INTRODUCTION

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 wherever applicable.

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,1wherein 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.

OFFENCES UNDER THE CGST ACT

1
(1968) 2 MLJ 451.
Provisions related to offences and penalties are covered in Chapter XIX (section 122 to
section 138) under CGST Act. The Act lists 21 offences in S.122. The said offences are as
follows:

Offences related to Nature of offence

Registration  Failure to register despite being liable

to be registered under the Act.
 Furnishing false information regarding
registration particulars either at the
time of applying for registration or
subsequently.

Invoice  Making a supply of goods or services

without issue of any invoice or with
false/ incorrect invoice.
 Issuing an invoice without making
supply of goods or services.
 Issuing invoice or document using
GSTIN of another registered person.

Tax payment  Not paying tax collected for a period

exceeding three months;
 Not paying tax collected in
contravention of the CGST/SGST Act
for a period exceeding 3 months;
 Non-deduction or lower deduction of
tax deducted at source or not
depositing tax deducted at source
under section 51(1);
 Non-collection or lower collection of
 or non -payment of tax collectible at
source under section 52(3).
 Suppressing turnover leading to tax
evasion.

Input Tax Credit  Availing/utilizing input tax credit

without actual receipt of goods and/or
services;
 Availing/distributing of input tax
credit in contravention of provisions
of the Act.

Refund  Fraudulently obtaining any refund.

Accounts and documents  Furnishing false information with

regard to registration particulars,
either at the time of applying for
registration or subsequently.
 Failure to maintain
accounts/documents in the manner
specified in the Act or failure to retain
accounts/documents for the period
specified in the Act.
 Failure to furnish
information/documents required by an
officer in terms of the Act/Rules or
furnishing false
information/documents during the
course of any proceeding.
 Transporting goods without the cover
of documents as may be specified in
this behalf.

Other matters  Obstructing or preventing any official

 in discharge of his duty;
 Supplying/transporting/storing any
goods liable to confiscation.
 Tampering/destroying any material
evidence.
 Disposing of /tampering with goods
detained/ seized/attached under the
Act.

PENALTY PROVISIONS UNDER THE ACT

Penalty proceedings are quasi criminal proceedings. They are based on prevalence of
probability. Section 122 of the CGST Act specifies penalty provisions for offences
committed under GST. Sub-section (1) of section 122 provides that any taxable person who
has committed any of the offences mentioned in section 122 shall be liable to a penalty that
shall be higher of:
(1) Amount equivalent to tax evaded, fraudulently obtained as refund, availed as credit or not
deducted or collected or short deducted or short collected; or
(2) Amount of Rs.10000/-.

Section 122(2) provides that any registered person who supplies any goods or services or
both on which any
tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has
been wrongly availed or utilised,—
(a) for any reason, other than the reason of fraud or any wilful misstatement or
suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or
ten per cent. of the tax due from such person, whichever is higher;
(b) for reason of fraud or any wilful misstatement or suppression of facts to
evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from
such person, whichever is higher.

Section 122(3) provides that Any person who––

(a) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);
(b) acquires possession of, or in any way concerns himself in transporting, removing,
depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with
any goods which he knows or has reasons to believe are liable to confiscation under this Act
or the rules made thereunder;
(c) receives or is in any way concerned with the supply of, or in any other manner deals with
any supply of services which he knows or has reasons to believe are in contravention of any
provisions of this Act or the rules made thereunder;
(d) fails to appear before the officer of central tax, when issued with a summon for
appearance to give evidence or produce a document in an inquiry;
(e) fails to issue invoice in accordance with the provisions of this Act or the rules made
thereunder or fails to account for an invoice in his books of account, shall be liable to a
penalty which may extend to twenty-five thousand rupees.
GENERAL DISCIPLINES RELATED TO PENALTY:

Section 126 of the CGST Act specifies for general disciplines to be followed while imposing
penalty. Such disciples are as under:
(1) No officer under this Act shall impose any penalty for minor breaches of tax regulations
or procedural requirements and in particular, any omission or mistake in documentation
which is easily rectifiable and made without fraudulent intent or gross negligence.
Explanation.––For the purpose of this sub-section,––
(a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than
five thousand rupees;
(b) an omission or mistake in documentation shall be considered to be easily rectifiable if the
same is an error apparent on the face of record.
(2) The penalty imposed under this Act shall depend on the facts and circumstances of each
case and shall be commensurate with the degree and severity of the breach.
(3) No penalty shall be imposed on any person without giving him an opportunity of being
heard.
(4) The officer under this Act shall while imposing penalty in an order for a breach of any
law, regulation or procedural requirement, specify the nature of the breach and the applicable
law, regulation or procedure under which the amount of penalty for the breach has been
specified.
(5) When a person voluntarily discloses to an officer under this Act the circumstances of a
breach of the tax law, regulation or procedural requirement prior to the discovery of the
breach by the officer under this Act, the proper officer may consider this fact as a mitigating
factor when quantifying a penalty for that person.
(6) The provisions of this section shall not apply in such cases where the penalty specified
under this Act is either a fixed sum or expressed as a fixed percentage.

PROSECUTION PROVISIONS
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:
 Sr. No. Quantum of tax evasion Term of imprisonment

1. Exceeding ₹ 100 lakhs up to ₹ 200 lakhs Up to 1 year and fine

2. Exceeding ₹ 200 lakhs up to ₹ 500 lakhs Up to 3 years and fine

3. Exceeding ₹ 500 lakhs Up to 5 years and fine

4. Abetting offence under clause (f), (g) or (j) Up to six months and fine

 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.

 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.

 Offences which are cognizable, non-cognizable, bailable, non-bailable [Section

132(4)/(5)]

Offences under GST are further classified into cognizable and non-bailable offences as well
as non-cognizable and bailable offences. General meaning of these terms are as under:

 Cognizable offences: A case in which specially empowered officer has the authority
to arrest without warrant.
 Non-cognizable offences: A case in which specially empowered officer has no
authority to arrest without warrant.
 Bailable offences: Offences for which bail can be granted.
  Non-bailable Offences: Offences for which accused does not have right to be released on
bail, but the bail can be granted at the discretion of court.

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.

 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.

 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.

 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.
  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.

COMPOUNDING OF OFFENCES
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.

CONCLUSION
The GST regime has brought in a tougher and stricter compliance diaphragm, which each

person has to follow religiously. Any sort of non-compliance can have a severe effect on the

daily business of the taxpayer and can attract huge amounts of interest and penalties. If the

offenses are grave in nature, it can lead to holding criminal proceedings against the offenders.

Under the GST Act, no reservation has been given for first-time offenders. Therefore, even if

you are unintentionally avoiding taxes or short deducting taxes wherever applicable, you will

still be served a notice from the relevant authority. Moreover, the right to appeal is only

invoked when a specific sum of money is deposited beforehand with the repository, which

will block your working capital until the appeal is completed.

Therefore, it is necessary to maintain proper accounting standards and timely payment of

taxes. Tax evasion affects our economy in a very bad way and it is our responsibility to

further the economic interests of the country. This is the main reason behind the strict

compliance of these penal provisions so that tax evasion could be checked and any prejudice

to the economy could be stopped. This in turn serves the very purpose of the overall growth

and development of the nation at the domestic as well as at the global level.

CONTENTS
1. INTRODUCTION……………………………………………………………… 1
2. OFFENCES UNDER THE CGST ACT………………………………………… 2
3. PENALTY PROVISIONS UNDER THE ACT…………………………………. 5
4. GENERAL DISCIPLINES RELATED TO PENALTY…………………………. 6
5. PROSECUTION PROVISIONS………………………………………………….. 7
6. COMPOUNDING OF OFFENCES………………………………………………. 12
7. CONCLUSION……………………………………………………………………. 13
8. BIBLIOGRAPHY………………………………………………………………….. 14