Introduction:

In a landmark decision reaffirming the primacy of personal liberty even in cases involving serious economic allegations, the Karnataka High Court has held that custodial interrogation is not mandatory in offences under the Central Goods and Services Tax Act, 2017, which are punishable with imprisonment up to five years. The ruling was delivered by Justice Shivashankar Amarannavar while deciding a criminal petition filed by Sri Akram Pasha, who sought pre-arrest bail in connection with alleged GST evasion running into crores of rupees. The respondent in the case was the Senior Intelligence Officer of the GST Department, who alleged that the petitioner had fraudulently availed and utilised input tax credit amounting to approximately ₹31.33 crores on the basis of fake invoices without actual receipt of goods or services, thereby committing offences under Sections 132(1)(b) and 132(1)(c) of the CGST Act. The department maintained that the offences were cognizable and non-bailable and justified arrest on the ground that GST offences are economic offences affecting the nation’s economy. Against this backdrop, the High Court was called upon to determine whether arrest and custodial interrogation are indispensable merely because the offence alleged is economic in nature, or whether the statutory punishment and constitutional safeguards governing arrest must guide judicial discretion. The judgment is significant as it carefully balances the interests of tax enforcement with the fundamental right to liberty, while clarifying the scope of arrest powers under the GST regime.

Arguments of Both Sides:

On behalf of the petitioner, learned senior counsel Sri Hashmath Pasha, appearing for Sri Kariappa N.A., argued that the apprehended arrest of the accused was wholly unnecessary, arbitrary, and contrary to the settled principles governing arrest and bail. It was contended that while the allegations pertained to wrongful availment of input tax credit, the CGST Act itself prescribes a maximum punishment of five years’ imprisonment for such offences, and therefore, the gravity of the offence must be assessed in light of the statutory punishment rather than the quantum involved. The petitioner argued that custodial interrogation is not an automatic consequence of an economic offence and that arrest cannot be used as a tool of coercion or punishment before trial. It was further submitted that there is no express bar under the CGST Act preventing an accused from seeking anticipatory or pre-arrest bail, unlike certain special statutes such as the Prevention of Money Laundering Act, 2003. The petitioner emphasized that he was willing to cooperate with the investigation, produce documents, and appear before the authorities whenever required, and therefore, the purpose of investigation could be achieved without depriving him of his liberty. Relying on constitutional principles under Articles 21 and 22, as well as judicial precedents governing arrest under the Code of Criminal Procedure, it was argued that arrest must be the last resort and should be justified by compelling reasons such as the likelihood of absconding, tampering with evidence, or non-cooperation, none of which were present in the instant case. The petitioner further contended that branding an offence as “economic” cannot automatically render it so grave that custody becomes indispensable, especially when the legislature itself has consciously capped the punishment at five years.

On the other hand, the respondent department, represented by Sri Madhu N. Rao, Senior Standing Counsel, strongly opposed the grant of bail. The department argued that the petitioner was involved in a serious economic offence involving fraudulent availment of input tax credit to the tune of ₹31.33 crores, which directly impacts government revenue and undermines the GST framework. It was contended that offences under Sections 132(1)(b) and 132(1)(c) of the CGST Act are cognizable and non-bailable, and therefore, the power of arrest is expressly conferred upon the authorities. The respondent submitted that economic offences pose a serious threat to the financial health of the nation and require stringent action to deter tax evasion and fraud. It was argued that custodial interrogation was necessary to unearth the modus operandi, identify other beneficiaries and co-conspirators, and trace the flow of fraudulent transactions. The department emphasized that fake invoicing networks are often complex and layered, and effective investigation may not be possible without custodial interrogation. The respondent also cautioned that granting pre-arrest bail in such cases could embolden tax evaders and weaken the deterrent effect of criminal sanctions under the GST law. On these grounds, the department urged the Court to reject the bail application.

Court’s Judgement:

After an elaborate consideration of the statutory scheme, constitutional principles, and judicial precedents, the Karnataka High Court allowed the petition and granted bail to the accused. Justice Shivashankar Amarannavar began by acknowledging that economic offences, including tax evasion and GST fraud, undoubtedly affect the economy of the country and are therefore treated as serious offences. However, the Court underscored that seriousness of an offence cannot be assessed in isolation from the punishment prescribed by the legislature. The Bench observed that one of the most prominent criminal sanctions in economic offences is arrest, which inevitably results in deprivation of personal liberty, and therefore, such power must be exercised with utmost care and subject to necessary safeguards. The Court emphasized that while maintaining law and order and protecting economic interests are legitimate state objectives, they cannot override the constitutional mandate to protect individual liberty.

The Court undertook a detailed analysis of the arrest provisions under the CGST Act and their interplay with the Code of Criminal Procedure and constitutional jurisprudence. It noted that unlike statutes such as the PMLA, where offences are punishable with more severe sentences and involve additional elements such as money laundering, the offences under the CGST Act are punishable with a maximum imprisonment of five years. The Bench categorically held that the economic nature of an offence does not, by itself, make custodial interrogation a sine qua non. The punishment prescribed under the statute must be a crucial factor in determining the gravity and heinousness of the offence. The Court observed that the legislature, in its wisdom, has not prescribed punishment exceeding five years for offences under Sections 132(1)(b) and 132(1)(c), and this legislative intent cannot be ignored while deciding questions of arrest and bail.

The Bench further held that there is no statutory embargo under the CGST Act restraining an accused from seeking pre-arrest bail. It reiterated that arrest is not meant to be punitive and should not be resorted to merely because it is legally permissible. The Court noted that if the accused is cooperating with the investigation and the required information can be obtained without arrest, custodial interrogation is neither warranted nor contemplated by the statute. In the facts of the present case, the Court found no material to suggest that the petitioner was likely to abscond, tamper with evidence, or refuse cooperation. The Bench therefore concluded that the offences under the CGST Act, though economic in nature, are not so grave as to mandate custody in every case. Holding that arrest should be an exception and not the rule, the Court granted bail to the petitioner, thereby reinforcing the principle that personal liberty cannot be sacrificed at the altar of investigative convenience.