Under the GST regime, prosecution refers to the launch of criminal proceedings against individuals or entities involved in serious tax-related offences. These include acts like fraud, deliberate suppression of facts, or willful misstatement — all with the intent to evade tax.
To understand provisions of prosecution under GST, let’s first understand Section 69 and Section 132 of the CGST Act’ 2017.
Section 69 of the Central Goods and Service Tax At’ 2017 deals with the cognizable and non-bailable offences and gives Commissioner of GST the Power to Arrest and Section 132 of the Central Goods and Services Tax Act, 2017 (CGST Act, 2017) codifies the offences under the Act which warrant institution of criminal proceedings and prosecution and also included provisions of arrest under GST via section 69. In other words, Section 69 and Section 132 empowers Proper officer to arrest a person who has committed any offence involving evasion of tax more than Rs. 5 Crores and prescribes a maximum term of 5 years.
Section 69. Power to arrest. –
1. Where the Commissioner has reasons to believe that a person has committed any offence specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) of section 132 “>section 132 which is punishable under clause (i) or (ii) of sub-section (1), or sub-section (2) of the said section, he may, by order, authorise any officer of central tax to arrest such person.
2. Where a person is arrested under sub-section (1) for an offence specified under sub- section (5) of section 132″>section 132, the officer authorised to arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate within twenty four hours.
3. Subject to the provisions of the Code of Criminal Procedure, 1973 (2 of 1974),-
(a) where a person is arrested under sub-section (1) for any offence specified under sub-section (4) of section 132″>section 132, he shall be admitted to bail or in default of bail, forwarded to the custody of the Magistrate;
(b) in the case of a non-cognizable and bailable offence, the Deputy Commissioner or the Assistant Commissioner shall, for the purpose of releasing an arrested person on bail or otherwise, have the same powers and be subject to the same provisions as an officer-in-charge of a police station.
Section 132, Punishment for certain offences.-
Relevant portion of section 132 is reproduced as under:
Section 132:
(1) [Whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences], namely:-
a. supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;
b. issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;
c. [avails input tax credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;]
d. collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
e. evades tax [****]or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d);
f. falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act;
g. 4[****];
h. acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;
i. receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;
j. [****];
k. [****]; or
l. attempts to commit, or abets the commission of any of the offences mentioned in [clauses (a) to (f) and clauses (h) and (i)] of this section,
shall be punishable-
i. in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds five hundred lakh rupees, with imprisonment for a term which may extend to five years and with fine;
ii. in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine;
iii. in the case of [an offence specified in clause (b),] where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to one year and with fine;
iv. in cases where he commits or abets the commission of an offence specified in clause (f) , he shall be punishable with imprisonment for a term which may extend to six months or with fine or with both.
(2) Where any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine.
(3) The imprisonment referred to in clauses (i), (ii) and (iii) of sub-section (1) and sub-section (2) shall, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, be for a term not less than six months.
(4) Notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act, except the offences referred to in subsection (5) shall be non- cognizable and bailable.
(5) The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable under clause (i) of that sub-section shall be cognizable and non-bailable.
(6) A person shall not be prosecuted for any offence under this section except with the previous sanction of the Commissioner.
To ensure consistency and clarity in handling such cases, the Central Board of Indirect Taxes and Customs (CBIC) issued Instruction No. 04/2022-23 [GST – Investigation] dated 1st September 2022. This instruction outlines the key aspects, legal framework and step-by-step procedures that must be followed when filing a prosecution complaint under GST.
As per INSTRUCTION No. 04/2022-23 [GST – Investigation] dated 01.09.2022, prosecution is the institution or commencement of legal proceeding; the process of exhibiting formal charges against the offender.
Under the Goods and Services Tax (GST) law in India, prosecution can be initiated for certain offenses, but there are specific requirements and conditions that must be met before sanctioning prosecution. Here’s a concise summary of the requirements before prosecution is sanctioned under GST: There must be clear and sufficient evidence of the commission of an offense under Section 132 of the CGST Act’ 2017:
1. Mens Rea (Guilty Intention) Must Be Established: For Section 132 of the CGST Act to be attracted, it is essential to establish the presence of a willful intention to evade tax prior to the commission of a cognizable offence. The person must have guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea for committing of the offence.
In other words, we can say that it is the adequacy of the evidence which establishes beyond the reasonable doubt that the person has guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea for committing of the offence based on which prosecution can be launched.
Here, it is very pertinent to note that offences covered under clause (a), (b), (c), (d) of sub-section 1 of Section 132 is only cognizable and non-bailable under GST and other offences mentioned from clause (e) to clause (l) are non-cognizable and bailable.
Mens-rea is required to pre-exist for offences mentioned in clause (a), (b), (c) of sub-section 1 of Section 132 and not of any offence under clause (d) of as mentioned above.
2. The sanction of prosecution must be preceded by the determination of tax liability through proper adjudication proceedings.
The GST Acts contain provisions for initiating criminal prosecution against a person in cases involving specific contraventions of the law as explained above. However, as a fiscal statute, the primary objective of GST remains the determination, levy, and collection of tax, which is typically achieved through a process of assessment i.e issuing Show Cause Notice and adjudicating it. This gives rise to a pertinent legal question: Can criminal prosecution under GST law be initiated in the absence of a prior assessment or determination of the tax liability?
