Updated on 5th April 2017
In our previous article we mentioned the various offences under GST and their penalties. Now we will discuss the prosecution under GST.
Prosecution under GST
Prosecution is the conducting of legal proceedings against someone in respect of a criminal charge.
Any person committing the following offences (i.e., deliberate intention of fraud) becomes liable to prosecution, i.e., face criminal charges.
- Supplies any goods/services without an invoice in order to evade tax
- Issues any invoice without supplying any goods/services- thus taking input credit or refund by fraud
- Collects any GST (even if in contravention of provisions) but does not submit it to the government within 3 months.
- Obtains refund of any CGST/SGST by fraud.
- Submits fake financial records/documents or files fake returns to evade tax
- Obstructs the proper officer during his duty (for example, he hinders the officer during the audit by tax authorities)
- Acquires/receives any goods/services with full knowledge that it is in violation of GST rules and is liable for confiscation
- Destroys any evidence
- Does not provide information/gives false information during proceedings
- Helps any person to commit fraud under GST
-shall be punished as follows-
|Particulars||GST regime||Current regime|
|100-200 lakhs||200-500lakhs||Above 500 lakhs||1 crore||2crore|
(if tax amount involved is below 50 lakhs)
(if tax not
collected and tax amount involved
is below 2 crore)
|Jail term||Upto 1 year||Upto 3 years||Upto 5 years||Upto 7 years||Upto 7 years|
|Remarks||Applicable in the above specified offences||Applicable in seven specified offences||Applicable where the taxpayer has collected tax but not deposited|
Comparison with current regime shows that the threshold for prosecution is much lower for GST at 100 lakhs. This is in keeping with the government’s anti-tax evasion stance by bringing in stricter measures.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.
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
Compounding of offenses is a short cut method to avoid litigation. In the case of prosecution for an offense 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 Model Law also allows for compounding of offenses.
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
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
-Whichever is higher.
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.
Arrest under GST
If the Commissioner of CGST/SGST believes a person has committed an offence u/s 132 (above offences), he can be arrested by any authorised CGST/SGST officer.
Thus an offender not only faces prosecution but also arrest under GST.
The arrested person will be informed of the grounds of his arrest. He will appear before the magistrate within 24 hours in case of cognizable offence.
The provisions of arrest seem rather harsh as GST is an economic legislation, i.e., a tax law and not a criminal legislation. The Commissioner has the power to arrest on the basis of reasons to believe. The wording is subjective (i.e. depending upon the opinion). An honest taxpayer who for example, did not pay GST because he genuinely believed GST was not applicable to him might get arrested. It can be a case of wrong interpretation of law for which penalty can apply but arrest appears rather harsh. There should be more clarity on the occasions when a person can be arrested. There should be appropriate check and balances in the GST law to ensure that the genuine taxpayers making mistakes do not get severely punished.
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.