, he shall be released by the officer concerned on bail forthwith.   However, only in cases where the conditions for granting bail are not fulfilled, the arrested person shall be produced before the appropriate Magistrate without unnecessary delay and within twenty-four (24) hours of arrest. The arrested person may be handed over to the nearest police station for his safe custody, within 24 hours, during the night under a challan, before he is produced before the Court.

In the event of circumstances preventing the production of the arrested person before a Magistrate without unnecessary delay, the arrested person may be handed over to nearest Police Station for his safe custody, within 24 hours, under a proper challan, and produced before the Magistrate on the next day, and the nominated person of the arrested person may be also informed accordingly.

Department is required to maintain Bail Register with requisite details and should follow the reporting system- daily or monthly.

Closing Remarks

Since arrest would impinge on the personal liberty of an individual, the power to arrest must be exercised carefully and only for those offences which are enlisted in section 89 of the Service Tax law. The revenue department has already initiated invoking arrest power and first few arrests have already been in the country. It is hoped that once the Voluntary Compliance Encouragement Scheme (VCES, 2013) is closed, the department may use arrest powers often.