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Alerts:

Indirect Tax Alert - CBIC issues guidelines for launching prosecution under the GST law

07 September 2022

Section 132 of the Central Goods and Services Tax Act, 2017 (CGST Act) codifies the offences under the Act which warrant the institution of criminal proceedings and prosecution. Recently, CBIC has issued Instruction No. 04/2022-23 [GST-Investigation] dated 1 September 2022 which provides the guidelines for launching prosecution proceedings. The gist of the guidelines is as follows:

Sanction of prosecution

  • The prosecution has serious repercussions for the person involved, and therefore, the nature of the evidence collected during the investigation must be assessed carefully. One of the key considerations for invoking prosecution proceedings should be the availability of adequate evidence

  • The standard of proof required in a criminal prosecution is higher than adjudication proceeding as the case has to be established beyond a reasonable doubt
  • Prosecution proceedings should not be initiated merely on the basis of demand confirmed in adjudication. Moreover, prosecution proceedings cannot be initiated in technical cases or where the interpretational issue is involved
  • The collected evidence should establish beyond reasonable doubt that the person had a guilty mind, or knowledge of the offence, or had the fraudulent intention or in any manner possessed mens-rea for committing the offence
  • The prosecution should not be launched indiscriminately against all the directors of a public company but should be restricted only to persons overseeing day-to-day operations and took an active part in committing the tax evasion etc. or had connived at it
  • Decision on prosecution should be taken immediately on completion of the adjudication proceedings, except in cases of arrest where prosecution should be filed as early as possible;
  • In view of the observations of the Honorable Supreme Court in the case of Radheshyam Kejriwal [2011 (266) ELT 294 (SC)], a prosecution complaint may even be filed before adjudication of the case, especially where the offence involved is grave or qualitative evidence are available, or it is apprehended that the concerned person may delay completion of adjudication proceedings
  • In cases where any offender is arrested under section 69 of the CGST Act, a prosecution complaint may be filed even before the issuance of the Show-Cause-Notice (SCN)

 

Monetary limits

  • The prosecution should be launched where the amount of tax evasion or misuse of ITC, or fraudulently obtained refund in respect of offences specified under section 132(1) of the CGST Act exceeds INR 50mn
  • The aforesaid monetary limit shall not apply in the case of
    • habitual evaders (considered as persons who have been involved in two or more cases of confirmed demand at first adjudication level or above in respect of tax evasion, etc.) in the past two years where the aggregate tax demand for such offences exceeds INR 50mn
    • Cases where arrests have been made under Section 69 of the CGST Act during an investigation.

 

Authority to sanction prosecution

  • The prosecution complaint should be filed only after obtaining the sanction of the Principal Commissioner / Commissioner of CGST (sanctioning CGST authority) under section 132(6) of the CGST Act
  • As regards cases investigated by DGGI, the same should be sanctioned by the Principal Additional Director General / Additional Director General, Directorate General of GST Intelligence (DGGI) (sanctioning DGGI authority) of the concerned zonal unit/headquarters

 

Procedure for sanction of prosecution

  • In cases of arrest under section 69 of the CGST Act
    • Where during the course of an investigation, an arrest has been made, and no bail has been granted, all efforts should be made to file a prosecution complaint in the Court within 60 days of arrest. In other cases, prosecution complaint should be filed within a definite time frame
    • The proposal of filing a complaint in the prescribed format should be forwarded to sanctioning CGST authority within 50 days of arrest. If prosecution sanction is accorded, he shall issue a sanction order along with an order authorising the investigating officer (at the level of Superintendent) to file the prosecution complaint in the competent court
    • A similar process to be followed by officers of the equal rank of DGGI in respect of cases investigated by DGGI and the proposal for filing a complaint must be forwarded to the sanctioning DGGI authority
    • The Additional Commissioner / Joint Commissioner or Additional Director / Joint Director (in the case of DGGI), must ensure that all the documents /evidence and list of witnesses are kept ready before forwarding the proposal of filing a complaint to the sanctioning CGST authority or sanctioning DGGI authority (as the case may be)

 

  • Prosecution against a legal person, including a natural person
    • In the case of companies, both legal and natural persons can be prosecuted under Section 132 of the CGST Act. Similarly, under Section 137(3) of the CGST Act, provisions have been made for a partnership firm or a Limited Liability Partnership or a Hindu Undivided Family or a Trust
    • Where it is deemed fit to launch prosecution before adjudication of the case, the supervising officer shall record the reason for the same and forward the proposal to the sanctioning authority (CGST or DGGI, as the case may be) for approval. The decision of the said authority should be informed to the adjudicating authority
    • In all cases (other than above and arrests where a prosecution complaint has already been filed before adjudication), the adjudicating authority should invariably indicate at the time of passing the order itself whether it considers the case fit for prosecution
    • In cases where the SCN is issued by DGGI, the recommendation of the adjudicating authority for filing of prosecution shall be sent to the sanctioning DGGI authority of the concerned zonal unit/headquarters
    • Where at the time of passing the adjudicating order, no view has been taken on prosecution by the Adjudicating Authority, the adjudicating branch shall re-submit the file within 15 days from the date of adjudicating order to the Adjudicating Authority to take a view on the prosecution. The sanctioning authority (CGST or DGGI, as the case may be) may also examine whether the case is fit for prosecution after taking into consideration the seriousness of the offence
    • An investigation report for launching prosecution should be prepared within a month of the date of receipt of the adjudicating order or the receipt of the recommendation of Adjudicating Authority;
    • Once the sanction for prosecution has been obtained, the prosecution in the court of law should be filed as early as possible, but not beyond 60 days by the authorised officer. In case of delay in filing the complaint, the reason for the same shall be brought to the notice of the sanctioning authority (CGST or DGGI, as the case may be)
    • In respect of cases investigated by DGGI, except for cases pertaining to single/multiple taxpayer(s) under Central Tax administration in one Commissionerate where arrests have not been made and the prosecution is not proposed prior to issuance of SCN, prosecution complaints shall be filed and followed-up by DGGI
    • In other cases, the complaint shall be filed by the officer at the level of Superintendent of the jurisdictional Commissionerate, authorised by the sanctioning CGST authority. of CGST. However, in all cases investigated by DGGI, the prosecution shall continue to be sanctioned by the sanctioning DGGI authority

