Prosecution Under Section 132 CGST: Arrest, Bail and Defence Strategy (Hyderabad)

Prosecution Under Section 132 CGST: Arrest, Bail and Defence Strategy (Hyderabad)

A practical guide for taxpayers, business owners, directors and litigants in Hyderabad and Telangana

Introduction

Prosecution under Section 132 CGST is the point at which a GST investigation stops being only a tax demand and becomes a criminal case. For many Hyderabad business owners, the first shock is not the show-cause notice. It is a Section 70 summons from DGGI or Anti-Evasion, followed by talk of arrest under Section 69.

Section 132 of the CGST Act lists GST offences that can lead to imprisonment and fine. Not every tax dispute is a criminal offence. The law looks at the nature of the act, the tax or ITC amount involved, and whether there is an intention to evade. Above ₹5 crore, specified offences become cognizable and non-bailable. That is why early strategy on arrest, bail and defence matters more than a late reply.

This guide explains when Section 132 applies, how arrest is authorised, where to seek bail in Telangana, what documents matter, and the mistakes that make custody more likely.

What Section 132 CGST actually punishes

Section 132 does not criminalise every GST default. It targets specified conduct, including:

supply without invoice, with intent to evade tax;

issue of invoice or bill without actual supply, leading to wrongful ITC or refund;

availment of ITC on such fake invoices, or fraudulent ITC without any invoice;

collection of tax that is not paid to the Government beyond three months;

tax evasion or fraudulent refund not covered by the clauses above;

fake or substituted books, false documents or false information to evade tax;

dealing in goods believed to be liable to confiscation, or services believed to be in contravention; and

attempt or abetment of the listed offences.

Finance Act, 2023 (with effect from 1 October 2023) removed certain earlier offences from the criminal list (the old obstruction, evidence-tampering and failure-to-supply-information clauses). The same amendment generally raised the prosecution money threshold from ₹1 crore to ₹2 crore, except for invoice-without-supply cases. Always check the clause actually invoked in the arrest memo or complaint. Do not assume the 2017 wording still applies.

The “tax involved” is not your turnover. It is the tax evaded, ITC wrongly availed or utilised, or refund wrongly taken, including CGST, SGST/UTGST, IGST and Compensation Cess.

Punishment bands and when the offence becomes non-bailable

Punishment is tied to the amount involved:

Above ₹5 crore: imprisonment up to five years and fine.

Above ₹2 crore and up to ₹5 crore: imprisonment up to three years and fine.

For invoice-without-supply (clause (b)), above ₹1 crore and up to ₹2 crore: imprisonment up to one year and fine.

Other specified residual cases: shorter imprisonment and/or fine.

Under Section 132(4), most GST offences are non-cognizable and bailable. The exception is Section 132(5): offences under clauses (a), (b), (c) or (d) that are punishable in the above-₹5-crore band are cognizable and non-bailable.

A second or subsequent conviction under Section 132(2) can attract imprisonment up to five years (with a statutory minimum period). Repeat-offender treatment is fact-specific. Verify the exact prior conviction before assuming the higher band applies.

CBIC Instruction No. 04/2022-23 says prosecution should ordinarily be considered where evasion, fake ITC or bogus refund exceeds ₹5 crore, and should not be launched merely because an adjudication order is confirmed, or where the dispute is only interpretation, classification or place of supply without fraud indicators. Arrest cases and habitual evaders are treated more strictly. These are administrative guidelines, not a substitute for the statute.

How arrest under Section 69 works

Arrest is not automatic with a summons. Section 69 allows the Commissioner to authorise arrest only if he has reasons to believe that the person has committed an offence under Section 132(1)(a), (b), (c) or (d), and that the offence is punishable under the higher bands in Section 132(1)(i) or (ii), or under Section 132(2).

In Hyderabad practice, the investigating formation is often:

DGGI, Hyderabad Zonal Unit;

CGST Commissionerate Hyderabad / Secunderabad Anti-Evasion; or

Telangana State GST intelligence units.

Typical sequence:

Search or inspection under Section 67, or intelligence on fake ITC chains.

Summons under Section 70 and recorded statements.

File noting on “reasons to believe”, computation of tax/ITC, and role of each person.

Commissioner’s arrest authorisation.

Arrest memo, written grounds of arrest, and production before a Magistrate within 24 hours in cognizable non-bailable cases.

The Supreme Court in Radhika Agarwal v. Union of India, (2025) 6 SCC 545 (27 February 2025) upheld Sections 69 and 70 as constitutionally valid, but laid down safeguards:

reasons to believe must be recorded and must rest on material, including how the monetary threshold is met;

arrest is not a tool to force recovery;

grounds of arrest must be furnished;

BNSS/CrPC arrest safeguards apply;

anticipatory bail is available even if no FIR has been registered; and

tax extracted by threat of arrest can be challenged, including a claim for refund.

