GST

Offences and Prosecution: GST Act

The word “prosecution” can be understood as a formal charge created before the institution of any prosecution. Various fiscal laws govern the prosecution under the Pre-GST era; however, after the Goods & Service Tax Act, 2017^[1], the prosecution under GST shall be launched according to the determined provisions.

Moreover, the central government, on 1st September 2022 issued detailed guidelines on the procedure for prosecution under GST Act. The prosecution under the GST act can be understood as initiating legal proceedings against the persons who willfully or knowingly evade the tax payment. Even though the act contains provisions for prosecution, the errant taxpayer can still be prosecuted under general laws.The present article will state the offences for which prosecution under the GST act can be initiated.

What are the offences for Prosecution under GST ACT?

Under the GST Act, the provisions for prosecution are uniform for similar offences. Henceforth, the provision for prosecution under GST is prescribed under Section 132 of the Goods & Service Tax Act. The offences prescribed under Section132 (1) of the act are:

1. Intentionally Supplying goods without issuing an invoice to evade tax
2. Wrongful availment of ITC (input Tax Credit) or refund of tax without actually supplying goods on any invoice
3. Fraudulent availment of ITC without issuing any invoice or bill
4. Failure in payment of collected tax to the government beyond 3 months from the date the payment is due
5. Wilful Evasion of Tax
6. Fraudulently obtaining refund
7.  Intentionally evading tax by:
8. Producing False or Substitute Financial Records
9. Producing Fake accounts or documents
10. Producing false information
11. Obstructing the officer in discharging their charge
12. Knowingly acquires possession of the goods mentioned, liable for confiscation
13. Knowingly indulges in the activities of
14. Transporting
15. Removing
16. Depositing
17. Keeping
18. Concealing
19. Supplying
20. Purchasing

Of any goods that are liable for confiscation

1. Knowingly receiving or supplying services that are in contravention of the act
2. Wilfully destroys the documents of evidence
3. Failure in supplying any information or supply false information
4. Abets any of the offences mentioned above

What is the punishment for Prosecution under GST?

Section-132 of the act enlist the punishment for the offences committed under sub-clause 1 of Section-132.It states the punishment for prosecution under GST and determines the quantum of punishment according to the amount of tax evasion.It states that whoever commits or retains the benefits arising shall be punished according to the below-mentioned criteria:

S. No.	Amount of Tax Evaded or wrong refund taken or ITC Wrongly Availed	Term of Imprisonment
	Exceeds Rs 500 Lakh	Upto 5 years and fine
	Between Rs 200 Lakh and Rs 500 Lakh	Upto 3 years and fine
	Between Rs 100 Lakh and Rs 200 Lakh	Upto 1 year and fine
	Abetment of offences under point7,8 and 12 mentioned above	Upto 6 months or fine or both

What is the Second and Subsequent Offence for prosecution under GST?

The second and subsequent commitment of offence is prescribed under sub-clause 2 of Section 132. It states that the person convicted of an offence under Section 132 (1), if they commit the second or subsequent offence, they shall be held liable and be punished with imprisonment for a term of upto 5 years and a fine.

What are Cognisable and non-cognisable offences under GST?

Cognisable offences are those offences where the concerned officer is authorised to take cognisance of the offences without any warrant, whereas in non-cognisable offences, the officer has to take a warrant from the concerned officer before taking cognisance of any offence.

Cognisable Offence: Section 132(5) of the act states thatif the evasion of tax is more than Rs 500 Lakh for the offences enumerated under 1, 2, 3 and 4 above, then it shall be a cognisable and non-bailable offence.

Non-cognisable offence: Section 132(4) of the act states that all offences other than those mentioned under Section 132(5) shall be a non-cognisable and bailable offence.

Therefore, all the offences under the GST act are non-cognisable and bailable if the amount of tax evasion is below Rs 500 Lakh.

Who will approve cognisance of offence for Prosecution under GST?

