Prosecution, Compounding of Offences

In our previous article we mentioned the various offences under GST and their penalties. Now we will discuss prosecution and compounding under GST.

Budget 2023 update (to be notified): 
(1) The minimum and maximum limits for compounding the offences have been reduced to 25% and 100% of the tax involved.
(2) Taxpayers can avail compounding of offences (involving supplies worth more than Rs 1 crore value) more than once.
(3) More offences have been made ineligible for compounding, such as fake ITC claims, possession of goods liable for confiscations, supplying services in contravention to act, obstructing officers from performing duties, tempering evidence, and non-submission of proper information.

Prosecution under GST

Prosecution is the conducting of legal proceedings against someone in respect of a criminal charge.

Offences liable for prosecution

Any person committing the following offences (i.e., deliberate intention of fraud) becomes liable to prosecution, i.e., face criminal charges.

1. Supplies any goods/services without an invoice in order to evade tax
2. Issues any invoice without supplying any goods/services- thus taking input credit or refund by fraud
3. Collects any GST (even if in contravention of provisions) but does not submit it to the government within 3 months.
4. Obtains refund of any CGST/SGST by fraud.
5. Submits fake financial records/documents or files fake returns to evade tax
6. Obstructs the proper officer during his duty (for example, he hinders the officer during the audit by tax authorities)
7. Acquires/receives any goods/services with full knowledge that it is in violation of GST rules and is liable for confiscation
8. Destroys any evidence
9. Does not provide information/gives false information during proceedings
10. Helps any person to commit fraud under GST

Punishment

The person committing any of the offences above shall be punished as follows:

**If a person commits the following offences AND the amount involved exceeds 500 lakhs then the offences are non-bailable-

1. Supplies any goods/services without an invoice in order to evade tax
2. Issues any invoice without supplying any goods/services- thus taking input credit or refund by fraud
3. Collects any GST (even if in contravention of provisions) but does not submit it to the government within 3 months.

This is in keeping with the government’s anti-tax evasion stance by bringing in stricter measures.

Punishment for destroying evidence

For destroying evidence, preventing the officer from his duty, falsifying information or helping someone in the same, he is liable for up to 6 months imprisonment with fine

Repeat offenders

If the offense is repeated a second time then punishment can extend up to 5 years with fine. A person can not be prosecuted without the prior sanction of the Commissioner.

Compounding of offences under GST

What is compounding of offences?

Compounding of offences is a shortcut method to avoid litigation. In the case of prosecution for an offence in a criminal court, the accused has to appear before the Magistrate at every hearing through an advocate. Court proceedings are time-consuming and expensive. In compounding, the accused is not required to appear personally and can be discharged on payment of compounding fee which cannot be more than the maximum fine leviable under the relevant provisions. GST Act also allows for compounding of offences.

Non-availability of compounding

Compounding will not be available for-

• Anyone who has already committed any of the offences mentioned under prosecution above, i.e., second-time offenders will not be allowed to compound.
• A person who had committed an offence before under GST involving supplies above Rs. 1 crore and has been allowed to compound before. Thus, it stands, any person previously enjoying compounding for goods/services over Rs. 1 crore will not enjoy compounding a second time.*
• Any person who is also being tried under other acts such as Narcotic Drugs Act, FEMA etc.*
• Any person convicted by a court under GST.
• Any person giving false information during proceedings, or preventing the officer from his duty or destroying evidence.*
• Offences related to fake ITC claims, possession of goods liable for confiscations, supplying services in contravention to act, obstructing officers from performing duties, tempering evidence, and non-submission of proper information.^

*Removed and ^included through Budget 2023. CBIC is yet to notify these changes.

Compounding will be allowed only after payment of all tax, interest and penalty dues.

Amount payable for compounding

The amount payable for compounding of offences shall be 50% of the tax involved subject to a minimum Rs. 10,000. Maximum amount for compounding is 150% of the tax OR Rs. 30,000 -Whichever is higher.

However, Budget 2023 reduced the minimum and maximum limits for compounding the offences to 25% and 100% of the tax involved. CBIC is yet to notify this amendment.

Abatement of further proceedings

On payment of the compounding amount, no further proceedings shall be initiated against the accused person for the same offence and any criminal proceedings, if already initiated, will be abated. Apart from prosecution, the offender can also be arrested. Please read our article on arrest under GST. Thus, we find that GST has severe prosecutions to punish tax evaders and the corrupt thus keeping in mind the government’s anti-tax evasion stance.

Related Articles

• Offences and penalties under GST
• GST appeals
• Inspection, search and seizure under GST
• Seizure
• Detention & confiscation of goods in transit  

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