Compounding of Offences under GST Regime
This article briefly explains the provisions related to compounding of offences under the GST Regime. It covers section 138 of CGST Act and Rule 162 of GST Rules dealing with compounding of offences.
Written by
CA Raj Kumar -
Updated on June 15, 2024.
Estimated Reading Time: 3 minutes.
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Compounding of Offence means the end of prosecution for an offence. Through compounding authorities provide a mechanism to end the stricter prosecution. This is beneficial to both authorities and the accused. Authorities collect heavy penalty in leu of compounding. And by dropping prosecution accused gets new opportunity to start fresh. This saves first-time offenders from having trouble of lengthy legal proceedings. It also assist authorities to collect lost revenues. One can contend that compounding saves offenders. Yet, it is necessary to understand that genuine mistakes often happen. Tax laws being complex, often there are cases when offences are unintentional. Also, compounding saves years of hardships where legal proceedings are costly affairs.
Compounding under GST Regime
Section 138 of CGST Act and Rule 162 of CGST Rules covers the provision for compounding offence. Section 138 provides once in a lifetime opportunity for compounding to certain offences.
This section allows compounding of offences under CGST Act. Compounding happens upon payment of tax, interest and penalties involved in such offence. Once, paid authorities cease to take any further action for such compounded offence. Further, any ongoing criminal or civil proceeding for such offence are also ceased.
It is important to note that compounding is for prosecution under GST Regime only. Any proceeding for such offence covered by any other law isn’t covered here. Hence, this compounding will not stop proceeding under other than this Act. In short, any ongoing proceeding under other than GST law will continue.
Compounding of offences is not permissible to the following offences:
- A person who has compounded once in respect of supply value exceeding ₹ One Crore.
- A person convicted by Court under this Act.
- A person permitted to compound offences once in respect of offences specified in clauses (a) to (f) of section 132(1) and offences specified in clause (l) which are relatable to offences specified in (a) to (f). [i.e. supply without invoice, false invoice to claim ITC without supply, collection of GST without payment of same to Government within 3 months from due date, falsifying records to evade tax and evasion or fraud through these acts.]
- 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.
- A person who has been accused of committing an offence in section 132(1)(g) or 132(1)(j) or 132(1)(k). [i.e. obstructs in searches, tampers documents and fails to supply information to authorities as required under this Act.]
- Prescribed class of persons.
Minimum and Maximum Amount for Compounding
The minimum amount for compounding shall be at least 10,000 or 50% of tax involved, whichever is higher. Further, maximum amount shall be not less than 30,000 or 150% of tax involved, whichever is higher.
Rule 162 – Procedure for Compounding of Offences
This rule covers the procedure for getting the offence compounded. It provides an applicant to file application either before or after proceeding begins. Such applicant has to file FORM GST CPD-01 u/s 138 (1) to the commissioner for compounding.Application is allowed only if tax, interest and penalty liable is paid for such offence. Upon receiving the application, commissioner shall call for detailed information from concerned officer. Upon satisfactory co-operation and truthful disclosures by applicant, commissioner shall pass the order. Such order shall be in FORM GST CPD-02. Such order granting immunity should mention the compounding amount in the order. Upon rejection of application, the order should mention the same.
In any case, order must be passed within 90 days of receipt of such application. Further, before any rejection, the applicant must be given opportunity of being heard. Any grounds for rejection should be recorded.
Upon order, applicant must pay within 30 days such compounding amount as ordered. Applicant should also submit proof of such payment to the commissioner.
In case the applicant fails to pay compounding amount within time, the order becomes void. Also, commissioner can withdraw immunity order at any time if such order was due to –
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concealment of material facts by applicant, or
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submission of false evidence by applicant.
If order is withdrawn, proceedings will continue as if no immunity was granted.
Hope, this article has been useful to you. In case you have any suggestion to include or queries to ask related to this article, feel free to use the comment box on this post to revert back:)
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CA Raj Kumar
I love blogging and studying taxation. I write articles related to Tax laws and common issues in handling taxation in India. Often, common but small mistakes make things complicated. I write and share them to save precious time of others.
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