In replacement of Indirect Tax levies like VAT/Service Tax/Excise, the new model of GST is introduced from 1-7-2017. There is Central Goods and Services Tax Act (CGST) as well as State Goods and Services Tax Acts (SGST). Thus, GST is a fiscal statute made to raise revenue for Governments. Like any fiscal statute, GST also contains provisions for prosecution in case of default by any person. As we are aware, such provisions are for deterrence so that there should not be knowingly tax evasion by any person.
It is experience that till recently revenue authorities were not much aggressive about prosecution and it used to be launched/made applicable very selectively. However, now, it is order of the day to initiate prosecution whereever applicable. Therefore, it is necessary that there is good awareness of these provisions to avoid any undesirable action on part of authorities.
Generally, every fiscal statute contains the provisions of prosecution, although the errant taxpayer can be prosecuted with the help of general laws such as Indian Penal Code and Code of Criminal Procedure. The reason behind having special provisions regarding prosecution in the fiscal statute may be to describe the offences specifically considering the objects and scheme of the respective fiscal statute. On this aspect we may draw reference from judgment on Income Tax of Hon’ble Madras High Court in the case
T. S. Baliah v. T. S. Rangachari, Income-Tax (1968) 2 MLJ 451, wherein it was observed,
“The object and the purposes, therefore, of these two enactments are different. The subject-matter of the offence under Section 177, Indian Penal Code, is much wider and comprehensive than the subject-matter of the offence created under Section 52 of the Income-tax Act for the purpose of enforcing effectively the provisions of the said Act. The Indian Penal Code is a penal statute whereas the Income-tax is fiscal and deals with revenue. Can it be said in this background, that Section 52 of the Income-tax Act though creates an offence similar to that of Section 177, Indian Penal Code, but narrower in scope, takes away the entire subject-matter provided under Section 177, Indian Penal Code. The object and the purpose of the two enactments being different and the offence under the enactment being wider than the other, I am of the view that it would not have been intended by the later enactment to repeal the earlier”. Therefore, it is clear that since the special provisions are made under the GST Act, it cannot be inferred that no one can be prosecuted under India Penal Code for the offences which might be covered under GST Act.
2. Offences and punishment under GST [Section 132]
Section 132(1) specifies the offences and punishments for the same. Details of offences specified in the clauses of sub-section (1) of Section 132 are given as under:
a) Non-issuance or incorrect issuance or false issuance of invoice;
b) Issuance of invoice without actual supply of goods/services;
c) Availment of ITC based on invoice referred above in (b);
d) Failure to pay tax collection beyond 3 months of its due date;
e) Fraudulently avail ITC/refund other then (a) to (d) above;
f) Falsification or substitution of financial records or production of fake accounts and information with intention to evade tax;
g) Preventing any officer in discharging duties;
h) Acquire possession or in any way concerned with transporting, removing, depositing, keeping, concealing, supplying, or purchasing or dealing with any goods which he knew that liable for confiscation;
i) Tampers with or destroys any material evidence or documents;
j) Receives or supplies any service which is in contravention of any provisions of the GST Act;
k) Fails to supply any information which he is required to supply or supplies false information;
l) Attempts to commit or abate any offences.
The term of imprisonment for the specified offences is dependent on the quantum of tax evasion. The punishment u/s. 132(1) is explained with the help of following table:
|Quantum of tax evasion
|Term of imprisonment
|Exceeding ₹ 100 lakhs up to ₹ 200 lakhs
|Up to 1 year and fine
|Exceeding ₹ 200 lakhs up to ₹ 500 lakhs
|Up to 3 years and fine
|Exceeding ₹ 500 lakhs
|Up to 5 years and fine
|Abetting offence under clause (f), (g) or (j)
|Up to six months and fine
3. Every subsequent offence punishable [Section 132(2)]
As per sub-section (2) of Section 132 if any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years. Here it is pertinent to note that the monetary limit with respect to evasion of tax does not apply in case of repeat offence.
4. Minimum Punishment [Section 132(3)]
By section 132(3), it is provided that the minimum punishment will be six months unless for adequate written reasons in judgment, it is waived by concerned Court.
