GST

Offences and Prosecution under Pre-GST Era

Before GST, the tax was calculated differentially on sales tax, customs act, excise tax and service tax. Different statutory laws governed the prosecution or penalties for indirect taxes. After 2017, all the indirect taxes were merged into one act and are governed by the Goods and Service Tax Act, 2017. The present article will try to simplify the penalties or prosecution under Pre-GST era.

What is Prosecution?

Prosecution is the process of charging a person for any offence and trying to prove if a person is accused of an offence.It is the process of creating a formal charge before any proceedings.

Prosecution under Pre-GST Era

1. Sales Tax- Central Sales Tax, 1956

The sales tax is governed by the Central Sales Tax ACT, 1956^[1], in the pre-GST era. It is a type of indirect tax and is levied on the sales earned during inter-state trade. It means that the tax is payable on the sale of goods that take place through Interstate trade. It is an origin-based tax and is payable in the state where a commodity is sold.

The prosecution under Pre-GST era is governed by Section 10 of the Central Sales Tax Act, 1956. It states any person who has committed an offence mentioned below shall be punishable with imprisonment, which is not more than 6 months or fine or both. If the offence continues, the fine shall be levied every day during the period the offence continues. The offences under Section 10 are as follows:

1. Knowingly furnish wrong declaration or certificate.
2. Not registered under the act when it is mandatory or required and have not furnished the security
3. False Representation against such classes of goods for which the registered dealer holds no certification
4. False Representation when purchasing goods in the course of interstate trade or commerce for which the registered dealer holds no certification
5. Failure to utilise the goods for the purpose mentioned below without any reasonable cause:
6. Class of goods purchased for resale
7. Containers or materials intended for packing of goods used for sale
8. Containers or materials intended for packing of goods purchased for resale
9. Sale of Goods to Dealers in SEZ (Special Economic Zone) for undertaking a few activities
10. Is in possession of form mentioned under Section 8 (4) or 8(8)and is not obtained as per the provisions of the act
11. Collects any amount of tax in contravention of this act

Moreover, Section 10A of the act further imposes a penalty in place of the prosecution for the offence mentioned under Section 10, with a penalty levied up to one and a half times the tax that is payable.

However, the prosecution Post-GST era is governed by the GST act, but still, some offences are not subsumed under the GST act, and they are still liable for prosecution under pre-GST era.

2. Customs Act- Central Customs Act

The customs tax is governed by the Central Customs Act, 1962, under Pre-GST era. It is an indirect tax and is primarily levied for tax and collection of duties. Various sections under Central Customs Act determines the provisions for prosecution under Pre-GST Era.

1. False Declaration, False Documents etc.(Section- 132): Any person knowingly using the false statement or declaration shall be held liable for punishment for a term extending to 2 years or fine or both.
2. Evasion of Duty or Prohibitions( Section 135): Any person who:
3. Knowingly and fraudulently declare and escapes the value of duty against the goods
4. Acquires possession and harbour by way of:
5. Carrying
6. Removing
7. Depositing
8. Keeping
9. Concealing
10. Selling
11. Purchasing

Of goods that are liable for confiscation.

• Attempt to export any goods that are liable for confiscation
• Fraudulently avails or attempts to avail any exemption from duty

Shall be held liable, and the offence is punishable by imprisonment for a term which may extend to 7 years or more if:

1. Market Value of Goods exceeds Rs1 crore
2. Evasion of duty exceeds Rs 50 lakh
3. Prohibited goods
4. Amount of exemption exceeds Rs 50 Lakh

And in another case, the imprisonment shall be for a term which may extend to 3 years or more.

• Preparation (Section 135A): If a person makes any preparation in the process of exporting any goods that are in contravention of the acts shall be punishable for a term which may extend to 3 years or fine or both.
• Offences by Companies (Section 140): If an offence is committed under this act, the person responsible for the company’s day-to-day activities and the company itself shall be held liable and punished accordingly.

3. Excise Tax- Central Excise tax

The Central Excise Act 1944 govern the excise tax. It is an indirect tax that the government levies on the excisable goods that are produced within India. It is a tax that is levied on the production of goods rather than on the sale of goods. The person shall be held liable if there is any contravention of the act. Various sections under Central Excise Act determines the provisions for prosecution under Pre-GST Era.

1. Offences and Penalties (Section 9): The person can be made liable for the offences mentioned below for a term which may extend to 7 years and a fine if the leviable duty exceeds 1 lakh rupees, and in any other case, it the imprisonment shall be for a period of 3 years or fine or both.
2. Possess goods over the quantity prescribed under the act
3. Evade payment of duty
4. Remove any excisable goods that are in contravention of the act
5. Acquires possession and harbour by way of:
6. Carrying
7. Removing
8. Depositing
9. Keeping
10. Concealing
11. Selling
12. Purchasing

Of goods that are liable for confiscation.

