OFFENCES UNDER GST LAW (PART-4)

Compounding of Offences (Section 138)

Section 138 provides for compounding of offences by the competent authorities under the CGST Act, 2017 and Rule 162 of CGST Rules, 2017 deals with the manner and procedure for compounding of offences.

Text of Section 138 (upto 30.09.2023)

(1) Any offence under this Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case be, of such compounding amount in such manner as may be prescribed:

Provided that nothing contained in this section shall apply to-

1. a person who has been allowed to compound once in respect of any of the offences specified in clauses (a) to (f) of sub-section (1) of section 132 and the offences specified in clause (l) which are relatable to offences specified in clauses (a) to (f) of the said sub-section;
2. a person who has been allowed to compound once in respect of any offence, other than those in clause (a), under this Act or under the provisions of any State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act or the Integrated Goods and Services Tax Act in respect of supplies of value exceeding one crore rupees;
3. a person who has been accused of committing an offence under this Act which is also an offence under any other law for the time being in force;
4. a person who has been convicted for an offence under this Act by a court;
5. a person who has been accused of committing an offence specified in clause (g) or clause (j) or clause (k) of sub-section (1) of section 132; and
6. any other class of persons or offences as may be prescribed:

Provided further that any compounding allowed under the provisions of this section shall not affect the proceedings, if any, instituted under any other law:

Provided also that compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences.

(2) The amount for compounding of offences under this section shall be such as may be prescribed, subject to the minimum amount not being less than ten thousand rupees or fifty per cent. of the tax involved, whichever is higher, and the maximum amount not being less than thirty thousand rupees or one hundred and fifty per cent. of the tax, whichever is higher.

(3) On payment of such compounding amount as may be determined by the Commissioner, no further proceedings shall be initiated under this Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.

Text of Section 138 as amended by Finance Act, 2023 (w.e.f. 01.10.2023 as notified by Notification No. 28/2023-Central Tax dated 31.07.2023)

Compounding of Offences (Section 138)

138. (1) Any offence under this Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case be, of such compounding amount in such manner as may be prescribed:

Provided that nothing contained in this section shall apply to-

(a) a person who has been allowed to compound once in respect of any of the offences specified in clauses (a) to (f), (h), (i) and (l) of sub-section (1) of section 132;

(b) (Omitted)

(c) a person who has been accused of committing an offence under clause (b) of sub-section (1) of section 132;

(d) a person who has been convicted for an offence under this Act by a court;

(e) (Omitted)

(f) any other class of persons or offences as may be prescribed:

Provided further that any compounding allowed under the provisions of this section shall not affect the proceedings, if any, instituted under any other law:

Provided also that compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences.

(2) The amount for compounding of offences under this section shall be such as may be prescribed, subject to the minimum amount not being less than twenty-five per cent. of the tax involved and the maximum amount not being more than one hundred per cent. of the tax involved.

(3) On payment of such compounding amount as may be determined by the Commissioner, no further proceedings shall be initiated under this Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.

Meaning of 'compounding'

'Compounding' has not been defined in GST Act or Rules. However, 'Compounding' means payment of monetary compensation or fine, instead of undergoing prosecution for an offence committed, which warrants such prosecution.

Section 320 of the Code of Criminal Procedure, 1973 defines 'compounding' as to forbear from prosecution for consideration or any private motive. Aiyar's Law Lexicon defines it variously as 'arranging, coming to terms; condone for money'. Compounding is thus, a legally recognized arrangement, whereby the person charged with an offence is offered the option of avoiding prosecution and imprisonment in lieu of monetary considerations by way of penalty; compounding is essentially a contract between the state and the offender whereby the state secures revenue and the offender secures immunity from prosecution.

According to section 320 of CrPC, 1973 a list has been provided for offences punishable under Indian Penal Code, 1860 now Bharatiya Nagarik Sanhita, 2023 (which can be compounded by the person specified therein).

Such Compounding may be done with or without the permission of the court before which any prosecution is pending. The composition of an offence shall have the effect of an acquittal of the accused with whom offence has been compounded. Section 359 of the Bharatiya Nagarik Suraksha Sanhita, 2023 provides the corresponding provision against section 320 of CrPC, 1973.

