GST PENALISATION AND GST COUNCIL - ECONOMY
News: Explained
| Decriminalization of offences under GST
What's in the news?
● The
48th GST Council meeting was held on December 17.
● The
GST Council chaired by Finance Minister Nirmala Sitharaman recommended decriminalizing certain offences under Section 132 of the
Central Goods and Services Tax (CGST) Act, 2017.
● Some
other recommendations, for the facilitation of trade, include an increased
threshold of the amount of tax for prosecution, reducing the compounding amount
in GST etc.
What was previously criminalized under GST?
● 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.
Penalties:
● The
GST Law provides for two different types of penalties. They may be both concurrent and simultaneous.
● The
department authorities have the authority to impose monetary fines and the seizure of goods as penalties for
violating statutory provisions.
● Criminal
penalties include imprisonment and fines,
which are also provided by GST Law but which can only be awarded in a criminal
court following a prosecution.
○ 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.
● Additionally,
it is observed that many non-compliances fall under both categories of
penalties, prosecution, and compounding.
Which are the offences under GST law which 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.
Rationale of penal provisions in the GST law:
● To
ensure compliance with the new system.
● To
ensure transparency and accountability.
● To
make deterrence.
● To
give power to the state government.
● To
check tax evasion.
Recommendations to decriminalize the GST offences:
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.
● Reducing the compounding
amount from the present range of 50 to 150% of
the tax amount to the range of 25 to 100%.
● Decriminalizing 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.
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. 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.
Recommended measures to facilitate trade:
There
are two major recommendations including
● Refunding
unregistered persons and
● Facilitating
e-commerce for micro enterprises.
○ The
GST Council in its 47th meeting had 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.
WAY FORWARD:
● If
the above decriminalization of GST offences is 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.
● Other
minor grievances may be dealt with in other resolution mechanisms such as
Alternate Dispute Resolution (ADR) mechanism, private ruling and mediation,
faceless adjudication and appeals, etc.
Go back to basics:
What is the GST Council?
● The
GST Council is a joint forum of the Centre and the states was set up by the
President as per Article 279A (1) of
the amended Constitution (Hence, it is a constitutional body).
Composition of GST Council:
It
shall consist of the following.
● Union Finance Minister
(Chairperson)
● The
Union Minister of State (MoS) in-charge of Revenue of finance (Member)
● The
Minister In-charge of taxation or finance or any other Minister nominated by
each State Government (Members)
● One-half
of the total number of Members of the Goods and Services Tax Council shall
constitute the quorum at its meetings.
● Central
Government - ⅓ rd voting power
● State
Government - ⅔ rd voting power
● Decisions not binding (as
per recent SC judgement).
Functions of GST Council:
As
per Article 279A (4), the Council will make recommendations to the Union and
the States on important issues related to GST, like
● Taxes,
cesses, and surcharges to be subsumed under the GST.
● Goods
and services which may be subject to, or exempt from GST.
● The
threshold limit of turnover for application of GST.
● Rates
of GST.
● Model
GST laws, principles of levy, apportionment of IGST and principles related to
place of supply.
● Special
provisions with respect to the eight north eastern states, Himachal Pradesh,
Jammu and Kashmir and Uttarakhand.
● GST
rates will include the floor rates with bands, special rates for raising
additional resources during natural disasters/ calamities, special provisions
for certain States, etc.