In India each citizen is eagerly waiting for simplified Tax Reforms, which will attract investment and also create an employment opportunity through the Make in India movement. Mission-Make in India will never be successful until practices like cost competitiveness, tax reforms, ease of doing business and Digital India becomes part of our system.
Offences are most important part of any Act or Statute which provides stick to the Act for its smooth functioning and implementation. Various Penalties under GST can be imposed by the Tax Authorities to person committing the specified offence.
As per Clause 66(1) of Model GST Law, 2016, where a taxable person who as mentioned under, shall be liable to a penalty of INR 10000 or an amount equivalent to the tax evaded or the tax not deducted or short deducted or deducted but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, as the case may be, whichever is higher.
The intention of Government has been very clear since they came to power; stricter and harsher penalty provisions for tax evaders. Current Indirect tax laws have been amended to align penalty provisions with their objective. Taking the intention forward, Model GST Law suggests that penalty provisions could get severe especially in case of tax evasion.
A tax evasion of Rs. 25 lacs could attract 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 raises 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 crore under the Finance Act, 1994.
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, 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 arrest.
General principles of imposing penalty are given in Clause 64 of GST Model Law, 2016:
• No penalty for minor breaches – No tax authority shall impose substantial penalties for minor breaches of tax regulations or procedural requirements. In particular, no penalty in respect of any omission or mistake in documentation which is easily rectifiable and obviously made without fraudulent intent or gross negligence shall be greater than necessary to serve merely as a warning.
• Penalty to be commensurate with severity of breach – The penalty imposed shall depend on the facts and circumstances of the case and shall be commensurate with the degree and severity of the breach- clause 68(2) of GST Model Law, 2016.
• No penalty without notice and hearing – No penalty shall be imposed on any taxable person without giving a notice to show cause and without giving the person a reasonable opportunity of being heard- clause 68(3) of GST Model Law, 2016.
• Reason to be given for imposing penalty – The tax authority shall ensure that when a penalty is imposed in an order for a breach of the laws, regulations or procedural requirements, an explanation is provided therein to the persons upon whom the penalty is imposed, specifying the nature of the breach and the applicable law, regulation or procedure under which the amount or range of penalty for the breach has been prescribed- clause 68(4) of GST Model Law, 2016.
• Lower penalty if breach voluntarily disclosed – When a person voluntarily discloses to a tax authority the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the tax authority, the tax authority may consider this fact as a potential mitigating factor when establishing a penalty for that person- clause 68(5) of GST Model Law, 2016.
• Provisions not applicable when law specifies fixed penalty – The provisions of this section will not apply in such cases where the penalty prescribed under the Act is either a fixed sum or expressed as a fixed percentage – clause 68(6) of GST Model Law, 2016.
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.