 

Appeal against Court order in case of inadequate punishment/acquittal

  • The prosecution cell in the Commissionerate shall examine the judgment of the Court and submit their recommendations to the sanctioning CGST authority
  • Where sanctioning CGST authority is of the view that the accused person has been let off with lighter punishment than what is envisaged in the CGST Act or has been acquitted despite strong evidence, filing of appeal should be considered against the order within the stipulated time. Before the filing of appeal in such cases, the concurrence of the Principal Chief Commissioner / Chief Commissioner should be obtained
  • In respect of cases booked by DGGI, the prosecution cell in the DGGI shall examine the judgment of the court and submit their recommendations to the sanctioning DGGI authority who shall take a view regarding the acceptance of the order or filing of an appeal. However, before the filing of an appeal, the concurrence of the Director General or Principal Director General (for cases booked by HQ Unit) should be obtained

 

Procedure for withdrawal of sanction-order of prosecution

  • Where prosecution has been sanctioned but a complaint has not been filed, and new facts or evidence have come to light necessitating review of the sanction for prosecution, the sanctioning CGST authority, after considering the new facts and evidence, may recommend to the jurisdictional Principal Chief Commissioner / Chief Commissioner that the sanction for prosecution be withdrawn who shall then take a decision
  • In respect of cases investigated by DGGI, such withdrawal of sanction order may be made with the approval of the Director General of DGGI of the concerned sub-national unit and it shall be Principal Director General in respect of cases booked by DGGI, headquarters

 

Procedure for withdrawal of complaint already filed for prosecution

  • Where it is found on merit that there is no contravention of the provisions of the CGST Act in the adjudication proceedings and such order has attained finality, the sanctioning CGST or DGGI authority (as the case may be), after taking approval of the Principal Chief Commissioner / Chief Commissioner or Principal Director General or Director General, would ensure filing of application through the Public Prosecutor to allow the withdrawal of prosecution in the Court in accordance with the law

 

General guidelines

  • The officer who has been authorised to file a complaint is responsible to take charge of all documents, statements and other exhibits that are required to be produced before Court
  • The list of exhibits, etc. should be finalised in consultation with the Public Prosecutor at the time of the drafting of the complaint
  • Where a complaint has not been filed even after a lapse of 60 days from the receipt of sanction for prosecution, the reason for delay shall be brought to the notice of the sanctioning authority (CGST or DGGI, as the case may be) by the officer responsible for filing the complaint
  • Filing of prosecution need not be kept in abeyance on the ground that the taxpayer has gone in appeal/revision
  • The Superintendent in-charge of adjudicating section should endorse copies of all adjudicating orders to the prosecution section / DGGI as the case may be

 

Publication of names of persons convicted

  • Sanctioning CGST authority or any other officer authorised by him on his behalf to publish the name and other particulars of the person convicted under the CGST Act

 

Monitoring of prosecution

  • The sanctioning authority (CGST or DGGI, as the case may be) should monitor cases of prosecution on a monthly basis and take corrective action wherever necessary
  • In DGGI, the Additional Director / Joint Director in each zonal unit and DGGI (Hqrs.) shall supervise the prosecution-related work and take stock of the pending prosecution cases

 

Compounding of offence

  • Section 138 of the CGST Act provides for compounding of offences by the sanctioning CGST authority on payment of compounding amount, which should be highlighted to a person being prosecuted and he should be given an offer of compounding

 

Transitional Provisions

  • All cases where sanction for prosecution is accorded after the issue of these instructions shall be dealt with in terms of these instructions irrespective of the date of the offence
  • Cases where the prosecution has been sanctioned but no complaint has been filed before the magistrate shall also be reviewed by the prosecution sanctioning authority (CGST or DGGI, as the case may be) considering the provisions of these instructions

Inspection of prosecution work by the Directorate General of Performance Management

  • Director General, Directorate General of Performance Management and Principal Chief Commissioners / Chief Commissioners, who are required to inspect the Commissionerates, should specifically check whether instructions in this regard are being followed scrupulously and make a mention of the implementation of the guidelines in their inspection report apart from a recording of statistical data. A similar exercise should be carried out by DGGI also

BDO Comments

The guidelines provided in the aforesaid Instruction are a welcome move especially the clarification that in the case of a public limited company, the prosecution should not be launched against all directors and it should be restricted to only persons who oversaw day-to-day operations and had taken an active part in tax evasion, etc.

However, the definition of habitual evaders should be relooked as it has been the general experience of the industry that the tax evasion charges are routinely invoked by the tax authorities in all cases, and also in the first adjudication level, the tendency is to confirm the demand in the SCN. Consequently, someone with multiple litigations can be prosecuted even for amounts below the threshold limits, which does not seem to be the intention.

While these instructions are issued by the CBIC, in order to maintain uniformity and consistency in the implementation of GST, one may expect the State Tax authorities to adhere to these instructions while launching prosecution proceedings or issue similar instructions stipulating the guidelines for launching prosecution proceedings.

[Instruction no:04/2022-23 [GST-Investigation] dated 1 September 2022]