Offences, Penalties, Prosecution and Compounding

Q 1. What are the prescribed offences under CGST/SGST Act?

Ans. The CGST/SGST Act codifies the offences and penalties
in Chapter XVI. The Act lists 21 offences in section 122,
apart from the penalty prescribed under section 10 for
availing compounding by a taxable person who is not
eligible for it. The said offences are as follows: –

1) Making a supply without invoice or with false/
incorrect invoice;

2) Issuing an invoice without making supply;

3) Not paying tax collected for a period exceeding
three months;

4) Not paying tax collected in contravention of the
CGST/SGST Act for a period exceeding 3 months;

5) Non deduction or lower deduction of tax
deducted at source or not depositing tax
deducted at source under section 51;

6) Non collection or lower collection of or non-
payment of tax collectible at source under
section 52;

7) Availing/utilizing input tax credit without
actual receipt of goods and/or services;

8) Fraudulently obtaining any refund;

9) Availing/distributing input tax credit by an Input
Service Distributor in violation of Section 20;

10) Furnishing false information or falsification of
financial records or furnishing of fake accounts/
documents with intent to evade payment of tax;

11) Failure to register despite being liable to pay
tax;

12) Furnishing false information regarding
registration particulars either at the time of
applying for registration or subsequently;

13) Obstructing or preventing any official in
discharge of his duty;

14) Transporting goods without prescribed
documents;

15) Suppressing turnover leading to tax evasion;

16) Failure to maintain accounts/documents in the
manner specified in the Act or failure to retain
accounts/documents for the period specified in the
Act;

17) Failure to furnish information/documents
required by an officer in terms of the Act/Rules or
furnishing false information/documents during
the course of any proceeding;

18) Supplying/transporting/storing any goods
liable to confiscation;

19) Issuing invoice or document using GSTIN of
another person;

20) Tampering/destroying any material evidence;

21) Disposing of /tampering with goods detained/
seized/attached under the Act.

Q 2. What is meant by the term penalty?

Ans. The word “penalty” has not been defined in the
CGST/SGST Act but judicial pronouncements and
principles of jurisprudence have laid down the nature of a
penalty as:

  • a temporary punishment or a sum of money
    imposed by statute, to be paid as punishment for
    the commission of a certain offence;

  • a punishment imposed by law or contract for
    doing or failing to do something that was the
    duty of a party to do.

Q 3. What are the general disciplines to be followed while imposing penalties?

Ans. The levy of penalty is subject to a certain disciplinary
regime which is based on jurisprudence, principles of
natural justice and principles governing international
trade and agreements. Such general discipline is enshrined
in section 126 of the Act. Accordingly—

  • no penalty is to be imposed without issuance of
    a show cause notice and proper hearing in the
    matter, affording an opportunity to the person
    proceeded against to rebut the allegations
    levelled against him,

  • the penalty is to depend on the totality of the
    facts and circumstances of the case,

  • the penalty imposed is to be
    commensurate with the degree and severity
    of breach of the provisions of the law or the
    rules alleged,

  • the nature of the breach is to be specified clearly
    in the order imposing the penalty,

  • the provisions of the law under which the penalty
    has been imposed is to be specified.

Section 126 further specifies that, in particular, no
substantial penalty is to be imposed for —

  • any minor breach ( minor breach has
    been defined as a violation of the provisions in
    a case where the tax involved is less than
    Rs.5000), or

  • a procedural requirement of the law, or

  • an easily rectifiable mistake/omission in
    documents (explained in the law as an error
    apparent on record) that has been made without
    fraudulent intent or gross negligence.

Further, wherever penalty of a fixed amount or a fixed
percentage has been provided in the CGST/SGST Act, the
same shall apply.

Q 4. What is the quantum of penalty provided for in the CGST /SGST Act?

Ans. Section 122(1) provides that any taxable person
who has committed any of the offences mentioned in
section 122 shall be punished with a penalty that shall be
higher of the following amounts:

  • The amount of tax evaded, fraudulently obtained
    as refund, availed as credit, or not deducted or
    collected or short deducted or short collected,
    or

  • A sum of Rs. 10,000/-.

Further Section 122(2) provides that any registered person
who has not paid tax or makes a short payment of taxon
supplies shall be a liable to penalty which will be the higher
of:

  • 10% of the tax not paid or short paid, or

  • Rs. 10,000/-

Q 5. Is any penalty prescribed for any person other than the taxable person?

Ans. Yes. Section 122(3) provides for levy of penalty
extending to Rs. 25,000/- for any person who-

  • aids or abets any of the 21 offences,

  • deals in any way (whether receiving, supplying,
    storing or transporting) with goods that are
    liable to confiscation,

  • receives or deals with supply of services
    in contravention of the Act,

  • fails to appear before an authority who has
    issued a summon,

  • fails to issue any invoice for a supply or account
    for any invoice in his books of accounts.

