GST law lists specific offences that can lead to penalties, prosecution, or settlement through compounding. This guide explains GST offences, when prosecution applies and how compounding works.

This article delves into the processes of prosecution and compounding of offences under the Goods and Services Tax (GST) framework in India. While our previous discussion covered various GST offences and their associated penalties, this piece focuses on the legal proceedings and alternative resolution mechanisms.

Understanding Prosecution Under GST

Prosecution involves initiating legal proceedings against an individual facing a criminal charge. In the context of GST, certain deliberate actions intended to defraud the system can lead to criminal charges.

Offences Subject to Prosecution

An individual may face criminal charges for committing the following offenses, particularly when there is a clear intent to defraud:

• Supplying goods or services without issuing a proper invoice to evade tax obligations.
• Issuing an invoice without actual supply of goods or services, primarily to fraudulently claim input tax credit or obtain a refund.
• Collecting GST (even if in violation of provisions) but failing to remit it to the government within three months.
• Illegally obtaining a refund of CGST or SGST through fraudulent means.
• Submitting falsified financial records or documents, or filing inaccurate returns to evade tax.
• Hindering an authorized officer from performing their duties, such as obstructing an audit by tax authorities.
• Acquiring or receiving goods or services with full knowledge that they violate GST rules and are subject to confiscation.
• Destroying any form of evidence pertinent to an investigation.
• Failing to provide necessary information or supplying false information during legal proceedings.
• Assisting any person in committing fraud under GST provisions.

Penalties for Offences

Individuals found guilty of these offences face the following penalties:

However, if certain offences are committed and the tax amount involved exceeds 500 lakhs, they become non-bailable. These specific non-bailable offences include:

• Supplying goods or services without an invoice to evade tax.
• Issuing an invoice without actual supply of goods or services, leading to fraudulent input tax credit or refund claims.
• Collecting GST but failing to remit it to the government within three months.

This approach aligns with the government’s stringent stance against tax evasion, implementing stricter enforcement measures.

Penalties for Evidence Destruction

Individuals who destroy evidence, obstruct officers, falsify information, or aid others in similar acts are liable for imprisonment of up to six months, along with a fine.

Recidivism Penalties

For repeat offenders, the imprisonment term can extend up to five years, accompanied by a fine. It is important to note that prosecution cannot be initiated without the prior approval of the Commissioner.

Compounding of Offences Under GST

Compounding of offences offers an expedited method to resolve legal disputes, avoiding prolonged litigation. In criminal court proceedings, an accused typically needs to appear before a Magistrate at every hearing through an advocate, which is both time-consuming and costly. Compounding allows the accused to be discharged upon payment of a compounding fee, without personal appearance. This fee cannot exceed the maximum fine stipulated by the relevant legal provisions. The GST Act also provides for the compounding of offences.

Situations Where Compounding is Not Available

Compounding is not permissible in the following scenarios:

• For individuals who have previously committed any of the prosecutable offences mentioned earlier; second-time offenders are ineligible for compounding.
• For a person who had previously compounded an offence under GST involving supplies exceeding Rs. 1 crore in value.
• For individuals simultaneously facing trials under other acts, such as the Narcotic Drugs Act or FEMA.
• For any person already convicted by a court under GST law.
• For individuals who provide false information during proceedings, obstruct officers, or destroy evidence.
• For offences related to fraudulent input tax credit claims, possession of confiscable goods, supplying services in violation of the Act, hindering officers, tampering with evidence, and non-submission of accurate information.

(Note: Some of these conditions, specifically the reduction of minimum and maximum compounding limits and certain ineligible offences, were introduced through Budget 2023 but are awaiting notification from the CBIC.)

Compounding is only permitted after all outstanding tax, interest, and penalty dues have been fully paid.

Compounding Fee Structure

The initial amount payable for compounding an offence is 50% of the tax involved, with a minimum of Rs. 10,000. The maximum compounding amount is 150% of the tax or Rs. 30,000, whichever is higher.

However, Budget 2023 proposes to reduce the minimum and maximum limits for compounding to 25% and 100% of the tax involved, respectively. This amendment is also pending notification by the CBIC.

Termination of Further Proceedings

Upon successful payment of the compounding amount, no further proceedings will be initiated against the accused person for that particular offence. Any criminal proceedings already underway will be terminated. Beyond prosecution, offenders may also face arrest, as detailed in our article on arrest under GST. These strict prosecution measures underscore the government’s commitment to curbing tax evasion and corruption within the GST regime.

Frequently Asked Questions

What are considered offences under GST?

Offences include supplying without registration, issuing invoices without supply or vice versa, collecting tax but not depositing it, fraudulently claiming input tax credit, and obstructing officers, among others.

When can prosecution be launched under GST?

Prosecution applies to serious offences, typically where the tax evaded or ITC wrongly availed exceeds prescribed monetary thresholds, with imprisonment terms scaling with the amount involved.

What is compounding of GST offences?

Compounding lets an accused settle certain offences by paying a compounding amount instead of undergoing prosecution, avoiding trial once the prescribed conditions and payment are met.