Compounding of offences under the CGST Act allows a person accused of a GST offence to avoid criminal prosecution by paying a specified monetary amount. Section 138 of the CGST Act, read with Chapter 19 of the CGST Rules, governs this process. The accused must apply to the Commissioner using FORM GST CPD-01, who may grant immunity from prosecution if the applicant cooperates fully and pays all outstanding tax, interest, and penalties.
What Is Compounding of Offences Under GST?
Compounding is a legal mechanism that allows a person who has committed a GST offence to settle the matter by paying a predetermined amount, thereby avoiding the lengthy criminal prosecution process. It is essentially a compromise between the tax authority and the offender, in which the offender admits the offence, pays the compounding fee, and receives immunity from further prosecution for that offence.
The compounding provision exists to reduce litigation, conserve judicial resources, and allow offenders to regularise their compliance status without facing imprisonment. However, not all offences qualify for compounding, and the process is subject to the Commissioner’s discretion based on the facts of each case.
Offences Eligible for Compounding
Under Section 138 of the CGST Act, most offences listed in Section 132 are eligible for compounding, subject to specific exclusions. Section 132 covers offences such as issuing invoices without supplying goods or services, fraudulently availing Input Tax Credit, collecting GST but failing to deposit it with the government, obstructing or preventing any officer from performing duties, and tampering with or destroying material evidence.
Offences Not Eligible for Compounding
Certain serious offences cannot be compounded. These include offences where the amount of tax evaded exceeds Rs. 5 crore, cases where the accused has already been allowed to compound the same offence once before, and offences connected to the supply of goods or services that are harmful to public interest.
Compounding Procedure: Step-by-Step
The compounding process under Chapter 19 of the CGST Rules follows a structured sequence that ensures both the accused and the Commissioner follow due process.
| Step | Action | Form/Document | Timeline |
| 1 | Accused submits compounding application | FORM GST CPD-01 | Any time before or after proceedings start |
| 2 | The Commissioner requests an investigation report | Internal requisition to the concerned officer | No fixed timeline |
| 3 | The Commissioner reviews the application and conducts a hearing | Hearing notice to the applicant | Within 90 days of receipt |
| 4 | Commissioner issues order (approval or rejection) | FORM GST CPD-02 (if approved) | Within 90 days of receipt |
| 5 | Applicant pays the compounding amount | Challan with proof of payment | Within 30 days of the order |
| 6 | Immunity from prosecution takes effect | FORM GST CPD-02 | Upon payment confirmation |
Detailed Step Explanation
Step 1: Filing the application. The accused person submits FORM GST CPD-01 to the Commissioner. This application can be filed at any stage, whether before criminal proceedings have been initiated or after they have already commenced. The application must contain complete details of the offence, relevant facts, and the applicant’s willingness to cooperate.
Step 2: Investigation report. Upon receiving the application, the Commissioner directs the concerned officer to prepare a detailed report. This report covers the facts stated in the application, the nature and gravity of the offence, the amount of tax involved, and any other information relevant to evaluating the compounding request.
Step 3: Review and hearing. The Commissioner reviews the application along with the investigation report. Before making a decision, the applicant must be given a reasonable opportunity to be heard. This is a mandatory requirement, and any rejection without a hearing would be legally invalid.
Step 4: Order issuance. Within 90 days of receiving the application, the Commissioner either approves or rejects the compounding request. If approved, the order is issued in FORM GST CPD-02, specifying the compounding amount and granting immunity from prosecution. If rejected, the Commissioner must provide documented reasons for the rejection.
Step 5: Payment. The applicant must pay the full amount of the compounding within 30 days of receiving the Commissioner’s order. Proof of payment must be submitted to the Commissioner’s office.
Step 6: Immunity. Once payment is confirmed, the applicant is granted immunity from criminal prosecution for the specific offence covered by the compounding order.
