Decriminalisation of offences under GST

In News

• Recently, the 48th GST Council meeting was held which recommended decriminalising certain offences under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017. ?
  • There were also some other recommendations which included for the facilitation of trade, include an increased threshold of the amount of tax for prosecution, reducing the compounding amount in GST etc.

What was previously criminalised under GST?

• Tax evasion: 
  • Since the implementation of GST, there has been a significant increase in tax evasion with numerous cases of taxpayers using multiple strategies to avoid indirect tax coming to light.
  • Tax authorities are actively using technology and data from e-way bills and GST returns to check evasion.
    • The GST law establishes stringent penalties and guidelines that taxpayers must abide by to ensure smooth intrastate or interstate trade of goods and to combat corruption and maintain an effective tax collection system.
• The GST Law provides for two different types of penalties:
  • Monetary fines: The department authorities have the authority to impose monetary fines and the seizure of goods as penalties for violating statutory provisions. 
  • Criminal penalties include imprisonment and fines, which are also provided by GST Law, but which can only be awarded in a criminal court following a prosecution.
• Sections 122 to 131 of the CGST Act of 2017 
  • It contains provisions relating to penalties, while Sections 132 to 138 contains provisions relating to prosecution and compounding. 
  • The amount of tax evaded, the amount of Input Tax Credit (ITC) improperly claimed or used, or the amount of refund improperly claimed determines the length of the prison sentence.
• Cognisable and non-cognisable offences:
  • The section further divides offences into those that are cognisable and bailable and those that are not cognisable and bailable. 
  • It is observed that many non-compliances fall under both categories of penalties, prosecution, and compounding. 

Offences under GST law which attract IPC and CrPC provisions

• Under the CGST Act:
  • Criminal conspiracy: If a group of two persons or more agree to commit an illegal act like tax evasion, fraud etc. they are held liable under the act of criminal conspiracy.
    • Section 120A of the Indian Penal Code (IPC) defines criminal conspiracy.
    • Section 120B deals with punishment for it.
    • Section 46 of the Code of Criminal Procedure (CrPC) deals with how the arrest is made.
• Section 69 of the CGST Act provides the power to arrest a person by an order of a commissioner when he believes that a person has committed any offence under Section 132. 
• Section 67 of CrPC states that if a summons is issued outside the local authority, a duplicate copy of that summons should be sent to the Magistrate of that outside authority to serve the summons. 
• Section 165 of CrPC deals with the search by the police officer.
• Section 67 of the CGST Act defines that only an officer not below the rank of joint commissioner can authorise in writing an inspection or search.

What are the recommendations of the 48th GST Council meeting

• It has recommended various measures to decriminalise the GST offences such as:
  • Raising the minimum threshold of tax amount for launching prosecution under GST from one crore to two crore, except for the offence of issuance of invoices without supply of goods or services or both.
  • Reducing the compounding amount from the present range of 50 to 150% of the tax amount to the range of 25 to 100%.
  • Decriminalising certain offences specified under Section 132 of the CGST Act, 2017 such as obstructing or preventing any officer from doing his duties, deliberate tempering of material evidence and failure to supply information.  

Impact/ Implications

• Developing phase: The law is still developing and is in its infancy which makes the same difficult and uncertain to enforce.
• Streamlining the laws: There are instances of conflict between court decisions and rulings. The government is still working to streamline the laws.
• Impact on business: it is important to recognise that imposing penal provisions in an ambiguous ecosystem significantly alters how businesses perceive risk and uncertainty, directly impacting their ability to conduct business.
• Discouragement for the investors: The law already contains sufficient penalties that serve as a deterrent against tax evasion. Investors may be discouraged by the fear of criminal sanctions in small, trivial, and petty matters, even before their engagement in any business activity or investment.

Way forward/ Suggestions

• It includes refunding unregistered persons and facilitating e-commerce for micro enterprises.
  • There was no procedure for claim of refund of tax borne by unregistered buyers.
  • It also granted in-principle approval for allowing unregistered suppliers and composition taxpayers to make intra-state supply of goods through E-Commerce Operators (ECOs) subject to certain conditions.
• Fewer arrests only: If the above decriminalisation of GST offences are implemented with adequate checks, then prosecution, arrest and imprisonment in GST cases would only be in the rarest of rare cases of hard, habitual, deliberate defaulters and blatant specific fraudulent practices.
• Alternate methods: Minor grievances may be dealt with in other resolution mechanisms such as Alternate Dispute Resolution (ADR) mechanism, private ruling and mediation, faceless adjudication and appeals, etc.

Source: TH