• Contravention of the act in relation to the credit of duty
• Failure to supply information or supplying wrong information
• Attempts or Abets any offences
• Certain offences to be non-cognisable (Section 9A): Apart from the offences mentioned under Section 9 of the act, all the other offences are cognisable by the Chief Commissioner of Central Excise.
• Offences by Companies (Section 9AA): Any person in charge of the conduct of the company’s business and the company itself shall be held liable if any offences are committed under the act, and they shall be punished accordingly.
• Duty not Levied or not Paid, Short Levied or Short Paid (Section 11A): The central excise officer can, within one year from the date of knowledge of non-payment of or short payment of duty, serve a show cause notice to the person and ask why the payment is not made. The person shall be held for penalty under Section 11AC of the act.

4. Central Excise rules, 2017

The Central Excise Rules, 2017 shall beread with the Central Excise tax act, 1944. According to Rule 28, if any producer, manufacturer, importer or registered dealer:

1. Removes any excisable goods in contravention of the act
2. No accountability for goods produced, manufactured or stored
3. Engages in the activity of manufacturing, production or storage without having a registration certificate
4. Contravenes provisions of these rules with the intent to evade payment of duty

Then the goods shall be liable for confiscation, and the concerned person shall be liable for a penalty not exceeding the duty imposed on the goods or Rs 5,000, whichever is greater.

5. Service Tax- Finance Act

The service tax was guided by the Finance Act 1994 under Pre-GST era. Chapter–V of the Finance Act, 1994 discusses the Service Tax provisions. The prosecution under pre-GST era for services tax is governed d by Section 89(1) of the Finance act. It states that any person who commits any of the following offences:

1. Knowingly evades the tax
2. Avails and utilises tax credit in contravention of the rules
3. Maintains false book of accounts
4. Non- Supplyof relevant information or supply false information
5. Failure to credit the service received to the central government beyond 6 months from the due date of payment.

Shall be punishable:

1. Where the amount is more than Rs 200 lakh for offences mentioned in (1), (2), (3), (4), then it shall be punishable with imprisonment for a term of 3 years
2. Where the amount is more than Rs 200 lakh for offences mentioned in (5), it shall be punishable with imprisonment for 7 years.
3. Any other offence which may extend to 1 year

Section 89(2) talks about second and subsequent offences. It states that if a person is convicted of

1. An offence under (a) and (c), then he shall be punished for a second offence and for every subsequent offence, he shall be punishable with imprisonment for a term which may extend to 3 Years.
2. An offence under (b), then he shall be punished for a second offence and for every subsequent offence, he shall be punishable with imprisonment for a term which may extend to 3 Years.

6. CENVAT Credit rules 2004

The CENVAT credit Rules 2004 governs the CENVAT or Central Value Added Tax. It is a form of credit available to the manufacturers on inputs purchased for manufacturing or duty already paid for manufacturing the final product. It is introduced to avoid multiple taxation regimes and reduce final goods’ costs. The prosecution under pre-GST era for CENAVT credit is imposed by penalty. The CENVAT credit rules 2004 under Rule 15 states that:

1. If any person utilises the CENVAT credit wrongly and in contravention of the act, then such shall we be liable for penalty under
2. Section 11AC (1) (a)(b) of Central Excise Act, 1944
3. Section -76 (1) of Finance Act, 1994
4. If the CENAVT credit is taken or utilised by fraud, collusion or intentional misstatement,  suppression of facts, and with the intern to evade payment of duty, then the manufacturer shall be liable for penalty according to Section 11AC (1)(c), (d), (e).
5. Suppose the CENAVT credit is taken or utilised by fraud, collusion or intentional misstatement,  suppression of facts, and with the intern to evade payment of service tax. In that case, the provider of output service shall be liable for penalty according to Section 78(1) of the Finance Act.
6. Any other order by the Central Excise officer keeps the principles of natural justice in view.

Conclusion

With the Goods and Service Tax Act 2017, all the statutory laws relating to indirect taxes are consolidated into a single law. The manufacturer or person who is liable for prosecution under Pre-GST Era is governed by Finance Act, Central Excise Act, Central Sales Tax and Central Customs Act. The consolidated act for indirect taxes enables the central government to utilise the tax more appropriately. The central government collects the tax of each state and subsequently transfers the tax. However, the state government is competent under the constitution of India to make laws for state tax. Still, by enacting GST Act, 2017, the central government overrides the powers of the state government.

Read our Article: Guidelines for Launching Prosecution Under GST Act