Prosecution in the case of Goods & Services Tax (GST)-related violations will not be initiated against all the directors of a public limited company but against persons involved in day-to-day operations or those believed to have active involvement in the alleged offence, Central Board of Indirect Taxes & Custom (CBIC) has said.
CBIC has issued instructions that define prosecution as “institution or commencement of legal proceeding; the process of exhibiting formal charges against the offender”. Section 132 of the Central Goods and Services Tax Act, 2017 codifies the offences under the Act which warrant institution of criminal proceedings and prosecution. These include evasion, or misuse of ITC (Input Tax Credit), or fraudulently obtained refund beside others.
Irrefutable evidence needed
According to the latest instructions, prosecution should not be initiated merely because a demand has been confirmed in the adjudication proceedings nor should it start in cases of technical nature, or where additional claim of tax is based on a difference of opinion regarding interpretation of law. Further, the evidence collected should be adequate to establish beyond reasonable doubt that the person had guilty mind, knowledge of the offence, fraudulent intention or in any manner possessed “mens rea” (wrongful intent) for committing the offence.
“It follows, therefore, that in the case of public limited companies, prosecution should not be launched indiscriminately against all the Directors of the company, but should be restricted to only persons who oversaw day-to-day operations of the company and have taken active part in committing the tax evasion etc. or had connived at it,” instruction said.
Taking note of ruling by the Supreme Court in the matter of Radheshyam Kejriwal (2011),the instruction deciphered that prosecution complaint may even be filed before adjudication of the case, especially where offence involved is grave, or qualitative evidences are available, and in cases where any offender is arrested u/s 69 of the CGST Act, 2017, prosecution complaint may be filed even before issuance of the SCN.
Amount more than ₹5 cr
It prescribed that prosecution should normally be launched where amount of tax evasion, or misuse of ITC, or fraudulently obtained refund in relation to offences specified law is more than ₹5 crore. However, the said monetary limit will not be applicable in cases of habitual evaders and arrest cases. Principal Commissioner/ Commissioner should give an offer to the person to compound the prosecution.
All prosecutions where the sanction is accorded after the date of instruction shall follow these instructions irrespective of the date of offence. Also, where complaints have not been filed and sanctions received before instruction, the sanctioning authority shall re-consider the sanction in light of these instructions.
Brings transparency
Commenting on this development, Anita Rastogi, Partner - GST & Indirect Taxes at Pricewaterhouse Co & LLP said that considering that a massive investigation drive is being undertaken by the Government, it was important that clear instructions and guidance be issued. Uniformity across India is critical to ensure “One Nation One Tax’ concept. Further, “it also brings transparency with the taxpayer. However, issuance of instructions is just the first step, it must be followed and adhered to by the officials,” she said.
Saurabh Agarwal, Tax Partner with EY India said that the instruction would bring relief to the industry at large as it ensures that prosecution cannot be initiated by the department on technical and interpretational issues. “The added responsibility requiring thorough investigation and collation of adequate evidence by the department before launching prosecution would help in reducing litigation,” he said.