CBIC issues guidelines for launch of prosecution under GST

This Tax Alert summarizes recent Instruction issued by Central Board of Indirect Taxes and Customs (CBIC) for launching of prosecution under Goods and Services Tax (GST).  

The key highlights are:

• Prosecution should not be launched in cases of technical nature or where there is difference of opinion regarding interpretation of law. 
  
• Decision on prosecution should be taken on a case-to-case basis depending on evidence available. In case of public limited companies, prosecution should not be launched against all directors of the company but should be restricted to only persons who oversee day-to-day operations of the company and have taken active part in committing the tax evasion.
• Normally, 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.  However, prosecution complaint may be filed even before adjudication in few specified situations.
• Prosecution should normally be initiated where amount of tax evasion in relation to specified offences is more than INR 5 crores except in case of habitual evaders and arrest cases. 

Earlier CBIC had issued guidelines on issuance of summons, arrests and bail under GST. Reference is invited to our tax alert dated 19 August 2022. 

Comments:

• Instructions issued by CBIC are likely to alleviate industry’s fear concerning revenue authority’s powers to prosecute a person for specified offences. Proper implementation of these instructions by the concerned authority would be key to achieving the desired objective. 
  
• Government’s intent to relax the thresholds for initiating prosecution proceedings is a welcome move. This should also be backed by a suitable amendment in the GST law. 
• Clarification that prosecution should not be launched in cases of technical nature and requirement of establishing mens-rea will help avoiding undue hardships of taxpayers.
• Instructions on certain aspects dealing with prosecution could give rise to subjectivity that may result in divergent practices and unwarranted litigation. 
• While some of the areas concerning offences seem to have been resolved, the Government should consider addressing other key representations made by the industry on decriminalization of offences.