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Decriminalisation of Offences Under GST

Context:

Recently, The 48th GST Council meeting was chaired by Finance Minister recommended to decriminalise certain offences under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017.

Relevance:

GS III: Indian Economy

Dimensions of the Article:

  1. GST Council
  2. What was previously criminalised under GST?
  3. Which are the offences under GST law which attract IPC and CrPC provisions?
  4. What has been recommended to decriminalise the GST offences?
  5. What will be the impact of decriminalisation?
  6. Other recommended measures to facilitate trade
  7. Way forward

GST Council

  • Goods & Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
  • As per Article 279A (1) of the amended Constitution, the GST Council has to be constituted by the President within 60 days of the commencement of Article 279A.
  • The Constitution (One Hundred and Twenty-Second Amendment) Bill, 2016, for the introduction of Goods and Services Tax in the country was introduced in the Parliament and passed by Rajya Sabha on 3rd August 2016 and by Lok Sabha on 8th August 2016.
  • GST Council is an apex member committee to modify, reconcile or procure any law or regulation based on the context of goods and services tax in India.
  • The GST council is responsible for any revision or enactment of rule or any rate changes of the goods and services in India.
  • The council contains the following members:
    • Union Finance Minister (as chairperson)
    • Union Minister of States in charge of revenue or finance (as members)
    • The ministers of states in charge of finance or taxation or other ministers as nominated by each state’s government (as members).
Matters on which GST Council makes recommendations
  • Taxes, cesses, and surcharges levied by the Centre, States and local bodies which may be subsumed in the GST;
  • Goods and services which may be subjected to or exempted from GST;
  • Model GST laws, principles of levy, apportionment of IGST and principles that govern the place of supply;
  • Threshold limit of turnover below which goods and services may be exempted from GST;
  • Rates including floor rates with bands of GST;
  • Special rates to raise additional resources during any natural calamity;
  • Special provision with respect to Arunachal Pradesh, Jammu and Kashmir, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand;
  • Any other matter relating to the goods and services tax, as the Council may decide.

What was previously criminalised under GST?

Tax evasion:

  • 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.

Penalties:

  • 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.

Length of the prison sentence:

  • 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.

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

  • 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.
  • Section 120A of the Indian Penal Code (IPC), defines criminal conspiracy,
  • Section 120B deals with punishment for the same
  • 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.

What has been recommended to decriminalise the GST offences?

  • Raising the minimum threshold of tax amount for launching prosecution under GST from one crore to two crore, except for the offence of issuance of invoices without supply of goods or services or both
  • Reducing the compounding amount from the present range of 50 to 150% of the tax amount to the range of 25 to 100%,
  • Decriminalising certain offences specified under Section 132 of the CGST Act, 2017, such as obstructing or preventing any officer from doing his duties, deliberate tempering of material evidence and failure to supply information.

What will be the impact of decriminalisation?

  • The GST is a novel taxation system that includes a number of globally unprecedented features.
  • The law is still developing and is in its infancy which makes the same difficult and uncertain to enforce.
  • There are instances of conflict between court decisions and rulings. The government is still working to streamline the laws.
  • In comparison to the pre-GST era, the GST compliance process with granular reporting is noticeably more onerous.
  • Therefore, it is important to recognise that imposing penal provisions in an ambiguous ecosystem significantly alters how businesses perceive risk and uncertainty, directly impacting their ability to conduct business.
  • The law already contains sufficient penalties that serve as a deterrent against tax evasion.
  • Investors may be discouraged by the fear of criminal sanctions in small, trivial, and petty matters, even before their engagement in any business activity or investment.

Other recommended measures to facilitate trade

  • Two major recommendations include refunding unregistered persons and facilitating e-commerce for micro enterprises.
  • There was no procedure for claim of refund of tax borne by unregistered buyers in cases where the contract/agreement for supply of services, like construction of flat/house and long-term insurance policy, is cancelled and the time period of issuance of credit note by the concerned supplier is over.
  • The Council recommended amendment in CGST Rules, 2017, along with issuance of a circular, to prescribe the procedure for filing application of refund by the unregistered buyers in such cases.

Way forward

  • If the above decriminalisation of GST offences are implemented with adequate checks, then prosecution, arrest and imprisonment in GST cases would only be in the rarest of rare cases of hard, habitual, deliberate defaulters and blatant specific fraudulent practices.
  • Other minor grievances may be dealt with in other resolution mechanisms such as Alternate Dispute Resolution (ADR) mechanism, private ruling and mediation, faceless adjudication and appeals, etc.

-Source: The Hindu


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