Tax Vista

Your weekly tax recap

Edn. 290 - 17th August 2026

Kasi Viswanathan V

Communication Before Arrest?

The Supreme Court recently had one more occasion to deal with arrest provisions under Section 69 of GST. The Respondent (before Supreme Court) approached sessions court seeking anticipatory bail against the summons issued under Section 70 of the Act. Upon rejection, the matter was carried to the Bombay High Court. Pursuant to an interim order of the High Court, the Respondent appeared and statements were recorded. Department filed affidavit that as on date no order under section 69 has been passed. High Court stated that in absence of an order under section 69, respondent cannot be arrested and accordingly anticipatory bail application cannot be entertained. However, while dismissing the application, it granted protection for a period of one week from the date on which any future order under section 69 was communicated.

The Supreme Court referred to its earlier decision in Radhika Agarwal vs UOI [2025-VIL-11-SC] and observed that mere issuance of summon does not make the person summoned an accused protected under Article 20(3) of Constitution and upheld the rejection of the application though not under challenge. The challenge before Supreme Court was by Revenue against the interim protection.

For this purpose, the Court first referred to State of Orissa v. Madan Gopal Rungta. The Court noted that, albeit rendered in the context of writ jurisdiction, the decision laid down that a petition under Article 226 of the Constitution of India cannot be used solely for obtaining interim relief when the High Court is of the view that the petition itself is not maintainable. It also reiterated that interim relief can only be in aid of and ancillary to the main relief.

Then in context of criminal matters, it referred to Hema Mishra vs. State of U.P. , which relied upon Madan Gopal Rungta. In that case, while dealing with challenges to FIRs and charge-sheets, it had been held that once the main challenge fails, the question of granting further protection thereafter does not arise. Applying the same principle, the Supreme Court held that while dismissing an anticipatory bail application as not maintainable, neither the High Court nor the Sessions Court can grant protection which is in the nature of interim relief. Accordingly, the one-week protection granted by the High Court was set aside.

The Court also decided subsidiary question of whether order passed under section 69 needs to be communicated to the person sought to be arrested? Accepting the submission of the Respondent, the Court held that an order under section 69 is a sine qua non for maintaining an application for anticipatory bail. It accepted the submission that till such an order is passed, no alarm is activated. Once the Commissioner records reasons to believe and authorises arrest, the person becomes an accused, who is open to be arrested and acquires the right to seek appropriate remedies. The court observed that if Section 69 were read as it is, without there being any requirement of disclosure of the "reasons to believe", withholding of reasons could have drastic consequences on the right to liberty of the accused. Accordingly, the Court held that without communication of order under Section 69, the question of arrest does not arise.

There are various interesting aspects in present decision. The reliance placed on Hema Mishra (supra) may have to be appreciated in the context in which that decision was rendered. The case arose from Uttar Pradesh where section 438 of the erstwhile Code of Criminal Procedure was itself not available. Further, the principal relief sought in those matters was quashing of the FIR or charge-sheet. The observations in Hema Mishra also need to be viewed in the context that Section 438 CrPC was not applicable in Uttar Pradesh, resulting in writ petitions being filed for protection against arrest. The position emerging from such cases may require further examination in matters such as GST, where the applicability of Section 438 CrPC (now Section 482 BNSS) is not specifically restricted and where the principal relief sought is protection against arrest itself.

The more significant aspect of the decision is the requirement to communicate the Section 69 order. Section 69(2) requires the person to be informed of the grounds of arrest. Further, Instruction No. 02/2022-23 (as amended by Instruction No. 01/2025-GST dated 13.01.2025) requires the grounds of arrest to be furnished in writing as an annexure to the arrest memo. The present decision, however, proceeds further. It holds that the order authorising arrest under section 69 is itself required to be communicated.

Prior to this decision, there was room for debate on what exactly Radhika Agarwal (supra) required. Radhika Agarwal clearly held that reasons to believe must be recorded. It also relied on principles evolved under PML Act in Arvind Kejriwal and applied those principles to Customs and GST arrests. However, a question still remained whether reasons to believe were required to be communicated to the person or whether they merely had to exist and be produced before the Court whenever the legality of arrest was challenged. Reference may be made to para 21 of the Allahabad High Court decision in Jai Kumar Aggarwal [2026-VIL-282-ALH]. Present decision clarifies that it is not enough that reasons to believe merely exist on file. The order founded on such reasons must also be communicated to the person sought to be arrested.

Practically, the window between authorisation of arrest and actual arrest may still remain short. At the same time, the communication now contemplated is far more meaningful as it discloses the reasons to believe.