5. Offences are non-cognisable and bailable [Section 132(4)/(5)]
Sub-section (4) of Section 132 says that all the offences under GST Act, except those referred in sub-section (5), are non-cognisable and bailable even if they are cognisable or non-bailable under Code of Criminal Procedure,1973. Sub-section (5) says that the offences involving evasion of tax as per clause (a), (b), (c) or (d) mentioned above and which exceeds ₹ 500 lakhs shall be cognisable and non-bailable. Therefore, all offences under the GST Act are non-cognisable and bailable if the amount of evasion of tax is below ₹ 500 lakhs.
6. Sanction for Prosecution [Section 132(6)]
An essential provision with regard to sanction for prosecution is made under sub-section (6). For prosecuting any person under Section 132, there must be previous sanction of the Commissioner. Further, Section 134 mandates that the Court should not take cognisance of any complaint in absence of previous sanction of the Commissioner and further that offences under this Act cannot be tried by any Court anterior to Magistrate of first class.
The term ‘Commissioner’ is defined in Section 2(24) of CGST Act as under:
“(24) “Commissioner” means the Commissioner of Central Tax and includes the Principal Commissioner of Central Tax appointed under Section 3 and the Commissioner of Integrated Tax appointed under the Integrated Goods and Services Tax Act.”
Thus, the officers covered by above definition will be eligible to sanction prosecution.
The term ‘tax’ is separately defined for the prosecution provision of Section 132. The Explanation is added to Section 132 which reads as under:
“Explanation — For the purposes of this section, the term “tax” shall include the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or refund wrongly taken under the provisions of this Act, the State Goods and Services Tax Act, the Integrated Goods and Services Tax Act or the Union Territory Goods and Services Tax Act and cess levied under the Goods and Services Tax (Compensation to States) Act.”
In nutshell any wrong advantage in relation to tax payment is considered to be ‘tax’ for prosecution provision.
It is settled position that to prove criminal offence of evasion under Fiscal Laws, the action should be with conscious mind to defraud revenue. The affected party/person will be required to prove its bona fide to escape the prosecution provision.
7. Prosecution of Officers [Section 133]
Section 133 is for prosecution of officers of department if they wilfully disclose an information or contents of any return furnished under GST and shall be liable for prosecution, except such disclosure is in term of requirement of law in different situation.
The punishment for such offence will be imprisonment up to six months and fine up to ₹ 25,000/-. However the prosecution of such officer should be with prior section of Government, if he is Government servant and by Commissioner, for others.
8. Presumption of culpable mental State [Section 135]
The section has wide implications and almost all burden is placed on accused person to defend. Normally, for prosecution under Indian Penal Code etc. the burden is on prosecutor/complainant to prove the charge. However, due to specific provision under section 135 of GST Act, the burden is shifted on accused person. The section is reproduced below to comprehend the scope of said section.
“135. In any prosecution for an offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.
Explanation.— For the purposes of this section ––
(i) the expression “culpable mental state” includes intention, motive, knowledge of a fact, and belief in, or reason to believe, a fact;
(ii) a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.”
In fair justice it is felt that such provisions are not tenable. If someone is accusing other of criminal action, the burden lies on such accuser to prove the charge. We expect that the citizens will be treated with fairness and above obscure provision will be deleted from the Act.
9. Relevancy of statements under certain circumstances [Section 136]
One more such obscure provision in GST Act is about relevancy of statement made during course of issue of summons under section 70. It is provided that in specified situations the statement given will be considered to be valid and relevant for prosecution. The two circumstances mentioned in above section are as under:
“(a) when the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the court considers unreasonable; or
(b) when the person who made the statement is examined as a witness in the case before the Court and the Court is of the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interest of justice.”
Normally, the parties are entitled to retract the statement based on facts. If the party finds any such eventuality it should do needful at the earliest, else the above provision may affect adversely.
Normally, if any statement is relied upon in prosecution the person making such statement is required to be made available for cross examination. By making above speaking provision, it appears that fundamental right under principles of natural justice of getting cross examination opportunity is sought to be set at naught. Citizen expect that there should not be such artificial encroachment on fundamental rights of citizen. This will also led to dereliction of duty on part of prosecutors. Appropriate changes are required in above provision.
