Recommendations of the 48th GST Council meeting on decriminalization of offenses

(MainsGS3:Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.)

Context:

• Recently, the 48th GST Council meeting was held which chaired by Finance Minister Nirmala Sitharaman recommended decriminalization of certain offenses under Section 132 of the Central Goods and Services Tax (CGST) Act, 2017.

Avoid 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. 
• 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.

Penal provisions:

• 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. 
• 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.

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

Recommendations to decriminalise:

• The 48th GST Council meeting has recommended various measures to decriminalise the GST offences such as 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.
• Further reducing the compounding amount from the present range of 50 to 150% of the tax amount to the range of 25 to 100%, and 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.

 Other recommended measures:

• 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.
• The GST Council in its 47th meeting had also granted in-principle approval for allowing unregistered suppliers and composition taxpayers to make intra-state supply of goods through E-Commerce Operators (ECOs), subject to certain conditions. 
• The Council approved the amendments in the GST Act and GST Rules, along with issuance of relevant notifications, to enable the same. 
• Further, considering the time required for development of the requisite functionality on the portal as well as for providing sufficient time for preparedness by the ECOs, the Council has recommended that the scheme may be implemented from October 2023.

Impact of decriminalization:

• 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 and 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.

Conclusion:

• If the above decriminalization of GST offenses 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