Decriminalisation of offences under GST

Source: The post is based on the article “Decriminalisation of offences under GST” published in The Hindu on 19^th December 2022.

Syllabus: GS 2 – Governance

News: The 48^th GST council that was held recently recommended decriminalising certain offences under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017.

 What is the current problem with GST?

There have been multiple instances of increasing tax evasion with numerous cases of taxpayers using multiple strategies to avoid indirect tax.

For this, the GST law establishes penalties and guidelines that taxpayers must follow to ensure smooth intrastate or interstate trade of goods, prevent corruption and ensure an effective tax collection system.

What are the penalties provided under the GST Law?

The GST Law provides for two different types of penalties, i.e., concurrent and simultaneous. 

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 department authorities have the authority to impose monetary fines and the seizure of goods as penalties for violating statutory provisions and the length of the prison sentence is determined by the amount of tax evaded, etc.

What are the offences under GST law which attract IPC and CrPC provisions?

Section 69 of the CGST Act provides the power to arrest a person by an order of a commissioner for any offence committed under Section 132.

Section 67 of the CGST Act defines that only an officer not below the rank of joint commissioner can authorize in writing an inspection or search.

Further, the CGST Act provides that 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.

Why did the Parliament include punishments in the GST law?

This was debated in the Parliament whether arrests should be made for offenses or not and what is the rationale behind the arrest.

However, then Union Finance Minister Mr. Arun Jaitley cleared the point that arrests are only made for the offences involving a higher tax evasion and the Council is meant to follow a middle path. For example, there is no arrest for the fraud up to five crore rupees.

What has been the recent recommendation to decriminalize the GST offences?

1. a) raising the minimum threshold of tax amount from one crore to two crore for prosecution under GST except for the offence of issuing invoices without supply of goods or services or both, b) reducing the compounding amount from the present range of 50 to 150% of the tax amount to the range of 25 to 100%, and c) decriminalising certain offences specified under Section 132 of the CGST Act, 2017, such as preventing any officer from doing his duties, deliberate tempering of material evidence, etc.

What will be the impact of decriminalisation?

The government has taken a good step towards decriminilising because GST is a law that is still under development and there are many provisions of the law that still require changes and proper enforcement.

In this scenario, criminalising every small offense would discourage investors and other businesses to carry forward their functions smoothly.

What are the other recommended measures to facilitate trade? 

Refunding unregistered persons – There was no procedure for claim of refund of tax borne by unregistered buyers where the contract/agreement for supply of services like construction of flat/house and long-term insurance policy is cancelled. Therefore, the Council recommended amendment in CGST Rules, 2017 to prescribe the procedure for filing application of refund by the unregistered buyers in such cases.

Facilitating e-commerce for micro enterprises – The GST Council in its 47th meeting had 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. The same has been allowed in the current GST meeting.

What is the way ahead?

The steps taken by GST to decriminalize certain offences is appreciable because it would encourage business activities and arrests would only be made in the rarest of rare cases.