GST is primarily a fiscal statute, aiming to assess and collect tax. A plain reading of Section 132 of the CGST Act suggests that the statutory framework inherently contemplates prior quantification of the tax amount before the initiation of prosecution. Such quantification is essential not only for establishing the requisite mens rea, i.e., the intent to evade tax, but also for determining the appropriate quantum of punishment, which is directly linked to the amount of tax evaded. In the absence of a prior determination of tax liability, the initiation of criminal proceedings under Section 132 would be premature and procedurally flawed, as it would lack the foundational basis necessary for identifying and invoking the alleged offence under the provision.
Jayachandran Alloys Pvt. Ltd. vs Superintendent of GST and Central Excise (Madras High Court, 2019) is a significant judgment that addresses the legal question of whether criminal prosecution under Section 132 of the CGST Act can be initiated without prior assessment of tax liability ?
In the above mentioned case, the petitioner was accused of wrongful availment of Input Tax Credit (ITC) without actual receipt of goods. The Department initiated action under Section 132 of the CGST Act, which deals with prosecution for specified offences. The petitioner challenged the proceedings before the Madras High Court, arguing that no adjudication or quantification of tax had been made, and hence prosecution was premature.
The court held that, power to punish u/s 132 would stand triggered only once it is established that an assessee has committed an offence that has necessarily be post-determination of demand due from the assessee, that itself has to follow process of an assessment. The relevant portion of the decision is extracted below for ready reference:
“42. In the present case, the Department does not dispute that action was intended or envisaged in the light of Section 132 of the CGST Act, the counter fairly stating that the provisions of Section 132 of the CGST Act were ‘shown’ to the Assessee. There is thus no doubt in my mind that the Department intended to intimidate the petitioner with the possibility of punishment under 132 and this action is contrary to the scheme of the Act. While the activities of an assessee contrary to the scheme of the Act are liable to be addressed swiftly and effectively by the Department, (the statute in question being a revenue statute where strict interpretation is the norm), officials cannot be seen to be acting in excess of the authority vested in them under the statute. I am of the considered view that the power to punish set out in Section 132 of the Act would stand triggered only once it is established that an assessee has ‘committed’ an offence that has to necessarily be post-determination of the demand due from an assessee, that itself has to necessarily follow the process of an assessment.”
Prosecution proceedings in a court of law are to be generally initiated after departmental adjudication of an offence has been completed, although there is no legal bar against launch of prosecution before adjudication.
Adjudicating authority should invariably indicate at the time of passing the order against the Show Cause Notice for demand itself whether it considers the case fit for prosecution, so that it can be further processed and sent to the Pr. Commissioner/ Commissioner for obtaining his sanction of prosecution.
3. The standard of proof required in a criminal prosecution is higher than adjudication proceeding as the case has to be established beyond reasonable doubt. Therefore, even cases where demand is confirmed in adjudication proceedings, evidence collected should be weighed so as to likely meet the above criteria for recommending prosecution.
4. Prosecution under GST is independent of the outcome of adjudication proceedings.
Hon’ble Supreme Court of India in the case of Radheshyam Kejriwal [2011 (266) ELT 294 (SC)] has in respect to filing of prosecution complaint inter-alia observes as under:
i. Adjudication proceedings and criminal proceedings can be launched simultaneously;
ii. Decision in adjudication proceedings is not necessary before initiating criminal prosecution;
iii. Adjudication proceedings and criminal proceedings are independent in nature to each other;
iv. The findings against the person facing prosecution in the adjudication proceedings is not binding on the proceeding for criminal prosecution;
v. The finding in the adjudication proceedings in favour of the person facing trial for identical violation will depend upon the nature of finding. If the exoneration in adjudication proceedings is on technical ground and not on merit, prosecution may continue; and
vi. In case of exoneration, however, on merits where the allegation is found to be not sustainable at all and the person held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue, the underlying principle being the higher standard of proof in criminal cases.
In cases where any offender is arrested under section 69 of the CGST Act, 2017, prosecution complaint may be filed even before issuance of the Show Cause Notice. Where during the course of investigation, arrest(s) have been made and no bail has been granted, all efforts should be made to file prosecution complaint in the Court within sixty (60) days of arrest.
5. In case of filing of prosecution against legal person, including natural person:
Section 132, Section 137 lay the the relevant provisions under GST which deals with prosecution in case of offences by companies.
“Section 137 of the Central Goods and Services Tax Act, 2017, lays down the provisions for attributing liability and initiating prosecution against specific individuals in cases where an offence is committed by a company, which, being an artificial legal entity; operates through natural persons responsible for the conduct of its business.”
Sub-section (1) of Section 137 “(1) Where an offence committed by a person under this Act is a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.”
Sub-section (2) of Section 137 “Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any negligence on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.”
6. Prosecution before completion of adjudicating proceedings
Decision on prosecution should normally be taken immediately on completion of the adjudication proceedings, except in cases of arrest where prosecution should be filed as early as possible.