'Compounding' is nothing but a sort of compromise between the offender and the department to avoid criminal proceedings and is a punishment outside the court proceedings. Oxford Dictionary defines it as 'forbear from prosecuting in exchange for money or other consideration; condone for money'. Compoundable offence is an offence which the law allows to be compounded between the parties; an offence which is capable of being compounded.

The offence of accepting or agreeing to accept consideration for not disclosing information that might assist in convicting or prosecuting someone who has committed an arrestable offence (consideration here does not include reasonable compensation for loss or injury caused by the offence). There is also a special statutory offence of advertising a reward for stolen goods on the basis that no question will be asked or that the person producing the goods 'will be safe from inquiry'(England) Oxford Law Dictionary, 5th Edn, 2003).

Compounding is a compromise arrangement between administrator of statute and the person who has committed an offence. Compounding involves receipt of consideration in return of non-prosecution of person who has committed an offence (1997) 24 CLA 214 (CLB).

Compounding results in dropping of prosecution proceedings and once the offence is compounded, penalty or prosecution proceedings cannot be taken up for same offence. Compounding order cannot be challenged by either of the parties and appeal against such order does not lie. Such matters cannot be revived or reopened. Compounding is not a right but discretion of the compounding authority.

In State of Andhra (Now Andhra Pradesh) Versus Bellamkonda Venkata Subbaiah and Another - 1956 (12) TMI 35 - ANDHRA PRADESH HIGH COURT, it was held that compounding of an offence at the request of the defaulter party is neither an agreement nor a contract. It is a sort of compromise between the two parties ie defaulter/offender and the revenue department.

According to Ramnath Aiyar's Law Lexicon, 'compounding' means 'arranging, coming to terms, condone for money' whereas Oxford Dictionary defines 'compounding' means 'forbear from prosecuting in exchange for money or other consideration, condone for money. Generally, in common parlance compounding termed as 'to settle a matter by a money payment, in lieu of other liability'.

Scope of Compoundable Offences (Sub-section 1)

Any offence under CGST Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case be, of such compounding amount in such manner as may be prescribed.

As per section 138(1) of the CGST Act, 2017, any offence under the Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case be, of such compounding amount in such manner as may be prescribed.

Thus, compounding of offences can be done:

(a) by the Commissioner,

(b) on payment of compounding amount,

(c) either before or after the institution of prosecution,

(d) in the prescribed manner.

It may be noted that payment should be made by the person (accused of the offence) to the Central Government or State Government in respect of CGST or SGST respectively. However, such compounding is subject to certain exceptions and conditions.

It may be noted that sub-section (1) was amended by the Finance Act, 2023 w.e.f. 01.10.2023.

Rule 162 of the GST Rules, 2017 deal with manner of compounding of offences.

Amendments made by Finance Act, 2023 (w.e.f. 01.10.2023)

Finance Act, 2023 has made the following changes in sub-section (1) to section 138

(a) in sub-section (1), in the first proviso,--

(i) for clause (a), the following clause shall be substituted, namely:--

'(a) a person who has been allowed to compound once in respect of any of the offences specified in clauses (a) to (f), (h), (i) and (l) of sub-section (1) of section 132;';

(ii) clause (b) shall be omitted;

(iii) for clause (c), the following clause shall be substituted, namely:--

'(c) a person who has been accused of committing an offence under clause (b) of sub-section (1) of section 132;

(iv) clause (e) shall be omitted;

The above amendments have been made to amend first proviso to sub-section (1) of section 138 of the Central Goods and Services Tax so as to exclude the persons involved in offences relating to issuance of invoices without supply of goods or services or both from the option of compounding of the offences under the said Act. This will exclude the persons involved in offences relating to issuance of invoices without supply of goods or services or both from the option of compounding of the offences.

This amendment shall result in decriminalization of offences, viz,

• obstructs or prevents any officer in the discharge of his duties under this Act; tampers with or destroys any material evidence or documents.

• fails to supply any information which he is required to supply under this Act or the rules made thereunder or supplies false information.

Further, for such offences monetary threshold has also been increased from one crore to two crore for launching prosecution. However, it excludes offences related to issuance of invoices without supply of goods or services i.e. issuance of fake invoices.

