This article explores the concepts of prosecution and compounding of offenses within the Goods and Services Tax (GST) framework. It delves into the legal proceedings initiated against individuals for criminal charges and the mechanism allowing taxpayers to settle offenses by paying a fee.

Budget 2023 Update (Pending Notification):

Key changes introduced in Budget 2023 regarding compounding of offenses include:

• The minimum and maximum limits for compounding have been adjusted to 25% and 100% of the tax amount, respectively.
• Taxpayers may now compound offenses (for supplies exceeding Rs 1 crore in value) multiple times.
• An expanded list of offenses are no longer eligible for compounding. These include fraudulent Input Tax Credit (ITC) claims, possession of goods subject to confiscation, providing services in violation of the Act, hindering officers, tampering with evidence, and failing to provide accurate information.

Prosecution Under GST

Prosecution refers to the initiation of legal proceedings against an individual accused of a criminal offense under the GST law.

Offenses Leading to Prosecution

Individuals who intentionally commit fraudulent acts become subject to criminal charges and legal prosecution. These offenses include:

• Providing goods or services without a proper invoice to avoid tax obligations.
• Issuing invoices for goods or services that were never supplied, thereby fraudulently claiming input tax credit or refunds.
• Collecting GST from customers but failing to remit it to the government within three months.
• Fraudulently obtaining refunds of CGST or SGST.
• Presenting false financial records or documents, or filing inaccurate returns to evade tax.
• Interfering with an authorized officer's duties, such as obstructing a tax authority audit (learn more about GST audits).
• Knowingly acquiring or receiving goods or services that violate GST regulations and are subject to confiscation.
• Destroying pertinent evidence.
• Withholding information or providing false details during official proceedings.
• Assisting another individual in committing GST fraud.

Penalties for Offenses

Individuals found guilty of the aforementioned offenses face penalties structured according to the amount of tax involved:

It is important to note that certain severe offenses become non-bailable if the tax amount involved surpasses INR 500 Lakhs. These offenses include:

• Evading tax by supplying goods or services without proper invoices.
• Fraudulently claiming input tax credit or refunds by issuing invoices for undelivered goods or services.
• Failing to remit collected GST to the government within three months, even if collected improperly.

These stringent measures reflect the government's firm stance against tax evasion.

Penalties for Evidence Destruction and Obstruction

Acts such as destroying evidence, hindering an officer's duties, falsifying information, or aiding someone in these actions can lead to imprisonment for up to six months, in addition to a fine.

Consequences for Repeat Offenders

For individuals who commit an offense for a second time, the potential imprisonment can extend to five years, accompanied by a fine. Importantly, no person can be prosecuted without receiving prior approval from the Commissioner.

Compounding of Offenses Under GST

What is Offense Compounding?

Offense compounding offers an expedited alternative to prolonged legal proceedings. When an offense is prosecuted in a criminal court, the accused must attend every hearing, typically represented by an advocate, which can be both time-consuming and costly. Through compounding, the accused can be relieved of personal court appearances and discharged upon payment of a compounding fee. This fee is capped at the maximum fine applicable under the relevant legal provisions. The GST Act also incorporates provisions for compounding certain offenses.

When Compounding is Not Applicable

Compounding of offenses is not permitted in the following situations:

• For individuals who have previously committed any offense punishable by prosecution, meaning repeat offenders are ineligible for compounding.
• For a person who previously compounded an offense under GST involving supplies exceeding Rs. 1 crore in value. (Note: This specific restriction was removed by Budget 2023, though notification is pending.)
• For individuals also facing charges under other statutes, such as the Narcotic Drugs Act or FEMA. (Note: This specific restriction was removed by Budget 2023, though notification is pending.)
• For anyone already convicted by a court under GST law.
• For individuals who provide false information during proceedings, obstruct officers, or destroy evidence. (Note: This specific restriction was removed by Budget 2023, though notification is pending.)
• For offenses concerning fraudulent Input Tax Credit (ITC) claims, possession of goods liable for confiscation, provision of services contrary to legal provisions, obstruction of officers, evidence tampering, and failure to submit correct information. (Note: These offenses were included as ineligible for compounding by Budget 2023, though notification is pending.)

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

Compounding Fee Calculation

The compounding fee for offenses is typically set at 50% of the tax amount involved, with a minimum payment of Rs. 10,000. The maximum compounding amount is either 150% of the tax or Rs. 30,000, whichever figure is higher.

However, Budget 2023 proposed a revision, reducing the minimum and maximum limits for compounding to 25% and 100% of the tax involved, respectively. This amendment is awaiting official notification from the Central Board of Indirect Taxes and Customs (CBIC).

Termination of Legal Proceedings

Once the compounding amount is paid, no additional legal actions will be initiated against the accused for the same offense, and any ongoing criminal proceedings will be terminated. It's important to remember that besides prosecution, offenders may also face arrest (explore more about arrest under GST). These stringent provisions underscore the government's commitment to penalizing tax evaders and maintaining integrity within the GST system.