Q 6. What is the penalty provided for any contravention for which no separate penalty has been prescribed under CGST/SGST Act?

Ans. Section 125 of the CGST/SGST Act provides that any
person who contravenes any provision of the Act or the
rules made under this Act for which no separate penalty
has been prescribed shall be punishable with a penalty
that may extend to Rs. 25,000/-

Q 7. What action can be taken for transportation of goods without valid documents or attempted to be removed without proper record in books?

Ans. If any person transports any goods or stores any
such goods while in transit without the documents
prescribed under the Act (i.e. invoice and a declaration)
or supplies or stores any goods that have not been
recorded in the books or accounts maintained by him,
then such goods shall be liable for detention along with
any vehicle on which they are being transported.

Where owner comes forward: – Such goods shall be
released on payment of the applicable tax and penalty
equal to 100% tax or upon furnishing of security
equivalent to the said amount.
In case of exempted goods, penalty is 2% of value of
goods or Rs 25,000/- whichever is lesser.

Where owner does not come forward: – Such goods
shall be released on payment of the applicable tax and
penalty equal to 50% of value of goods or upon
furnishing of security equivalent to the said amount.
In case of exempted goods, penalty is 5% of value of
goods or Rs 25,000/- whichever is lesser.

Q 8. What is the penalty prescribed for a person who opts for composition scheme despite being ineligible for the said scheme?

Ans. Section 10(5) provides that if a person who has paid
under composition levy is found as not being eligible for
compounding then such person shall be liable to penalty
to an amount equivalent to the tax payable by him under
the provisions of the Act i.e. as a normal taxable person
and that this penalty shall be in addition to the tax
payable by him.

Q 9. What is meant by confiscation?

Ans. The word ‘confiscation’ has not been defined in the
Act. The concept is derived from Roman Law wherein it
meant seizing or taking into the hands of emperor, and
transferring to Imperial “fiscus” or Treasury. The word
“confiscate” has been defined in Aiyar’s Law Lexicon as to
“appropriate (private property) to the public treasury by
way of penalty; to deprive of property as forfeited to the
State.”

In short in means transfer of the title to the goods to the
Government.

Q 10. Under which circumstances can goods be confiscated under CGST/SGST Act?

Ans. Under Section 130 of the CGST Act, goods shall be liable
to confiscation if any person:

  • supplies or receives any goods in contravention
    of any provision of this Act and such
    contravention results in evasion of tax payable
    under the Act, or

  • does not account for any goods in the manner
    required under the Act, or

  • supplies goods that are liable to tax under the
    Act without applying for registration, or

  • uses any conveyance as a means of transport
    for carriage of goods in contravention of the
    provisions of CGST/SGST Act (unless used
    without knowledge of owner)

  • contravenes any provision of the Act/Rules with
    the intention of evading payment of tax.

Q 11. What happens to the goods upon confiscation of goods by the proper officer?

Ans. Upon confiscation, the title in the confiscated goods
shall vest in the Government and every Police officer to
whom the proper officer makes a request in this behalf,
shall assist in taking possession of the goods.

Q 12. After confiscation, is it required to give option to the person to redeem the goods?

Ans. Yes. In terms of section 130(2), the Owner or the
person in-charge of the goods liable to confiscation is to
be given the option for fine (not exceeding market price of
confiscated goods) in lieu of confiscation. This fine shall be
in addition to the tax and other charges payable in respect
of such goods.

Q 13. Can any conveyance carrying goods without cover of prescribed documents be subject to confiscation?

Ans. Yes. Section 130 provides that any conveyance
carrying goods without the cover of any documents or
declaration prescribed under the Act shall be liable to
confiscation. However, if the owner of the conveyance
proves that the goods were being transported without
cover of the required documents/declarations without his
knowledge or connivance or without the knowledge or
connivance of his agent then the conveyance shall not be
liable to confiscation as aforesaid.

Q 14. What is Prosecution?

Ans. Prosecution is the institution or commencement of
legal proceeding; the process of exhibiting formal charges
against the offender. Section 198 of the Criminal Procedure
Code defines “prosecution” as the institution and carrying
on of the legal proceedings against a person.

Q 15. Which are the offences which warrant prosecution under the CGST/SGST Act?