CBIC Instruction No. 01/2025-GST dated 13 January 2025 tightened arrest-memo practice after High Court and Supreme Court directions. A later 2026 Supreme Court ruling has also emphasised that the Section 69 order recording reasons to believe should be communicated before arrest so that pre-arrest bail can be sought. Confirm the exact cause title and paragraph before citing that 2026 order in court.

Non-bailable does not mean “no bail”. It means bail is discretionary. Courts still look at custody period, whether the case is documentary, cooperation, antecedents, and whether custodial interrogation is truly needed.

Sanction, complaint and the trial court

A person cannot be prosecuted under Section 132 without the previous sanction of the Commissioner (Section 132(6)). Separately, Section 134 provides that no court takes cognizance of an offence under the Act without the Commissioner’s previous sanction, and that no court inferior to a Magistrate of the First Class shall try the offence.

In DGGI cases, sanction is typically from the Principal Additional Director General / Additional Director General of the concerned zonal unit, as per CBIC prosecution instructions.

GST prosecution is usually launched by a complaint before the Magistrate, not by a routine police FIR. Mixing IPC/BNS cheating charges with a GST search, while skipping Section 132 sanction, has been criticised by courts in other States. The correct forum and charge-sheet strategy should be checked on the actual papers.

Because the maximum sentence under Section 132 is five years, the case is triable by a Judicial Magistrate. That fact often helps on bail after the complaint is filed, especially where evidence is already seized.

Bail strategy in Telangana

Anticipatory bail

If there is a real apprehension of arrest — summons plus statements plus a live investigation above the Section 132(5) threshold — apply for anticipatory bail under Section 482 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (old Section 438 CrPC) before the Sessions Court or the Telangana High Court.

Useful grounds in GST matters:

investigation is documentary and digital; records are already with the department;

the applicant has appeared to summons and is not a flight risk;

“reasons to believe” or the tax computation is not shown;

the dispute is classification, valuation or bona fide ITC matching, not a shell-invoice chain;

substantial voluntary payment has been made without prejudice; and

the applicant is not the person in charge of day-to-day affairs (Section 137 point).

Telangana High Court has granted pre-arrest protection in some high-value ITC cases where evidence was already on record and cooperation was shown (including matters arising from DGGI Hyderabad investigations). The same Court has also refused anticipatory bail where investigation was incomplete and the alleged amount and role were serious. Outcome is fact-specific. The older Telangana view in P.V. Ramana Reddy (2019) that anticipatory bail is unavailable before an FIR must now be read subject to Radhika Agarwal.

Regular bail after arrest

If arrested:

insist on written grounds of arrest and a copy of the arrest memo;

demand production before the Magistrate within 24 hours;

apply for bail the same day if the offence is bailable under Section 132(4);

if non-bailable, move the Magistrate first, then Sessions, then the High Court; and

once the complaint is filed and custody has run for a reasonable period, rely on the documentary nature of GST cases and the five-year outer limit — the approach approved in later Supreme Court bail orders such as Vineet Jain v. Union of India (2025).

Conditions commonly imposed: personal bond and sureties, weekly appearance before the investigating officer till the complaint is filed, no tampering with records or witnesses, and travel intimation.

Defence strategy that actually works

Treat the civil and criminal tracks as parallel. Payment of tax, interest and penalty under Section 74 does not automatically kill a Section 132 case. Compounding and sanction-stage representation are the tools that can stop the criminal file.

Attack the ingredients, not only the amount

The department must show the specific clause, the tax/ITC figure, and culpable mind. Section 135 raises a presumption of culpable mental state, but it is rebuttable. Bona fide invoices, e-way bills, goods movement, banking trails and GSTN matching matter.

Separate role from the company

Section 137 can pull in the person in charge of the company and directors who consented, connived or were negligent. Independent or non-executive directors who were not in day-to-day control should not be arrested as a default. CBIC’s own prosecution guidelines discourage that practice.

Challenge illegal arrest and coercive recovery

If the Section 69 authorisation is missing, reasons are boilerplate, grounds of arrest were not given, or officers used arrest talk to extract a deposit, a writ under Article 226 before the Telangana High Court is the proper exceptional remedy. Ordinary tax appeal under Section 107 does not stay an arrest.

Quashing after complaint

Once a sanctioned complaint is filed, a petition under Section 528 BNSS (old Section 482 CrPC) before the Telangana High Court can be considered if the complaint discloses no offence, sanction is defective, or the dispute is purely interpretational. Quashing is exceptional. Do not treat it as the first step.

Compounding under Section 138

Many Section 132 offences can be compounded by the Commissioner, before or after prosecution, on payment of the compounding amount. Important limits:

tax, interest and penalty for the offence must already be paid;

compounding amount is prescribed, within a statutory band of 25% to 100% of the tax involved (Finance Act, 2023);

a person accused of issuing invoices without supply under Section 132(1)(b) is barred from compounding;

a person who has already compounded specified serious offences once, or who has been convicted by a court, is generally ineligible; and

compounding under GST does not wipe proceedings under other laws.