Compounding Amount Calculation
The compounding amount is not arbitrary. Section 138 prescribes limits based on the amount of tax involved in the offence.
| Particulars | Amount |
| Minimum compounding amount | 25% of the tax amount involved in the offence |
| Maximum compounding amount | 100% of the tax amount involved in the offence |
| Additional requirement | Full payment of outstanding tax, interest, and penalties before compounding is approved. |
| Payment deadline after approval | 30 days from the date of FORM GST CPD-02 |
The Commissioner determines the exact amount within these limits based on the severity of the offence, the applicant’s level of cooperation, the tax amount involved, and whether the offence was a first-time occurrence or a repeat violation.
Conditions for Granting Immunity
The Commissioner will approve compounding only when all of the following conditions are satisfied:
• The applicant has cooperated fully with the investigation and has not obstructed or delayed the proceedings
• The applicant has made a truthful and complete disclosure of all facts related to the offence
• All outstanding GST liability, including tax, interest, and penalties, has been paid in full before the compounding order is issued
• The offence is eligible for compounding under Section 138 (not excluded by the proviso)
• The applicant has not previously compounded the same offence
If any of these conditions are not met, the Commissioner has the authority to reject the application and allow criminal proceedings to continue.
Revocation of Immunity
Immunity granted through compounding is not absolute. The Commissioner can revoke the immunity at any point if it is discovered that the applicant concealed material information, provided false evidence or documents during the compounding process, or failed to disclose related offences connected to the compounded matter.
Upon revocation, the person can be prosecuted for the original offence as if no immunity had ever been granted. Any compounding amount already paid is not refunded in such cases.
This revocation provision ensures that the compounding process is not misused by offenders who fraudulently withhold critical information to obtain immunity.
Comparison: Compounding vs Regular Prosecution
| Aspect | Compounding | Regular Prosecution |
| Process | Administrative (Commissioner’s order) | Judicial (criminal court proceedings) |
| Timeline | 90 days for decision + 30 days for payment | It can take several years, depending on the court backlog |
| Outcome | Monetary penalty + immunity from prosecution | Imprisonment and/or fine if convicted |
| Criminal record | No criminal conviction on record | A criminal conviction is recorded if found guilty |
| Applicant’s role | Must cooperate, disclose facts, and pay the amount | May contest charges in court |
| Eligibility | Limited to specified offences under Section 138 | All offenses under Section 132 |
| Repeat offenses | Cannot compound the same offence twice | Prosecution can be initiated any number of times |
Key Terms
• Compounding: The legal process of settling a GST offence by paying a monetary amount instead of facing criminal prosecution
• FORM GST CPD-01: The prescribed application form for requesting compounding of a GST offence, filed with the Commissioner
• FORM GST CPD-02: The order form issued by the Commissioner specifying the compounding amount and granting immunity
• Section 138 CGST Act: The statutory provision governing compounding of offences, prescribing eligibility conditions and compounding amount limits
• Section 132 CGST Act: The provision listing offences under GST, including tax evasion, fraudulent ITC claims, and obstruction of officers
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| Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax professional for advice specific to your situation. |
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Frequently Asked Questions
Q1: What is the compounding of offences under GST?
Compounding allows a person accused of a GST offence to avoid criminal prosecution by paying a specified monetary amount to the Commissioner. The accused must apply using FORM GST CPD-01 and, upon approval, receive immunity from prosecution for that specific offence.
Q2: Can all GST offences be compounded?
No. Offences where the tax amount exceeds Rs. 5 crore, cases where the accused has already compounded the same offence once, and offenses harmful to public interest are excluded from compounding under the proviso to Section 138 of the CGST Act.
Q3: What is the range of compounding amounts?
The compounding amount ranges from 25% to 100% of the tax amount involved in the offence. The Commissioner determines the exact amount within these limits based on the facts of the case and the severity of the offence.
Q4: What happens if the compounding amount is not paid within 30 days?
If the applicant fails to pay the specified compounding amount within 30 days of receiving the Commissioner’s order in FORM GST CPD-02, the order becomes void. The immunity from prosecution is automatically cancelled, and criminal proceedings may resume.
Q5: Can immunity granted through compounding be revoked later?
Yes. The Commissioner can revoke immunity at any time if it is found that the applicant concealed material facts or provided false evidence during the compounding process. Upon revocation, the person can be prosecuted for the original offence as if no immunity had ever been granted.