The person accused of any offence mentioned under Section 132(1) can be prosecuted only with prior approval from the commissioner. Further, the act under Section 134 also provides that the court can take cognisance only if there is a prior sanction of the commissioner. The section further provides that the case shall be tried by First class magistrate.

What is a “Culpable Mental State” for prosecution under GST?

The word “Culpable Mental State” means:

1. Intention
2. Motive
3. Knowledge of a fact
4. Reason to believe a fact

The culpable mental state is necessary to ascertain before initiating any prosecution under GST. Section 135 of the act states the court shall presume the existence of culpable mental states for offences requiring a culpable mental state. It can be inferred from the plain reading of the section that the accused has a burden to prove beyond reasonable doubt that he has not possessed the culpable mental state for the offences.

What are the offences committed by the Company for Prosecution under GST?

TheGST act also prosecutes the company for the offences mentioned under Section 132(1) if there is an evasion of tax, wrongful availment of ITC or wrong availment of refund. The prosecution proceedings may be initiated against the company orthe person responsible for the conduct of the business and shall be held liable for punishment.

Moreover, if it is proved that the offence is committed with the intention and negligence on the part of:

1. Director
2. Manager
3. Secretary
4. Any other officer of the company

Then, the person who is liable for such an offence shall be punished accordingly.

Further, if the offence is committed by the Partnership Firm or LLP or HUF or trust, then the person mentioned can be held liable and be punished accordingly:

1. Partner
2. Karta
3. Managing Trustee

What is compounding of offence?

The compounding of offence can be understood as the process whereby the person can get free from the charge by payment of a certain fee to the commissioner or the government. Similarly, to avoid a large number of prosecutions under the GST act, the provision for compounding of offences is provided under Section 138 so that the person can get free from the charge created under the act by payment of the amount to the central or state government. Further, the application for compounding shall be made to the commissioner.

Amount for Compounding of offence Section 138 (2):

The amount for compounding of an offence shall be:

1. Not less than Rs 10, 000  or 50% of the defaulted tax, whichever is higher
2. Not less than Rs 50, 000 or 150% of the defaulted tax, whichever is higher

Moreover, Section 138(3) of the act state that any prosecution proceedings against the person shall stand abated after the payment of the compounding amount.

Exemptions for Compounding of Offences:

There are certain offences for which the act provides an exemption for the compounding of offences provided that the person has paid made of tax, interest and penalty:

1. The person shall not be allowed for second compounding for the offences:
2. Intentionally Supplying goods without issuing an invoice to evade tax
3. Wrongful availment of ITC (input Tax Credit) or refund of tax without actually supplying goods on any invoice
4. Fraudulent availment of ITC without issuing any invoice or bill
5. Failure in payment of collected tax to the government beyond 3 months from the date the payment is due
6. Wilful Evasion of Tax
7. Fraudulently obtaining refund
8.  Intentionally evading tax by:
9. Producing False or Substitute Financial Records
10. Producing Fake accounts or documents
11. Producing false information
12. Abates any of the offences mentioned above
13. The person shall not be allowed for second compounding for offences other than those mentioned under Section 132 (1) if the value of supplies is more than Rs 1 Crore.
14. The person shall not be allowed compounding of an offence if the offence committed is also an offence under any other law.
15. The person who the court convicts for the offence under the act
16. The person shall not be allowed for compounding of offences:
17. Obstructing the officer in discharging their charge
18. Wilfully destroys the documents of evidence
19. Failure in supplying any information or supply false information

Conclusion

The prosecution under the GST act provides uniform penal provisions for which a formal charge can be created for the evasion of all indirect taxes. The GST act is a consolidated fiscal statute that governs all indirect taxes in one place. The prosecution proceedings for the offences requiring culpable mental state is not tenable as the burden lies on the accused rather than on the accuser. It is also pertinent to mention that the monetary limit on tax evasion is not applied to second and subsequent offences.

Read our Article: Guidelines for Launching Prosecution Under GST Act