Prosecution may be initiated even prior to the completion of adjudication proceedings, if there exists sufficient qualitative evidence that clearly establishes, beyond reasonable doubt, that the accused had a guilty mind (mens rea), knowledge of the offence, or acted with fraudulent intent. Where such evidence indicates deliberate wrongdoing, the pendency or potential delay in adjudication need not preclude the launch of prosecution.
In simple words, prosecution complaints can be filed even before the completion of adjudication proceedings, especially in cases where:
-
- The offence is grave.
- Qualitative evidence is available.
- There is apprehension that the concerned person may delay the completion of adjudication proceedings.
- The offender has been arrested under Section 69 of the CGST Act, 2017.
However, it is very important to note that where it is deemed fit to launch prosecution before adjudication of the case, the Additional/Joint Commissioner or Additional/Joint Director, DGGI, as the case may be, supervising the investigation, shall record the reason for the same and forward the proposal to the sanctioning authority.
7. Prosecution after completion of adjudication:
Adjudicating authority should invariably indicate at the time of passing the order against the Show Cause Notice for demand itself whether it considers the case fit for prosecution, so that it can be further processed and sent to the Pr. Commissioner/ Commissioner for obtaining his sanction of prosecution.
The Superintendent in-charge of adjudication section should endorse copy of all adjudication orders to the prosecution section. The Superintendent in charge of prosecution section should monitor receipt of all serially numbered adjudication orders and obtain copies of adjudication orders of missing serial numbers from the adjudication section every month.
8. Monetary Limit for filing Prosecution Complaint:
Prosecution should normally be launched where amount of tax evasion, or misuse of ITC, or fraudulently obtained refund in relation to offences specified under sub-section (1) of section 132 of the CGST Act, 2017 is more than Five Hundred Lakh rupees. However, in case of habitual offender who was involved in 2-3 cases with total confirmed demand of tax evasion exceeding Rs. Five Crores and cases in which arrest has been made during investigation, prosecution complaint can be filed irrespective of the monetary limit of tax evasion.
9. Authority to sanction prosecution:
Pr. Commissioner/Commissioner of CGST in terms of subsection (6) of section 132 of CGST Act, 2017 can sanction the filing of prosecution. In respect of cases being investigated by DGGI, the prosecution complaint for prosecuting a person should be filed only after obtaining the sanction of Pr. Additional Director General/Additional Director General, Directorate General of GST Intelligence (DGGI) of the concerned zonal unit/ Hqrs.
Recommendation for launching prosecution is made by the adjudicating authority, however, where no such recommendation is made by the adjudicating authority, Pr. Commissioner/ Commissioner or Pr. Additional Director General/ Additional Director General of DGGI may on his own motion also, taking into consideration inter alia, the seriousness of the offence, examine whether the case is fit for sanction of prosecution irrespective of whether the adjudicating authority has recommended prosecution or not.
10.Withdrawal of Prosecution:
There are two stages at which prosecution can be withdrawn with the consent of Principal Chief Commissioner/Chief Commissioner where case is booked by GST Department or Principal Director General in case of case booked by DGGI.
Stage-1: Sanction for prosecution has been accorded but prosecution complaint is still pending to be filed before court:
Where in light of new facts or evidences, there is a need for review of the sanction of prosecution; Commissionerate investigating the matter shall immediately bring the matter in the notice of the sanctioning authority. After reviewing the new facts and evidences, the sanctioning authority may recommend jurisdictional Pr. Chief Commissioner/Chief Commissioner that the sanction for prosecution be withdrawn who shall then take a decision.
Stage-2: Prosecution complaint is already filed before court:
Where it is found on merit that there is no contravention of the provisions of the Act in the adjudication proceedings and such order has attained finality i.e issue, dispute, or case has reached a conclusive end, and no further legal remedy or appeal is available or pending, then the 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, as the case may be, would ensure filing of an application through Public Prosecutor in the court to allow withdrawal of prosecution in accordance with law. The withdrawal can only be affected with the approval of the court.
We should understand that prosecution is never dropped automatically; the department moves an application through Public Prosecutor and withdraw the prosecution complaint.
11. Compounding of Offences:
Section 138 of the CGST Act, 2017 provides for compounding of offences by the Pr. Commissioner/ Commissioner 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. Relevant extracts of the said section is re-produced here under:
“In accordance with sub-section (1) of Section 138 of the Central Goods and Services Tax Act, 2017, any offence committed under the Act may be compounded, either before or after the institution of prosecution, by the Commissioner, upon payment by the accused to the Central Government or the State Government, as the case may be, of such compounding amount and in such manner as may be prescribed.”
Provided that compounding shall not be permitted in the following circumstances:
-
- Where the offence is a repeat offence and compounding has previously been granted to the accused for a similar offence;
- Where the offence has been committed under clause (b) of subsection (1) of Section 132 of the Central Goods and Services Tax Act, 2017.
It is suggested to the readers to please refer INSTRUCTION No. 04/2022-23 [GST – Investigation] dated 01.09.2022 for further details.
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Author can be reached at Email ID: catusharjain@gmail.com or at Mobile: +91-9891414445
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Very detailed and informative.