GST

Guidelines for Launching Prosecution Under GST Act

The term “prosecution” means initiating legal proceedings against the offender. It is the process of creating formal charges before the institution of any proceedings. In the case of Siddharth vs the State of Uttar Pradesh, 2021, the Supreme Court observed the arbitrary arrest by the authorities before filing the charge sheet. The court stated that the officer-in-chargecould not merely arrest an individual before filing the charge sheet. There has to be a reasonable suspicion in the officer’s mind that the individual can influence the witnesses and destroy the evidence necessary for the investigation.

The CBIC (Central Board of Indirect Taxes) has inspected the above judgement and issued various instructions and guidelines for launching prosecution or arrest under the CGST (Central Goods and Excise Tax) Act, 2017^[1]. The current instruction is issued on 1^st September 2022 as Instruction No.4/2022-23. The present article will note the critical points from the instructions and simply the guidelines issued in lieu of prosecution under GST

1. Permission to Prosecute

The prosecution has a negative effect on an individual’s mind; therefore, the standard of proof required in the prosecution shall be beyond a reasonable doubt. The evidence collected by the officer in charge shall be adequate to prove an individual’s crime. The decision of prosecution under GST shall be taken giving due regard to the circumstances of the cases and such other factors prescribed below:

1. Nature and Gravity of Offence
2. Amount of tax evaded
3. Amount of the Input Tax Credit wrongly Claimed
4. Amount of tax refund Wrongly Claimed
5. Nature of Evidence collected
6. Quality of Evidence collected

The officer in charge should refrain from filing prosecution merely:

• A demand GST demand has been confirmed during the adjudication proceedings.

Note: A demand is a notice served by the officer in case the tax is short or unpaid; a refund is wrongly made; input tax credit is wrongly claimed.

• Technical nature
• There is a difference of opinion regarding the interpretation of the law in claiming additional tax.
• Evidence gathered should prove beyond reasonable doubt the guilt of an individual.
• In the case of a Public limited company, the prosecution should be against the persons responsible for the company’s day-to-day activities and who actively participate in the evasion.

2. Monetary Limit for prosecution under GST

The prosecution under GST will generally be launched under section (1) of Section-132 of CGST Act, 2017, where the amount of tax evaded, ITC wrongly used and tax refund wrongly claimed is more than Five Hundred Lakh rupees. There are exemptions under the instructions for this amount:

Exemption

1. Habitual Evaders:The prosecution under GST can be launched against a company and a taxpayer if they are involved in two or more cases of confirmed demand of:
2. Tax evasion
3. fraudulent Tax Refunds
4. Misuse of ITC

The company /taxpayer will be an offender if they have suppressed the facts about the evasion or have fraudulently evaded the tax in the past two years and the benefits wrongly claimed by them exceeds Five Hundred Lakh rupees.

• Arrest cases: During the investigation process, any arrest made under Section 69 of the CGST Act will be exempted from the monetary limit of Five Hundred Lakh Rupees.

3. Authority to Permit Prosecution under GST

The prosecution against a person shall be filed only after taking permission from:

1. Principal Commissioner
2. Commissioner of  Central Goods and Sales Tax

Investigation by DGGI

The prosecution against a person shall be filed only after taking permission from:

1. Principal Additional Director General or Additional Director General
2. Directorate General of GST Intelligence (DGGI) of respective Zonal unit/headquarters.

4. Procedure for Prosecution Under GST

· Arrest made under Section-69 of CGST Act, 2017

1. If any arrests have been made and no bail has been granted during an investigation, then a complaint shall be filed in court within 60 days of arrest.
2. In other cases of arrest, the prosecution complaint shall be filed within a reasonable time.
3. The request for filing a prosecution complaint shall be made to the Principal Commissioner or Commissioner of Central Goods and Sales Tax within 50 days of arrest.
4. The Pr. Commissioner or Commissioner of CGST shall examine the request
5. If the request is accepted, then Pr. Commissioner or Commissioner of CGST shall authorise the IO (Investigating Officer) to file a prosecution complaint in court.

If the decision is to be taken by DGGI. In that case Additional or Joint commissioner, Additional or Joint Director involved in the case must forward the complaint and the relevant evidence with a request to file a prosecution complaint to the Principal Commissioner/Commissioner/ or principal ADG/ ADG of DGGI.

· Against legal persons and Natural person

Section 137(1) and (2) states that both the legal person and the natural person of the company are liable for prosecution under Section 132 of CGST Act,2017. The procedure for prosecution is summarised below:

1. If the Additional/Joint Commissioner or Additional/Joint Director of DGGI thinks the case is fit for investigation, they shall request the sanctioning authority. The decision of the sanctioning authority will be conveyed to the adjudicating authority.
2. In other cases, where a prosecution complaint has been filed before adjudicating authority and in cases mentioned in point (1) above, the adjudicating authority shall make an order indicating whether the case is fit for prosecution. The order shall be sent to the Pr. Commissioner/ Commissioner for obtaining permission for prosecution.
3. If the DGGI has issued the show cause notice, the recommendations of the adjudicating authority on the decision to file a prosecution complaint shall be conveyed to the Pr. ADG/ADG of DGGI.
4. Suppose the adjudicating authority has taken no view on the matter of prosecution at the time of passing the order. In that case, the adjudicating branch shall resubmit the file within 15 days of passing the order.
5. The Pr. Commissioner/ Commissioner or Pr. ADG/ ADG of DGGI can examine suo-moto the case for prosecution irrespectiveof any recommendation from the adjudicating authority.
6. The investigation report shall be made within one month of receiving the order of adjudicating authority for initiating prosecution. Deputy or Additional Commissioner shall sign the report and send it to Pr. Commissioner/ Commissioner for taking a decision on whether to initiate prosecution or not.
7. After receiving the approval for filing a prosecution complaint, the authorised officer shall file a complaint in court within 60 days. The delay in complaint filing shall accompany the reasons and be conveyed to the sanctioning authority.