10. Offences by companies and certain other persons
Section 137 enumerates the persons who would be guilty and be prosecuted for the offences, if the offences are committed by a firm, company, LLP, HUF, Trust.
As per Section 137(1) in case of company, every person who was in charge/responsible when offence committed, can be prosecuted and company can also be prosecuted.
As per Section 137(2), in case of the company, director, manager secretary or other officer will also be liable for prosecution, if their connivance or negligence is proved in relation to offence.
As per Section 137(3), in case of Partnership Firm or Limited Liability Partnership Firm or Hindu Undivided Family or Trust, the partner or karta or managing trustee will be deemed to be guilty of offence and shall be liable to be proceeded against and liable for punishment, similar to director in case of company.
As per Section 137(4), the persons, as stated above, would not be held liable for punishment if it is proved that the offence was committed without their knowledge or all due diligence to prevent commission of offence was exercised.
11. Compounding of offences [Section 138]
Section 138 allows for compounding of offences by the competent authority either before or after institution of prosecution on payment of compounding fees as may be prescribed. Rules are prescribed vide Rule 162.
Amount for compounding of offence shall be prescribed under the GST Rules. The said compounding fees :
– shall not be less than ₹ 10,000/- or 50% of tax, whichever is greater and
– Shall not be more than ₹ 30,000/- or 150% of tax, whichever is greater.
Compounding shall not be allowed without payment of tax, interest and penalty.
On payment of compounding amount no further proceeding shall be initiated under GST Act and if any criminal proceeding is initiated, the same shall stand abated. However the compounding can be withdrawn if it was obtained by concealment etc. and if withdrawn, the trial will continue.
In following cases the compounding under the GST Act will not be allowed:
– Second time compounding is not allowed in respect of offences described in clauses (a) to (f) and (l) (read with (a) to (f) of Section 132(1).
– Second time compounding is not allowed in respect of other clauses of Section 132(1) if value of supply exceeds ₹ 1 crore.
– Compounding is not allowed if an impugned offence under GST Act is also an offence under other law.
– A person who has been convicted under GST Act by court.
– The offences under clauses (g), (j) or (k) of section 132(1) are also not eligible to compounding.
– Other notified person also will not be eligible for compounding.
12. Arrest power [Section 69)
While discussing provisions of prosecution it is also necessary to take note of section 69 of CGST Act, which provides for arrest by GST Department Officer. Similar powers are under SGST Act also. It is self contained provision for arrest and bail etc.
Under MVAT Act, such powers were not there. There is fear in mind of dealers that it may be used indiscriminately and in unjustified manner.
13. Limitation period for taking cognizance or institution of prosecution
There are no direct provisions about time limit for initiating prosecution. However, there are provisions on above line under Criminal Procedure Code, 1973 (CrPC).
Section 468 of CrPC, 1973 provides for period of limitation. As per the said provision limitation periods are dependent on nature of punishment and term of imprisonment. The limitation period under CrPC is explained with the help of following table:
|Nature of Punishment / term of imprisonment
|Imprisonment for one year
|Imprisonment for term exceeding one year up to three years
As per Section 469 of CrPC, 1973 talks about the commencement of the period of limitation. The following eventualities are discussed in sub-section (1) of Section 469 of CrPC for the commencement of period of limitation.
– Clause (a) says period of limitation will start on the day of offence.
– Clause (b) says, if the commission of offence is not known to the person aggrieved or police officer, then first day on which offence comes to the knowledge of aggrieved person or police officer.
– Clause (c) says, when the identity of the offender is not known, in that case the first day on which identity of the offender is known to the person aggrieved or police officer.
In absence of specific provision in respect of period of limitation for prosecution under GST Act, the above provisions of Sections 468 and 469 of CPC can be made applicable. For commencement of period of limitation, clause (b) appears to be relevant in cases of offences under GST Act. However, it is required to be tried in the competent court.
The provisions of GST Act are new. The prosecution provisions are new but on same line as in earlier laws. The precedents in earlier laws will be useful for guidence under GST also.
We hope such stringent prosecution provisions will have positive effect to avoid tax evasion. It is also expected that the above provisions will be used with fairness and not with a view to harass the business community.