Removing IPC offences from GST Act will be welcome move: Experts

Proposal will reduce litigation for businesses but may lead to longer prison sentences, they say

A committee’s proposal to remove from the GST Act penal offences already covered under the Indian Penal Code (IPC) will be friendly for businesses by reducing litigation, experts have said.

The Law Committee’s proposal is expected to be discussed in an upcoming meeting of the GST council and later by Parliament in its winter session. The committee has finalised the changes to Section 132 of the CGST Act, 2017, which deals with punishment for offences like evasion and wrongful availing of input tax credit.

"This is a very welcome move and must ideally reduce the conviction rate," said advocate Abhishek A Rastogi, of law firm Rastogi Chambers.

"It will lead to lesser litigation and a more certain framework within which businesses can operate going forward," said Meyyappan N, partner at Trilegal.

Supplying goods and services or both without proper invoices, giving bills without supplying goods and availing of input tax credit using fake invoices are offences that may be removed from the ambit of the GST and put under the IPC, said Maneet Pal Singh, partner, I P Pasricha & Company, told Business Standard.

"It will remove regulatory overlaps and while some of the punishments under IPC may be more severe in comparison, the jurisprudence is well developed as the law has been around for a while," Meyyappan said.

The maximum prison sentence under Section 420 of the IPC for cheating is 7 years, irrespective of the amount of tax evaded. Under the GST Law, the maximum sentence is 5 years.

Ankur Gupta, practice leader of indirect tax at tax advisory firm SW India, said other offences may be kept under the GST Act to curb tax leakage.

The law change would help reduce harassment of businesses, experts said. "This would provide relief to taxpayers as we have seen instances where GST authorities threaten the taxpayers for invoking IPC provisions which might lead to the arrest of key personnel of the company to create undue pressure and recover tax irrespective of whether the tax exposure is on account for interpretation of the law. With this relaxation, at least the harassment would surely be reduced," Gupta said.

"It will provide a big relief to honest taxpayers who undergo mental harassment and will be positive towards ease of doing business," Singh said.

The proposed legal change’s success will lie in its implementation.

"...the moot point remains that these instructions must be strictly followed at the ground level," Rastogi said, "The difficulty is that, despite these directions and instructions issued by the board [around Section 132], the circulars are not taken into consideration and arrests are still happening without the issuance of the show cause notice and the adjudication process."

It is unclear at this stage what will happen to cases already opened or any pending litigations once these change is made, Meyyappan said.