5. Appeal against a court order by the authority

If the punishment order by the court is less or inadequate as envisaged under the act, then an appeal can be made by the authority before the court. The process involved in filing the appeal is:

1. Examination of judgment by prosecution cell of Commissionerate.
2. Submitting recommendations with Pr. Commissioner/ Commissioner
3. If Pr. Commissioner/ Commissioner believes that the accused has let off with less punishment, in that case, the agency can think of filing an appeal before the court.
4. Before filing an appeal, permission from Pr. Commissioner/ Commissioner shall be accorded.

In cases booked by DGGI, the prosecution cell in the directorate shall examine the judgement and submit recommendations to the Pr. ADG/ADG. The Pr. ADG/ADG will decide whether to file the appeal or accept the judgement. Before filing an appeal, permission from DG or Pr. DG shall be obtained.

6. Procedure for Withdrawal of Prosecution under GST

· Procedure for withdrawal of permission request of the prosecution

Where permission is granted for prosecution, but the complaint has not been filed due to the emergence of new facts or evidence, the Commissionerate shall bring it to thenotice of the sanctioning authority. After examining all the facts and evidence, the sanctioning authority believes that the request for permission is withdrawn, and then it shall recommend the Pr. Chief Commissioner/ Chief Commissioner to withdraw the same. In the case of DGGI, the DG of DGGI can make an order to withdraw the request for prosecution. 

· Procedure for withdrawal in case the Prosecution complaint is filed

If it is found in the adjudication proceedings that there is no contravention of the act, then Pr. Commissioner/ Commissioner or Pr. ADG/ ADG shall take approval from higher authorities and apply for withdrawal through a public prosecutor in the court. The withdrawal becomes effective only after the order of the court.

7. Publication of name of accused

The Pr.Commissioner/Commissioner is authorised to publish the name and other antecedents of the person convicted under the act.

8. Supervision of Prosecution cases

According to Section 138 of CGST Act 2017, the Pr. Commissioner/ Commissioner can compound the offence on payment of a prescribed fee. The person being prosecuted should be made aware of the provisions that will apply to him, and he should be given an offer to compound the offence.

Note: Compounding of offences is a process whereby a person committing a default will file an application with the compounding authority making a self-declaration that he has committed an offence and wants the same to be cordoned on payment of a certain fee.

9. Prospective Application

The provisions will apply prospectively in all the cases where permission for prosecution under GST is granted after these instructions become effective. The procedure mentioned in these instructions shall be adhered to for filing any prosecution complaint in court. It shall apply in the cases where permission for prosecution is granted but no complaint has been filed in the court.

10. Inspection by senior officials

The DG of Directorate General of Performance Management and Pr. Chief Commissioners/Chief Commissioners have a responsibility to check whether the instructions are being followed and shall make a written note on the investigation report about the compliance of these instructions.Conviction of an accused mustdepend on the quality of the evidence. Hence, the senior officials shall personally manage all the investigations where the case involves money laundering and tax evasion.

11. Monitoring Prosecution

After granting permission for prosecution under GST, the senior officials shall monitor the case at monthly intervals and make any recommendations to the investigating authority to ensure that the progress is satisfactory. The entry shall be made in the investigation module within 48 hours of granting permission for prosecution and will be updated from time to time.

12. General Guidelines

The general guidelines that the investigating authority should follow are:

1. To avoid any delay in the prodding of the court, the investigating authority, in consultation with the public prosecutor, shall ensure that all the evidence, facts, documents and exhibits are well prepared. If the complaint is not filed within 60 days of granting permission, the reason for such delay shall be conveyed to the senior officials.
2. The filing of a prosecution complaint in court shall not be delayed because the person has filed an appeal or revision.
3. The in charge of the adjudication section shall provide a copy of adjudication orders to the prosecution section. The in-charge shall monitor all the adjudication orders and retrieve all the serial numbers missing from adjudication orders.
4. The in charge of the prosecution case of DGGI shall provide a copy of the adjudication order to the DGGI

Conclusion

The decision of the Supreme Court in Siddharth vs the State of Uttar Pradesh, 2021, has proved to be the protector of fundamental rights. The case had put the investigating authority under strong scrutiny. These instructions have increased the investigating agency’s liability and made them responsible for opting the wrong method of investigation. The instructions notified by the authority provide guidelines that must be followed before filing any prosecution under GST complaint in court. The above guidelines have forced the investigating agency to look for quality evidence before making any arrests or initiating any prosecution.

Read our Article: Offences and Penalties under GST in India