Explained | Decriminalisation of offences under GST

Why was there an emphasis on criminal jurisprudence behind the penal provisions in the GST law? Should imposing penal laws be discouraged to attract investors and businesses? What are the recommendations of the 48th GST Council meeting?

The story so far: The 48th GST Council meeting was held on December 17. The GST Council chaired by Finance Minister Nirmala Sitharaman recommended to decriminalise certain offences under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017. Some other recommendations, for the facilitation of trade, include an increased threshold of the amount of tax for prosecution, reducing the compounding amount in GST etc.

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 in order 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. They may be both concurrent and simultaneous. 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 contain 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. The aforementioned section further divides offences into those that are cognisable and bailable and those that are not cognisable and bailable. Additionally, it is observed that many non-compliances fall under both categories of penalties, prosecution, and compounding.

Under the CGST Act, 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. While Section 120A of the Indian Penal Code (IPC), defines criminal conspiracy, Section 120B deals with punishment for the same and 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 send to the Magistrate of that outside authority to serve the summons. Section 165 of CrPC deals with the search by the police officer while 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.

While replying to the queries of the members of the Rajya Sabha on April 6, 2017, then Union Finance Minister Mr. Arun Jaitley laid emphasis on criminal jurisprudence behind the penal provisions in the GST law. He said that “this (arrest provisions) was thoroughly debated by all the Finance Ministers (Union and States), and there were clearly two views at the very outset. The first view was, ‘why arrest’? The second view was, supposing a man defrauds ₹100 crore, is the State government powerless? And he has no assets to recover it from; what do you do? What is the kind of deterrent? And then, the wisdom of the Council itself was that they chose a middle path….So, up to a fraud of two crore rupees [now five crore rupees, after CGST (Amendment) Act, 2018], no arrest….only in the very big fraud cases where a man forges a complete transaction, it is only then that the arrest is made. And this was the actual division — should you have no arrest or should you have arrest only in rare cases and with very stringent conditions”.