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CAs, advocates mustn't be arrested sans proof of role in business fraud: HC

New Delhi, February 22, 2023 

Ruling was delivered in a case in which a CA and an advocate were arrested for rendering service to exporters who were alleged to have fraudulently claimed a refund of IGST

Chartered accountants (CAs) or advocates who assist enterprises, but aren't involved in fraud committed by the latter should not be arrested, ruled the Punjab and Haryana High Court.

The court delivered this ruling in a case in which a chartered accountant and an advocate representing a firm of exporters were summoned and arrested. The two had filed a petition on behalf of the exporters, who were alleged to have fraudulently claimed a refund of integrated goods and services tax (IGST).

Later, the exporters allegedly named the petitioners as party to the fraud.

The court said persons against whom there is no documentary or otherwise concrete evidence to establish direct involvement in the evasion of huge amounts of tax, should not be arrested prior to the determination of liability and imposition of penalty.

CAs or advocates who had filed returns for, or otherwise assisted a business, but were not beneficiaries or party to the fraud should not be arrested merely on the basis of a statement, without any corroborative evidence linking the professionals to the alleged offence.

The court observed that the GST Act empowers a designated officer to arrest a person who has evaded taxes in excess of Rs five crore. The Act has also prescribed maximum sentence of five years for such evasion.

However, the court opined that the power to arrest should not be exercised at the whims and caprices of any officer or for the sake of recovery or terrorising any businessman or creating an atmosphere of fear.

The court said such power should be exercised in exceptional circumstances during investigation, which illustratively may relate to a person involved in evasion of huge amounts of tax and having no permanent place of business, or a person not appearing in spite of repeated summons being served and involved in huge amounts of evasion of tax among other instances.

[The Business Standard]

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