Critical Analysis of Instruction No. 04/2022-23 dated 1st September, 2022 – GST Investigation
Prosecution is the institution or commencement of legal proceeding, the process of exhibiting formal charges against the offender. GST Law provides for launching prosecution against the offenders in cases where the amount of GST evasion or ITC misuse or fraudulent refund is more than Rs. 5 Crores. Recently, Central Board of Indirect Taxes and Customs (“CBIC”) vide Instruction No. 04/2022-23 dated 1st September, 2022 has issued detailed guidelines for launching prosecution under CGST Act, 2017. These guidelines cover detailed procedure, sanction of prosecution, monitoring, monetary limits, procedure for withdrawal etc. Some key points analysing such instructions are as follows:
> Prosecution should be launched after careful assessment of evidence. Evidence collected should be adequate to establish beyond reasonable doubt that the person had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea for committing the offence.
> Prosecution should not be filed merely because a demand has been confirmed in the adjudication proceedings. Moreover, it should not be launched in cases of technical nature, or where additional claim of tax is based on a difference of opinion regarding interpretation of law.
> In the case of public limited companies: Prosecution should not be launched indiscriminately against all the Directors of the company but should be restricted to only persons who oversaw day-to-day operations of the company and have taken active part in committing the tax evasion.
> Reference made to judgment of Hon’ble Supreme Court of India in the case of Radheshyam Kejriwal [2011 (266) ELT 294 (SC)]. In view of which, prosecution complaint can be filed before adjudication (i.e. before issuance of the Show Cause Notice) of the case in following cases:
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- Cases of grave offences; or
- Where qualitative evidences are available; or
- When it is apprehended that the concerned person may delay completion of adjudication proceedings; or
- Where any offender is arrested u/s 69 of the CGST Act, 2017.
> Monetary Limit for launching prosecution: Where amount of tax evasion, or misuse of ITC, or fraudulent refund is more than Five Hundred Lakh rupees.
> Habitual Offender: A company/taxpayer if involved in two or more cases of confirmed demand of tax evasion/fraudulent refund or misuse of ITC involving fraud, suppression of facts etc. in past two years wherein quantum of such total involved tax exceeds Five Hundred Lakh rupees.
> Authorities to sanction prosecution: Principal Commissioner/Commissioner of CGST. In the cases investigated by DGGI: Pr. Additional Director General/Additional Director General, Directorate General of GST Intelligence (DGGI) of the concerned zonal unit/ Hqrs.
> Procedure for sanction of prosecution
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- In case of arrest(s) made u/s 69 of the CGST Act, 2017:
- Prosecution complaint shall be filed within 60 days of arrest. In other cases, it shall be filed within definite time frame. (Definite time period not defined).
- Proposal of filing complaint in the format of investigation report prescribed in ANNEXURE-I of the Instructions.
- ANNEXURE-I shall be forwarded to the Pr. Commissioner/ Commissioner within 50 days of arrest for issuance of sanction order along with an order authorizing the investigating officer (level of Superintendent) to file prosecution complaint.
- In cases investigated by DGGI, the Additional/ Joint Commissioner or Additional / Joint Director in the case of DGGI must ensure all the documents/evidence and list of witness are kept ready before forwarding the proposal of filing complaint to Pr. Commissioner/ Commissioner or Pr. ADG/ ADG of DGGI.
- In case of filing of prosecution against legal person, including natural person
- To launch prosecution before adjudication proceedings, the Additional/Joint Commissioner or Additional/Joint Director, DGGI, supervising the investigation, shall record the reason for the same and forward the proposal to the sanctioning authority. However, in other cases, the adjudicating authority shall itself indicate if the case fits for prosecution.
- In cases where SCN has been issued by DGGI, the recommendation of adjudicating authority shall be sent to the Pr. Additional Director General/Additional Director General, DGGI of the concerned zonal unit/ Hqrs.
- If no view has been taken by the Adjudicating Authority, the adjudication branch shall re-submit the file within 15 days from the date of order to the Adjudicating Authority to take view on prosecution.
