A tax evasion of Rs. 25 lacs could attract a prison sentence of up to one year and a fine. The sentence could go up to three years if the evasion exceeds Rs. 50 lacs. Non-bailable arrest with imprisonment of up to five years could follow if the evasion value exceeds Rs. 2.5 crore, apart from fines.These provisions might affect investor confidence and raise some concerns. Currently, the monetary threshold for tax authorities to conduct arrest for any offence under the provisions of the Central Excise Act, 1944, is Rs. 1 crore, and Rs. 2 crores under the Finance Act, 1994.
Widened the Power to Arrest
The Model GST Law has further widened the power to arrest a person to 12 specified offences under Section 62 and Section 73 of the Model Law. This covers almost everything, say supplying goods or services without issue of invoice or issue of false invoice, issuing invoice without supply of any goods or services, not crediting collected tax amount to Government, utilising input tax credit without actual receipt of goods or services, obtaining any refunds fraudulently, falsification of financial records to evade payment of tax.
Interestingly, the threshold for arrest was raised from Rs. 50 lacs to Rs. 2 crores in Budget 2016 whereas Draft GST Law lays threshold of Rs. 50 lacs to trigger an arrest.
Offences Under GST
What is an offence?
An offence is a breach of a law or rule, i.e., an illegal act.
Similarly, an offence under GST is a breach of the provisions of GST Act and GST Rules.
When has anyone committed an offence under GST?
There are 21 offences under GST. For easy understanding, we have grouped them as-
- A taxable person supplies any goods/services without any invoice or issues a false invoice.
- He issues any invoice or bill without a supply of goods/services in violation of the provisions of GST
- He issues invoices using the identification number of another bonafide taxable person
- He submits false information while registering under GST
- He submits fake financial records/documents or files fake returns to evade tax
- Does not provide information/gives false information during proceedings
- He collects any GST but does not submit it to the government within 3 months
- Even if he collects any GST in contravention of provisions, he still has to deposit it to the government within 3 months. Failure to do so will be an offence under GST.
- He obtains a refund of any CGST/SGST by fraud.
- He takes and/or utilizes input tax credit without actual receipt of goods and/or services
- He deliberately suppresses his sales to evade tax
Supply/transport of goods
- He transports goods without proper documents
- Supplies/transports goods which he knows will be confiscated
- Destroys/tampers goods which have been seized
- He has not registered under GST although he is required to by law
- He does not deduct TDS or deducts less amount where applicable.
- He does not collect TCS or collects less amount where applicable.
- Being an Input Service Distributor, he takes or distributes input tax credit in violation of the rules
- He obstructs the proper officer during his duty (for example, he hinders the officer during the audit by tax authorities)
- He does not maintain all the books that he required to maintain by law
- He destroys any evidence
For the 21 offences above, for fraud cases, the penalty will be 100% (minimum Rs. 10,000)
Penalties under GST
Penal provisions have been prescribed for all kinds of offences (under GST) in Model GST law. The law also mentions certain principles on which these penalties should be based.
General Principles for Imposing Penalties:
1) No penalty for minor breach:
Often a person can make mistakes which may appear as fraud or an attempt to evade tax. Sometimes, these mistakes are committed unknowingly or without any malicious intention. The reason could be a poor understanding of tax laws or carelessness in following procedures.
Therefore, to save innocent persons from hassles of penalties or associated processes, the model GST law has laid down some guidelines.
- If the error in taxes is Rs. 5,000 or less, then the breach should be considered minor & no penalty should be imposed.
- If the mistake committed by the person is easily rectifiable, then the breach should be considered minor & no penalty should be imposed.
2) The penalty should align with the severity of a breach
The severity of breach of law should be established by analysing the facts & situations & penalty should be imposed accordingly.
3) The reason behind penalty should be disclosed
Model GST law asks the tax authorities to ensure that the person on whom the penalty is to be imposed has been provided all the relevant information before being penalised. The concerned person should be informed why he is being penalised.
4) Lower penalty on voluntary disclosure of the breach
Penal provisions of model GST law are lenient for those who voluntarily disclose the breach they committed. This will give encourage offenders to admit their wrongdoings without worrying about the repercussions. As per clause 68(5) of model GST law, a tax official may consider this action while establishing penalty. However, this provision will not be applicable in cases where the law prescribes a fixed amount or fixed percentage of money as a penalty as per clause 68(6) of model GST law.
Amount of Penalty as per Model GST:
Any offender who commits an offence which results in tax evasion can be punished with a penalty which is higher than the amount of tax evaded as per sec 66 (1) If a person pays insufficient tax then he can be penalised with Rs. 10,000 or 10% of tax deficit, whichever is higher. as per section 66 (2).
Penalty for any Offence Where No Separate Penalty has been Prescribed
If a person commits any offence for which separate penalty has not been prescribed, then the quantum of penalty can go as high as Rs. 25,000 as per section 67.
Punishments as a Result of Prosecution
If the person is convicted of any offence under section 73(1), then he shall be punishable with a penalty as under the following:
|Amount of Tax Evaded||Punishment|
|1. Between Rs.25 lakh and Rs.50 lakh||1-year imprisonment + fine|
|2. Between Rs.50 lakh and Rs.250 lakh||3 years imprisonment + fine|
|3. More than Rs. 250 lakh||5 years imprisonment + fine|
Minimum Amount of Punishment as a Result of Prosecution:
In the absence of special grounds to the contrary to be recorded in a judgment of the court, the Act provides that the term of imprisonment shall not be for a period of six months.
Cognizance of Offences:
The law specifies that any court is not allowed to take cognizance of any offence without proper sanction from concerned authority. Any court which holds a lower position than a Magistrate of the First class cannot hold trial against an offence under GST.
Presumption of “Mens Rea” or Guilty Mind:
When prosecuting an offender, the court shall assume that the accused had a guilty mind or the law was broken with the intention to break it. The accused shall have the liberty to prove it otherwise. Offences and penalty provided in GST Act is likely to be rational and transparent which will decrease the litigation as it is provided with explanation wherever there is confusion.
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