Need for provisions with criminal liabilities in tax laws
The Legislature while introducing a statute puts in place certain safeguards for any possible violations. In most statutes, civil as well as criminal liabilities are provided for any breach. Civil liabilities would generally be in the nature of fines and penalties whereas criminal liabilities would be in the nature of prosecution, imprisonment and/ or penalties. Under tax laws as well, any breach resulting in civil liabilities is dealt by the revenue authorities whereas criminal liabilities are dealt by the criminal courts.
The sole purpose of putting criminal liabilities is to ensure strict compliance of tax laws and dissuade any dishonest act by the taxpayer. However, in some cases even the honest taxpayers suffer because of unintentional or minor breach of the provisions resulting in untoward fines and penalties or even prosecution. While ensuring compliance of the tax laws, it is also the duty of the Government to protect honest taxpayers who in the course of doing business may have inadvertently breached the provisions.
General Meaning of basic terms
Before delving deep into the topic, let us understand the meaning of some of the common terms:
- Offence – It means an act or omission made punishable by any law for the time being in force1
- Prosecution – It means a criminal action before the court of law for the purpose of determining "guilt" or "innocence" of a person charged with a crime.2
- Fine – A penalty of money that a court of law or other authority decides has to be paid as punishment for crime or other offense.
- Penalty - The expression "penalty" is an elastic term with many different shades of meaning but it always involves an idea of punishment3. It is pertinent to mention that Penalty does not always require to be administer by the Court or Authority.
Positive initiative to decriminalize certain offences
The Government of India's 'Ease of Doing Business policy' initiative aims to provide all the businesses an environment conducive to carry out the business. In furtherance of the same, the priority of the Government has been to simplify the complex laws and provide relaxation for minor offences. Accordingly, more than 39,000 compliances have been reduced and more than 3,400 legal provisions have been decriminalized.4
Recently, the Government also introduced the Jan Vishwas (Amendment of Provisions) Bill, 20225 in the parliament proposing to amend 42 laws, across multiple sectors, including agriculture, environment, and media and publication. Some of the legislations in which amendment has been sought include the Indian Post Office Act, 1898, the Environment (Protection) Act, 1986, the Public Liability Insurance Act, 1991, and the Information Technology Act, 2000 etc. The objective of the Bill is to amend certain enactments for decriminalising and rationalising minor offences to further enhance trust-based governance for ease of living and doing business. It is pertinent to mention that the process of decriminalization had already started few years back when Ministry of Corporate Affairs introduced amendments in certain laws such as the Companies Act, 2013, Limited Liability Partnership Act, 2008 etc. to decriminalise certain offences.
Decriminalisation under GST Law
In alignment with the policy, the GST Council introduced amendments in the GST law to decriminalise and rationalise certain minor offences. In the 48th meeting, the GST Council resolved to decriminalise certain offences and the said proposal has been implemented vide the Finance Act, 20236. The key changes made under the GST Law are summarised below:
1. Increase in threshold limit for launching of prosecution
Chapter XIX of the Central Goods and Services Tax Act, 2017 ('CGST Act') contains provisions relating to offences and penalties under the Act. Section 132 of the CGST Act lists out offences for which the Department may launch the prosecution. The punishment varies from 6 months or fine to 5 years or fine depending upon the amount of tax evaded or the ITC wrongly availed or utilized, or refund availed.
Prior to the amendment the GST department could prosecute any person for offences specified under Section 132 if the tax involved was at least INR 1 crore. The GST council, acknowledging the difficulty of the department to take every prosecution to its legal course decided to raise the monetary threshold limit for launching prosecution. Further, section 69 of the CGST Act provides that an arrest of a person can only be made in case of violation of specified offences in cases involving tax evasion of minimum INR 2 crore. Therefore, there was a need to align these two provisions. Accordingly, the monetary threshold limit has been increased to INR 2 crores except for the offences related to issuance of invoices without supply of goods or services or both.
2. Omission of certain offences specified for prosecution
The Government rationalized certain offences under Section 132 of the CGST Act which are already covered under the Indian Penal Code, 1860. The reasoning provided by the GST council for such amendment was that these provisions are in nature of minor offences and are already contained in the Indian penal Code, 1860 to deal with similar situations. Vide the Finance Act, 2023 following clauses was omitted:
(g) obstructs or prevents any officer in the discharge of his duties under this Act;
(j) tampers with or destroys any material evidence or documents;
(k) fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or
3. Compounding of Offences made more feasible
Section 138 of the Act provides that specified offences may be compounded either before or after the institution of prosecution on payment of specified amount. Prior to the amendment the minimum amount for compounding of offences was INR 10,000 or 50% of the tax involved and the maximum amount was INR 30,000 or 150% of the tax involved.
Post amendment the range for minimum and maximum amount has been reduced to 25% of the tax involved and the maximum amount to 100% of tax involved. This has been done so that more and more taxpayers can get their minor offences compounded.
Although the provisions to decriminalize minor offences have already been incorporated in the GST law, the same has not yet been implemented. It is expected that the Government may soon implement the provisions lest it remains in vain. Only time can say whether these efforts have really built the confidence in honest taxpayers and enhanced ease of doing business.
1. Section 3(38) of the General Clauses Act, 1897
2. Para 28 Army Headquarters v. CBI, (2012) 6 SCC 228
3. Sova Ray v. Gostha Gopal Dey, (1988) 2 SCC 134
5. Bill tabled in Lok Sabha on December 22, 2022 and thereafter referred to Joint Parliamentary Committee (JPC). JPC has presented its report on March 20, 2023
6. Finance Act, 2023 received assent of the President of India on March 31, 2023. However, certain provisions including GST amendments were to be notified by Central government by official gazette.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.