Exclusions/restrictions on Compounding (sub-section 1)

Compounding of offences, as per proviso to section 138(1) of the GST Act, 2017 shall not apply in the following cases (upto 30.09.2023)

1. a person who has been allowed to compound once in respect of the specified offences under section 132(1) (a to f) and (l) related to such offences of the GST Act.
2. a person who has been allowed to compound once in respect of any offence [other than those in clause (a) above] under the Act or under the provisions of any other SGST Act or IGST Act or UTGST Act in relation to supplies of value exceeding INR one crore;
3. a person who has been accused of committing an offence under the Act which is also an offence under any other Act;
4. a person who has been convicted for an offence under this Act by a court;
5. a person who has been accused of committing an offence specified in clause (g) or clause (j) or clause (k) of sub-section (1) of section 132; and
6. any other class of persons or offences as may be prescribed.

Specified offences as mentioned in (a) above are offences mentioned in clauses (a) to (f) and offences under clause (l) of section 132(1) which are relatable to offences in clauses (a) to (f) of section 132(1) of the CGST Act, 2017(i.e. attempt to commit or abet the commission of such offences).

The offences listed in section 132(1) are as follows:

1. supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;
2. issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit or refund of tax;
3. avails input tax credit using such invoice or bill referred to in clause (b);
4. collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
5. evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offence is not covered under clauses (a) to (d);
6. falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act;
7. obstructs or prevents any officer in the discharge of his duties under this Act;
8. acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;
9. receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;
10. tampers with or destroys any material evidence or documents;
11. fails to supply any information which he is required to supply under this Act or the rules made thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or
12. attempts to commit, or abets the commission of any of the offences mentioned in clauses (a) to (k) above.

It may be noted that sub-section (1) has since been amended by the Finance Act, 2023 w.e.f. 01.10.2023

Conditions for Compounding (Sub-section 1)

Proviso to sub-section 1 provides that:

1. any compounding allowed under the provisions of this section shall not affect the proceedings, if any, instituted under any other law.
2. compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences.

Amount payable on Compounding

Compounding of offences shall be allowed only after payment of tax, interest and penalty in respect of offences being compounded has been made by the taxable person.

Power of Compounding

Commissioner under the CGST/SGST/UTGST law will determine the amount for compounding of offences, which shall be within the minimum and maximum amounts as per section 138(2).

Monetary limit on Compounding (sub-section 2)

Under section 138(2) of the GST Act, 2017, amount of compounding shall be prescribed subject to minimum and maximum monetary limits. Both minimum and maximum amounts have been stipulated in law as under:

(a) Minimum:

Minimum amount not being less than INR 10,000 or fifty per cent of the tax involved, whichever is greater.

(b) Maximum:

Maximum amount not being less than INR 30,000 or one hundred and fifty per cent of the tax, whichever is greater.

The compounding payment would be between the minimum of INR 10,000 or 50% of the tax involved, whichever is higher and would be subject to a maximum of INR 30,000 or 150% of the tax involved, whichever is higher.

For the purpose of sub-section 2, the term 'tax' shall include:

• the amount of tax evaded; or
• the amount of input tax credited wrongly availed or utilized or wrongly taken under:

• the provisions of GST Act,
• the State Goods and Services Tax Act,
• the Integrated Goods and Services Tax Act, or
• the Union Territory Goods and Services Tax Act, and
• cess levied under the Goods and Services Tax (Compensation to States) Act.

The above provisions of sub-section (2) have been amended by the Finance Act, 2023 w.e.f. 01.10.2023.

Amendment Made by Finance Act, 2023 (w.e.f. 01.10.2023)

Finance Act, 2023 has made the following changes in sub-section (2) to section 138:

'for the words 'ten thousand rupees or fifty per cent. of the tax involved, whichever is higher, and the maximum amount not being less than thirty thousand rupees or one hundred and fifty percent of the tax, whichever is higher', the words 'twenty-five per cent. of the tax involved and the maximum amount not being more than one hundred per cent. of the tax involved' shall be substituted.'

The above changes have been made so as to rationalize the amount for compounding of various offences by reducing the minimum as well as maximum amount for compounding.

The effect of change is to rationalize the amount for compounding of various offences by reducing the minimum as well as maximum amount for compounding. Thus, now minimum amount prescribed is 25% (at present 10,000 or 50% whichever is higher) of the tax involved.

Consequences of Compounding (Sub-section 3)

In terms of section 138(3) of the CGST Act, 2017, on payment of such compounding amount as may be determined by the Commissioner, no further proceedings shall be initiated under the Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.