- Commissioner/ Commissioner or Pr. Additional Director General/ Additional Director General of DGGI may on his own motion also sanction the prosecution.
- An investigation report (Annexure-I) is prepared within one month of date of receipt of the adjudication order or recommendation of Adjudicating Authority.
- Investigation report should be signed by Deputy/Assistant Commissioner (In DGGI cases: Deputy/Assistant Director), endorsed by the jurisdictional Additional/ Joint Commissioner (supervising Additional/Joint Director), and sent to the Pr. Commissioner/Commissioner (Pr. Additional Director General/Additional Director General of DGGI) for taking a decision on sanction for prosecution.
- After obtaining sanction, prosecution should be filed not beyond a period of 60 days by the duly authorized officer (of the level of Superintendent).
- In case of delay beyond 60 days, reason for delay shall be brought to the notice of the sanctioning authority by the officer authorised for filing of the complaint.
- In case of arrest(s) made u/s 69 of the CGST Act, 2017:
> Appeal by the Department in case of lighter punishment or acquittal: Sanction of Pr. Commissioner/ Commissioner (In DGGI cases, Pr. Additional Director General/ Additional Director General) is mandatory for filing of appeal by the department. In cases booked by DGGI (HQ Unit) concurrence of DG or Pr. DG should be obtained before filing of appeal.
> Withdrawal of prosecution:
| Withdrawal of sanction order | Withdrawal of complaint already filed for prosecution |
| After considering the new facts and evidence, the sanctioning authority may recommend to the jurisdictional Pr. Chief Commissioner/ Chief Commissioner to withdraw the sanction for prosecution who shall take a decision.
In the cases investigated by DGGI, Director General of DGGI of concerned sub-national unit shall be competent for approval. Whereas, in the cases booked by DGGI, Hqrs., Pr. Director General shall be competent. |
Reference made to Supreme court judgment (supra): Where it is found on merit in the final order of adjudication proceedings that there is no contravention of the provisions. Pr. Commissioner/ Commissioner or Pr. Additional Director General/ Additional Director General after taking approval of Pr. Chief Commissioner/ Chief Commissioner or Pr. Director General/ Director General, would file an application to allow withdrawal of prosecution. The withdrawal can only be affected with the approval of the court. |
> Delay in court proceedings will be the responsibility of the officer who is authorised to file complaint. However, a parallel file containing copies of essential documents should be maintained to ensure that the proceeding in appeal/revision are not unduly delayed.
> Publication of names of persons convicted: Section 159 of the CGST Act, 2017 grants power to the Pr. Commissioner/Commissioner or any other officer authorised by him on his behalf to publish name and other particulars of the person convicted under the Act.
> Compounding of offence: Section 138 of the CGST Act, 2017 provides for compounding of offences on payment of compounding amount. The provisions regarding compounding of offence should be brought to the notice of person being prosecuted and such person be given an offer of compounding by Pr. Commissioner/ Commissioner or Pr. Additional Director General/Additional Director General of DGGI, as the case may be.
Recently, it has remained in the news that Government is working on Decriminalizing certain offences under GST which is evident from the statement of Mr. Vivek Aggarwal Finance Ministry Additional Secretary (Revenue).
“We are working on making the provision under GST Act for prosecution more simpler and friendly for taxpayers. We have Section 132 under CGST Act which criminalises illegal credit for GST evasion. The threshold level (for launching prosecution) are being reconsidered “
He also talked about lowering the compounding charges for offences under GST for closing litigations:
“The compounding provision in GST are prohibitive. It requires 50 per cent to 150 per cent as compounding fees which is impossible to pay. That’s why there is zero compounding for all cases under GST. That is being relooked at so that it becomes affordable and compounding becomes a first or better choice for taxpayer“
Hence, it seems that government is working upon prosecution related provisions and we can expect more such Instructions/Orders/Circulars/amendments which would be favourable for taxpayers as well as government.
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