The tax officials petitioned the Supreme Court to get clarity on ‘power to arrest’ after their strategy for errant promoters in GST cases came under fire at various high courts.
The Supreme Court decided not to hear other cases on the matter. The tax department has picked up promoters of some organisations over the last few months for supposedly indulging in circular trading.
The arrests took place after the tax department issued notices in February and raided several companies for inflating turnover through false bills to shell companies. These companies were also trying to bring black money back into the system. The tax experts added that legitimate businesses were facing issues over this.
Many promoters had approached the criminal bench of the Bombay High Court regarding the arrests. The court granted bail to the ones arrested and asked for an explanation from the tax department. The department, then, moved the Supreme Court.
“The GST officers have suo moto converted enquiries into criminal cases by arresting the promoters, which was seldom done under the earlier tax framework,” said Sujay N Kantawala, a high court advocate.
The GST department had issued a notification to a few organisations in the past couple of months, looking for proof of all the purchases and sale transactions, including the bills. The department speculates that few companies are just purchasing phoney invoices that help them guarantee input tax credit and real purchasing and selling of merchandise are not occurring.
According to an official in the know, few companies were involved in circular trading whereby they would sell goods to a series of organisations. The products would change hands from one company to another and eventually land with the original seller.
There were cases where the entire transaction took place only on paper while the goods lay at one place. The GST experts suspected the deals were done to blow up the turnover and receive larger loans.
The states where the tax department have conducted raids are West Bengal, Punjab, Maharashtra, Haryana, New Delhi, and Rajasthan and booked over 500 people.