The Allahabad High Court has dismissed a habeas corpus petition challenging an arrest made by the Directorate General of GST Intelligence (DGGI) in connection with an alleged large-scale GST evasion involving online money gaming transactions and held that the GST arrest cannot be invalidated merely because maximum punishment is 5 years.
The Division Bench of Justice Siddharth and Justice Vinai Kumar Dwivedi held that the arrest could not be termed illegal where the competent authority had recorded adequate reasons to believe and the grounds of arrest demonstrated compliance with the safeguards prescribed for exercising the power of arrest under the CGST Act, 2017.
The habeas corpus petition was filed challenging the detention, arrest and subsequent judicial remand of the petitioner in proceedings under Sections 132(1)(a), 132(1)(f), 132(1)(i) and 132(1)(l) of the CGST Act, punishable under Section 132(5).
Buy Now: 130 GST Judgments – E-Magazine July 2026
According to the petitioner, he had been called to the DGGI office on April 16, 2026 and was allegedly taken into custody after reaching there. The arrest memo recorded the arrest at 1:50 A.M. on April 17, 2026. He contended that the grounds of arrest and arrest memo had not been supplied to him and that the documents were allegedly provided to his wife only after the arrest.
He further alleged that the arrest violated Section 69 of the CGST Act and the applicable provisions of the Bharatiya Nagarik Suraksha Sanhita (BNSS), and that the Magistrate had failed to consider the alleged procedural defects while granting judicial remand.
The petitioner also argued that there was no direct incriminating evidence linking him to the alleged GST offences and that the department ought first to have proceeded against the concerned companies through adjudication proceedings under Section 74 rather than directly arresting him.
The department, however, placed a substantially different factual picture before the Court.
According to the counter affidavit, the investigation had uncovered a network of dummy and non-existent entities allegedly used for routing online money gaming transactions. The department alleged that these entities declared incorrect HSN codes and discharged GST at 18% on an artificially reduced commission value instead of paying GST at 28% on the full face value of the online gaming transactions.
The investigation allegedly found that 47 entities had received approximately ₹1,644.96 crore through the “SabPaisa” payment gateway. Against this, the department calculated a total GST liability of approximately ₹460.59 crore, while the entities had allegedly paid only around ₹15.40 crore in GST.
The department alleged that the petitioner exercised effective control over the payment gateway company and knowingly facilitated the onboarding of dummy entities. It further alleged that the actual nature and value of transactions were concealed through layered fund movements and that financial benefits ultimately reached entities linked with the petitioner and his personal bank account.
A significant aspect of the judgment was the Court’s examination of the grounds of arrest furnished by the DGGI.
The grounds of arrest stated that intelligence had revealed online money gaming companies operating through dummy persons and discharging GST on a nominal commission value rather than on the full-face value of gaming transactions. The investigation allegedly traced approximately ₹1,644.96 crore through the SabPaisa gateway into the bank accounts of 47 entities.
The department further relied upon statements and verification material concerning the onboarding of merchants. According to the grounds of arrest, certain non-existent entities were allegedly classified as “Yellow” rather than “Red” during physical verification, enabling them to continue operating on the payment platform.
The investigation also allegedly revealed diversion of funds from escrow accounts into non-escrow accounts and subsequent routing through various merchant entities. The department claimed that such structuring facilitated the breaking of the audit trail, co-mingling and layering of transactions.
The grounds further stated that funds originating from gaming entities were routed through multiple intermediary accounts and ultimately reached entities connected with the petitioner and subsequently his personal bank account. The DGGI treated this as evidence of direct involvement and financial benefit.
The High Court placed considerable emphasis on Circular No. 02 of 2022-2023 dated August 17, 2022, which lays down conditions governing arrest under the CGST Act.
The circular recognises that arrest affects the personal liberty of an individual and therefore should not be undertaken in a routine or mechanical manner. Even where the ingredients of a GST offence are satisfied, the competent authority must consider whether arrest is actually necessary.
The factors identified in the circular include whether credible information exists regarding a cognizable and non-bailable offence, whether arrest is necessary for proper investigation, whether the person is likely to tamper with evidence or influence witnesses, and whether the individual’s arrest is necessary to ensure the investigation can proceed effectively.
The circular also states that arrest should not ordinarily be resorted to in cases involving purely technical disputes, such as differences of opinion regarding interpretation of law. Cooperation with the investigation, furnishing of documents and other conduct of the taxpayer are also relevant considerations.
After examining the material, the High Court held that the arrest was in conformity with the safeguards contained in the departmental circular.
The Court specifically noted that the circular recognises that the power of arrest affects personal liberty and therefore cannot be exercised routinely. However, after examining the grounds of arrest in the present case, the Court found that the grounds had been served upon the petitioner.
The Court subsequently examined the detailed grounds of arrest and concluded that they demonstrated the basis on which the department had formed its belief regarding the petitioner’s alleged involvement.
The Court ultimately held that the arrest was in conformity with the circular and, therefore, could not be said to be illegal.
The petitioner had also argued that the maximum punishment prescribed for the alleged offences was five years and, therefore, the arrest could not be sustained in view of the principles laid down by the Supreme Court in Satender Kumar Antil v. Central Bureau of Investigation.
The High Court rejected this contention.
It noted that the Supreme Court in Satender Kumar Antil had specifically dealt with different categories of offences and that offences under special enactments, such as the CGST Act, fall within the framework of the concerned special statute.
The Court referred to the Supreme Court’s observation that, even where an offence is punishable with imprisonment of less than seven years or up to seven years, arrest must be based on a reason to believe or suspect that the person has committed the offence and there must be a necessity for arrest, including for proper investigation or preventing disappearance or tampering with evidence or influencing witnesses.
An important legal takeaway from the judgment is the Court’s emphasis on recording reasons for arrest.
The High Court noted that the Supreme Court had held that the arresting officer should record the reasons for arrest in writing. In the present case, the Court found that adequate reasons had been recorded in the grounds of arrest to justify the petitioner’s arrest.
Thus, the mere fact that the alleged offences carried a maximum sentence of five years was not sufficient to invalidate the arrest. The legality of the arrest depended on whether the statutory and procedural requirements for exercising the power of arrest had been satisfied and whether the competent authority had recorded adequate reasons demonstrating the necessity of arrest.
The petitioner had also argued that the department should have first issued a notice under Section 74 of the CGST Act to the concerned companies and proceeded to recover the alleged tax before arresting him.
The department disputed this proposition, maintaining that adjudication under Section 74 and prosecution/arrest under Sections 69 and 132 operate independently.
The respondents contended that there is no requirement that proceedings under Section 74 must necessarily precede arrest in every case, particularly where the investigation discloses deliberate suppression of taxable turnover, routing of online gaming proceeds through multiple entities and substantial GST evasion.
The record therefore presented the Court with allegations going beyond a mere tax computation dispute, with the department alleging a deliberate and structured mechanism involving dummy entities, suppression of taxable value and layered financial transactions.
The High Court ultimately declined the reliefs sought by the petitioner.
The Court found that the arrest was supported by the grounds recorded by the competent authority and that the material placed before it demonstrated compliance with the departmental safeguards governing arrest. Consequently, the Court held that the petitioner’s arrest could not be characterised as illegal.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
