The Government amended the Service tax law so that the power of arrest in Service Tax is available only if a person collects any amount as service tax but fails to pay the amount so collected to the credit of the Central Government beyond the period of six months from the date on which such payment becomes due and the amount exceeds rupees two crore. Earlier Instructions were issued to the officers that a careful exercise of this power must be ensured, since arrest impinges on the personal liberty of an individual. The reason to believe that a person has committed the specified offence which is rendering the person liable for arrest must be based on credible material which will stand judicial scrutiny. The relevant factors before deciding to arrest a person must be, apart from fulfillment of the legal requirements, the need to ensure proper investigation and prevention of the possibility of tampering with evidence or intimidating or influencing witnesses.
In the context of the legislative amendments vide the Finance Act 2016 and the single offence for which the power of arrest exists, it is necessary to again emphasize and indicate the factors which must invariably be kept in mind before arresting a person. Thus the government made it abundantly clear that, at the outset there must be clear and unambiguous noting in the file, bringing out how all the ingredients of the offence have been established. The File noting must specifically refer to evidence relating to Amount collected as service tax. Collection of an amount as service tax should be clear and self-evident from the invoices, bills, contracts, etc. An amount should be clearly indicated as service tax. The copies of sample invoices /bills, contracts, etc. which cover the period being investigated should be in the file and the said amount should exceed Rs. 2 crore.
The recent Instructions F. No. 137/47/2013-Service Tax dated 30.9.16 stated the ST3 return filed by the assessee for the relevant period, showing the self-assessed value of taxable services and service tax paid should be available in file. Where no such return has been filed, an observation to this effect should be made since this will make the departmental case stronger and such a failure should be beyond the period of six months from the date on which such payment becomes due.
Even if all the legal conditions precedent mentioned are fulfilled, that will not, ipso facto, mean that an arrest must be made. Once the legal ingredients of the offence are made out, the Commissioner must then determine if the answer to the following questions is in the affirmative (1) Is the alleged offender likely to hamper the course of further investigation by his unrestricted movement? (2) Is the alleged offender likely to tamper with evidence or intimidate or influence witnesses? If the answer to both the questions is yes, then the decision to arrest can be made. If the alleged offender is assisting in the investigation and has deposited at least half of the evaded tax, then the need to arrest may not arise.
It is emphasized once again that since an arrest impinges on the personal liberty of an individual, this power should be exercised with great responsibility and caution and only after a careful examination of the legal and factual aspects.v