Application is in Form GST CPD-01 under Rule 162. If compounding is allowed, further proceedings for the same offence stop and pending criminal proceedings abate.

Hyderabad forums and practical map

Stage	Forum
Summons / search / arrest authorisation	DGGI Hyderabad ZU; CGST Hyderabad or Secunderabad; TGST intelligence
Production after arrest / first bail	Jurisdictional Judicial Magistrate First Class
Anticipatory or regular bail	Sessions Court, Hyderabad / Secunderabad; Telangana High Court
Trial after sanction	JMFC (not below First Class Magistrate)
Quashing	Telangana High Court, Section 528 BNSS
Illegal arrest / coercive recovery	Telangana High Court, Article 226
Tax demand itself	Reply to SCN; appeal under Section 107; GSTAT; writ only in exceptional cases

Timelines that matter

24 hours: production before Magistrate after arrest in Section 132(5) cases.

Immediately on apprehension: anticipatory bail — do not wait for the arrest memo if summons and file notings already show a live non-bailable case.

Sanction stage: representation to the Commissioner / ADG before the complaint is filed. This window is often missed.

Compounding: possible before or after the complaint, but only if the statutory bars do not apply.

Tax appeal limitation under Section 107 is separate and still runs. Missing the appeal while fighting bail is a common unforced error.

Limitation for taking cognizance of the criminal offence follows the BNSS/CrPC framework read with the GST Act. Do not assume the three-year tax-demand clock is the same as the prosecution clock. Have this checked on the complaint date and offence period.

Common mistakes

Treating a Section 70 summons as a routine audit letter and skipping legal advice.

Giving an unprepared statement that admits “fake ITC” without documents on the table.

Paying large sums under threat of arrest without recording that payment is under protest.

Ignoring the distinction between a ₹2–5 crore bailable case and an above-₹5-crore non-bailable case.

Assuming deposit or an OTS proposal ends the criminal file.

Applying for compounding in a pure Section 132(1)(b) fake-invoice issuance case, which the statute bars.

Naming every director in the defence narrative as if all were operationally in charge.

Going straight to a writ when anticipatory bail or a sanction-stage representation is the better first move.

Bullet-point checklist

Before arrest

Collect GST registration, GSTR-1/3B, GSTR-2B, invoices, e-way bills, e-invoices, transport and weighment records, and bank proofs of payment including tax.

Map supplier/recipient GSTIN status and cancellation dates.

Keep copies of every Section 70 summons, statement, panchnama and seized-document list.

Do not attend a DGGI or Anti-Evasion appearance without knowing whether the alleged amount crosses ₹5 crore.

Prepare a short written cooperation letter and, where advised, an anticipatory-bail brief.

If arrest is authorised or effected

Ask for the Section 69 authorisation, written grounds of arrest, and arrest memo.

Inform family and advocate immediately.

Seek production within 24 hours and apply for bail without delay.

Record any injury, delayed production, or pressure to deposit tax.

To stop or narrow prosecution

File a speaking representation against sanction under Section 132(6).

Separate adjudication (Sections 73/74) from the criminal complaint.

Check compounding eligibility under Section 138 and Rule 162.

Preserve the tax-appeal clock even while bail is pending.

Conclusion

Section 132 CGST is reserved for specified fraudulent conduct, not for every tax difference. The live risks are a Section 69 arrest in an above-₹5-crore clause (a)–(d) case, a sanctioned complaint before the Magistrate, and parallel adjudication. The defence that works in Hyderabad is early: control the Section 70 statement, force the department to show reasons and computation, seek anticipatory bail where apprehension is real, attack sanction and role, and use compounding only where the statute allows it. Delay after the first summons is what turns a tax file into a custody file.

Disclaimer

This article is for general information. It is not legal advice and does not create an advocate-client relationship. GST arrest and prosecution turn on the exact clause, amount, role, documents and the latest notifications and judgments. Verify the current text of Sections 69, 132, 134, 137 and 138, CBIC instructions, and Telangana practice before acting.

Related reading

• Filing a Writ Against Arbitrary GST Demands — Telangana High Court Checklist
• Challenging GST Account Attachment (Section 83) — Telangana High Court Strategy
• Drafting replies to GST show-cause notices and Section 74 fraud allegations
• Company directors’ personal liability in tax and cheque-bounce prosecutions
• How to respond to summons and recorded statements before investigation agencies

If you have received a Section 70 summons, an arrest threat, or a prosecution proposal under Section 132 CGST from DGGI or the Hyderabad / Secunderabad Commissionerate, get the papers reviewed before the next appearance. Early bail and sanction-stage representation decide more cases than a late trial defence.