HC issues notice to Maharashtra GST dept for arrest over circular trading

Petition says arrest made despite a CBIC circular saying that no tax liability is there in circular trading

The controversial issue of arrest for alleged fraudulent availing of input tax credit (ITC) through circular trading under the goods and services tax (GST) refuses to die.

The Bombay High Court has issued a notice to the Maharashtra GST Department for arresting a person for alleged availment of fraudulent ITC to the tune of Rs 8.69 crore through circular trading.

The person had filed a petition in the court alleging that he was arrested despite a circular issued by the Central Board of Indirect Taxes and Customs (CBIC) saying that no tax liability is there in circular trading.

However, if a person has availed fraudulent ITC, he will be liable to penal charges, the circular said. He also alleged that he was arrested without being issued a show cause notice and against government instructions.

Circular trading refers to issuing of invoice by traders without supplying of underlying goods and services for availment of fraudulent ITC.

Rastogi Chambers founder Abhishek Rastogi, who filed the writ of habeas corpus challenging the arrest, said the intention of the government is very clear that the procedure must be followed for arrest and that tax is not payable in case of circular trading as per the circular issued in this regard.

"Accordingly, keeping in mind the circular and instructions issued by the Board, any detention leading to judicial custody will have to cross the barrier of illegal detention," he said.