Govt Given NAB-Like Powers to Make Arrests in Simple Tax Matters

The Finance Act 2025 has expanded the definition of tax fraud under Section 2(37) of the Sales Tax Act. Businesses are now facing a greater risk of arrest in routine tax matters.

A Legal Tax expert stated that the revised law now encompasses common disputes, such as the use of input tax from suppliers who later become inactive, delayed withholding tax payments, and presumed sales suppression, within the scope of tax fraud. Tax officials regularly allege these charges during audits.

The new law presumes that such offences are intentional unless proven otherwise.. This contradicts the principle of “innocent until proven guilty” and looks like NAB-style enforcement.

The amendments also allow arrest under Section 37(AA) for any act falling within this broader definition, including failure to register, generate valid invoices, or comply with Section 73 payment routing rules. This could lead to harassment of genuine taxpayers using coercive tactics to raise revenue.

The changes appear to bypass the Supreme Court’s judgment in the Taj International case, which restricted the misuse of arrest powers. The legal expert urged the government to issue clear SOPs to limit the arbitrary application of the law and protect legitimate businesses from wrongful prosecution.