Ans. Section 132 of the CGST/SGST Act codifies the major
offences under the Act which warrant institution of
criminal proceedings and prosecution. 12 such major
offences have been listed as follows:

a) Making a supply without issuing an invoice or upon
issuance of a false/incorrect invoice;

b) Issuing an invoice without making supply;

c) Not paying any amount collected as tax for a period
exceeding 3 months;

d) Availing or utilizing credit of input tax without actual
receipt of goods and/or services;

e) Obtaining any fraudulent refund)

f) evades tax, fraudulently avails ITC or obtains refund
by an offence not covered under clause (a) to (e);

g) Furnishing false information or falsification of
financial records or furnishing of fake accounts/
documents with intent to evade payment of tax;

h) Obstructing or preventing any official in the
discharge of his duty;

i) Dealing with goods liable to confiscation i.e.
receipt, supply, storage or transportation of goods
liable to confiscation;

j) Receiving/dealing with supply of services in
contravention of the Act;

k) tampers with or destroys any material evidence or
documents

l) Failing to supply any information required of him
under the Act/Rules or supplying false information;

m) Attempting to commit or abetting the
commission of any of the offences at (a) to (l) above.

Q 16. What is the punishment prescribed on conviction of any offence under the CGST/SGST Act?

Ans. The scheme of punishment provided in section 132(1)
is as follows:

Offence involving Punishment (Imprisonment extending to–)
Tax evaded exceeding
Rs. 5 crore or repeat
offender250 lakh 		5 years and fine
Tax evaded between Rs. 2
crore and Rs.5 crore 		3 years and fine
TaxevadedbetweenRs.1
crore and Rs.2 crore 		1 years and fine
* False records
* Obstructing officer
* Tamper records 		6 months

Q 17. What are cognizable and non-cognizable offences under CGST/SGST Act?

Ans. In terms of Section 132(4) and 132(5) of
CGST/SGST Act

  • all offences where the evasion of tax is less than Rs.5
    crores shall be non-cognizable and bailable,

  • all offences where the evasion of tax exceeds Rs.5
    crores shall be cognizable and non- bailable.

Q 18. Is prior sanction of competent authority mandatory for initiating prosecution?

Ans. Yes. No person shall be prosecuted for any offence
without the prior sanction of the designated authority.

Q 19. Is ‘mensrea’ or culpable mental state necessary for prosecution under CGST/SGST Act?

Ans. Yes. However, Section 135 presumes the existence
of a state of mind (i.e. “culpable mental state” or mensrea)
required to commit an offence if it cannot be committed
without such a state of mind

Q 20. What is a culpable state of mind?

Ans. While committing an act, a “culpable mental state”
is a state of mind wherein-

  • the act is intentional;

  • the act and its implications are understood and
    controllable;

  • the person committing the act was not
    coerced and even overcomes hurdles to the act
    committed;

  • the person believes or has reasons to believe
    that the act is contrary to law.

Q 21. Can a company be proceeded against or prosecuted for any offence under the CGST/SGST Act?

Ans. Yes. Section 137 of the CGST/SGST ACT provides that
every person who was in-charge of or responsible to a
company for the conduct of its business shall, along-with
the company itself, be liable to be proceeded against and
punished for an offence committed by the company while
such person was in-charge of the affairs of the company. If
any offence committed by the company—

  • has been committed with the consent/
    connivance of, or

  • is attributable to negligence of—

any officer of the company then such officer shall be deemed
to be guilty of the said offence and liable to be proceeded
against and punished accordingly.

Q 22. What is meant by compounding of offences?

Ans. Section 320 of the Code of Criminal
Procedure defines “compounding” as to forbear from
prosecution for consideration or any private motive.

Q 23. Can offences under CGST/SGST Act be compounded?

Ans. Yes. As per section 138 of the CGST/SGST Act, any
offence, other than the following, may upon payment of
the prescribed (compounding) amount be compounded
and such compounding is permissible either before or
after the institution of prosecution:

  • Offences numbered 1 to 6 of the 12 major
    offences (outlined in Q. 16 above), if the person
    charged with the offence had compounded
    earlier in respect of any of the said offences;

  • Aiding/abetting offences numbered 1 to 6 of the
    12 major offences, if the person charged with
    the offence had compounded earlier in respect
    of any of the said offences;

  • Any offence (other than the above offences)
    under any SGST Act/IGST Act in respect of a
    supply with value exceeding Rs.1 crore, if the
    person charged with the offence had
    compounded earlier in respect of any of the said
    offences;

  • Any offence which is also an offence under
    NDPSA or FEMA or any other Act other than
    CGST/SGST;

Compounding is to be permitted only after payment of tax,
interest and penalty and compounding shall not affect any
proceeding already instituted under any other law.

Q 24. Are there any monetary limits prescribed for compounding of offence?

Ans. Yes. The lower limit for compounding amount is to
be the greater of the following amounts: –

  • 50% of tax involved, or

  • Rs. 10,000.

The upper limit for compounding amount is to be greater
of the following amounts: –

  • 150% of tax involved or

  • Rs. 30,000.

Q 25. What is the consequence of compounding of an offence under CGST/SGST Act?

Ans. Sub-section (3) of section 138 provides that on
payment of compounding amount no further proceeding
to be initiated under this Act and criminal proceeding
already initiated shall stand abated.

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