Fino Payments Bank: Arrest of MD & CEO Rishi Gupta raises concerns of GST overreach

Even as Union Finance Minister Nirmala Sitharaman has promised to look into the arrest of Rishi Gupta, Managing Director and CEO of Fino Payments Bank, over evasion of goods and services tax (GST) worth Rs 3,000 crore, several concerns have been raised on whether this is another instance of the harsh use of provisions and overreach by tax authorities.

Also read: Fino Payments Bank MD & CEO arrest: Officials state lender operationally stable, GST evasion by certain programme managers

The finance minister was responding to a post on X by TV Mohandas Pai, Chairman, Aarin Capital, highlighting the issue. “Madame @nsitharaman please see this. How can a CEO of a regulated bank be arrested for an issue with a business partner? Is this not overreach. @FinMinIndia has given vast powers for GST [sic]. What is the safeguard for citizens against misuse? please intervene,” he had said on the social media platform. “Thanks for sharing this. Will check,” the FM wrote in response.

Previously, the Payments Council of India had also written to the FM raising concerns over the enforcement action. Industry body PCI, which represents the digital payments and the fintech ecosystem, also raised institutional concerns over the arrest.

“While we have full faith in the enforcement process, we believe it is important for the industry to articulate concerns around proportionality and governance continuity when supervised institutions and their leadership are involved,” said the letter by PCI Chairman Vishwas Patel who is also MD, AvenuesAI.

Tax and constitutional expert Abhishek A Rastogi of Rastogi Chambers, who has argued in such cases, says that under GST laws, authorities can penalise an individual only when he or she was involved in the evasion and has retained the benefits from it. However, first the tax department must prove the evasion and malafide intent of the employee.

“In corporate India, individuals must not be subject to such harassment unless it is an exceptional case of malafide. CBIC guidelines provide that arrest should be in the rarest of rare cases. Courts are now looking into detailed factual and legal analysis to ensure protection of fundamental rights,” he underlined.

Sources in the government have, however, said that Gupta’s arrest related to an investigation by the Directorate General of GST Intelligence in a case of online money gaming, which is banned.

“The initial investigation indicates GST evasion of several crores involving many shell and non-existent entities, payment aggregators which have been used to funnel the illicit funds being generated by online money gaming,” they said, adding that the investigation conducted so far has brought out the involvement of a senior bank functionary in the fraud, who has been placed under arrest.

Gupta was arrested under the provisions of section 132(1)(a) and 132(1) (i) of CGST and SGST Act, 2017, on February 27. Section 132 (1)(a) of the CGST Act relates to the supply of any goods or services or both without issuing an invoice, with the intention to evade tax. This can lead to imprisonment of up to five years in case of evasion of over Rs 5 crore.

While the investigation is still playing out, strict enforcement action by GST authorities in the past has raised questions over the ease of doing business in the country as well as several worries for taxpayers. Several companies have received demand notices for GST and there were also concerns after small vendors received notices from the commercial taxes department in Karnataka for UPI payments.  

However, the GST department has also faced challenges with regard to tax evasion—input tax credit frauds have been the most problematic for the department. Between FY21 and FY25, Central GST authorities had detected 91,370 cases of GST evasion involving Rs 7.07 lakh crore. Of this, 44,938 cases related to ITC fraud with evasion of Rs 1.78 lakh crore.