In Radhika Agarwal (supra), the Supreme Court observed that anticipatory bail is founded on apprehension of arrest and that it is not essential that an application is moved only after an FIR is filed. Once an order under section 69 is passed and communicated, the matter moves beyond mere apprehension and into a stage where arrest has already been authorised. However, the present case did not involve any challenge to the finding that, in the absence of a section 69 order, no occasion arose to seek anticipatory bail. Accordingly, whether anticipatory bail can be sought on the basis of a reasonable apprehension of arrest even before issuance of a section 69 order, and whether a section 69 order is invariably a sine qua non for maintaining such application, may require further consideration in an appropriate case. [Re: 2026-VIL-78-SC]

Pre-deposit and Pre-GST Appeals

The issue of payment of pre-deposit in legacy excise and service tax disputes has had an interesting journey. After introduction of GST, different practices were followed for making mandatory pre-deposits. Some taxpayers used the ACES portal and subsequently the integrated CBIC portal, while others resorted to GST mechanisms such as DRC-03 for various practical and legal reasons. The varied practices and lack of clarity were noticed by the Bombay High Court in Sodexo India Services [2022-VIL-1168-BOM-ST] which called upon the CBIC to issue suitable instructions on the subject. Thereafter, CBIC issued Instruction dated 28.10.2022 clarifying that pre-deposits in legacy matters were required to be made through the designated CBIC portal and that payment through DRC-03 under GST would not be regarded as a valid mode of compliance.

Post the 2022 Instruction, the practice generally followed by appellate authorities and the Tribunal has been to treat payment through GST mechanisms as a defect and grant an opportunity to make the pre-deposit in the prescribed manner before entertaining the appeal. One such order was passed by the Bangalore Bench of CESTAT in Defect Interim Order No. 150/2025 dated 12.12.2025, which subsequently travelled to the Karnataka High Court.

The case, however, involved an additional layer. The pre-deposit was claimed to have been paid by reversal through GSTR-3B using credit originating from CENVAT credit transitioned into GST.

The Karnataka High Court held that the pre-deposit requirement stood satisfied. In doing so, the Court placed considerable emphasis on the fact that transitioned credit represents a vested right preserved by section 140 and that migration into GST merely changed the form in which such credit is maintained. Accordingly, on a reading of Section 140 of the CGST Act and Rule 142(3) of the CGST Rules, the Court held that such transitioned credit remained available for utilisation and could validly be used for payment of the mandatory pre-deposit under section 35F in legacy service tax proceedings.

The pre-deposit is only a portion of the disputed demand and is intended to secure the interest of the Revenue during the pendency of the appeal. Accordingly, the Court directed the Tribunal to accept the amounts paid as pre-deposit and adjudicate appeal on merits in accordance with law.

The key aspect of the decision is that, while the Tribunal largely relied upon the procedure prescribed under the Instruction dated 28.10.2022, the High Court took a different view. The Court observed that a careful reading of the Instruction shows that it primarily deals with the procedure for making cash payments and does not contain any provision prohibiting utilisation of validly transitioned credit for payment of pre-deposit.

The consistent line of decisions under the existing law permitting utilization of cenvat credit for payment of pre-deposit also assisted the taxpayer's case. Under GST, however, the issue of utilisation of Electronic Credit Ledger for purposes other than output tax continues to witness litigation.

Further, while the Delhi High Court in Army Welfare Housing Organisation [2025-VIL-1473-DEL] had specifically noted that the case involved a charitable organisation operating on a no-profit-no-loss basis, the Karnataka High Court has applied the same principle without any such rider.

One possible view was that in the case of cash payments, the route adopted, whether through the integrated portal or through GST, should not materially matter once the amount reaches the Government. The reading of the present decision suggests that the Instruction may continue to create challenges in such cases involving cash payments made through GST mechanisms. However, the present decision suggests that credit traceable to validly transitioned CENVAT credit stands on a stronger footing.

Since the relief relates to utilisation of transitioned CENVAT credit for payment of pre-deposit in legacy appeals, the manner in which such credit is identified and traced as transitioned credit may itself emerge as the next area of dispute. Significantly, in the present case itself, the Revenue argued before the Tribunal that sufficient credit balance was not available and that the debit resulted in a negative balance, comparing it to issuance of a cheque without sufficient funds. Whether tracing and availability of transitioned credit become the next battleground remains to be seen. [Re: 2026-VIL-875-KAR]

[Read previous edition dated 10.08.2026]

(The views expressed are personal. The author can be reached for feedback or queries on v.k.vishwa@gmail.com)