… Dr. Naveen Rattan, Advocate.
Amritsar
Every rational being will readily agree that Laws are meant for strict compliance. Such compliance is ensured by those for whom such laws are meant for. An enactment and enforcement of laws are extremely significant. If the enforcement is ineffective then the very purpose of enactment stands defeated. The legislature is well aware of the fact that some of the persons, in a society have strong tendency to break the law for their vested interests. Therefore, strong need arises to incorporate the provisions of penalty and prosecution to control evasion of tax and strict compliance of the law. In fact, the principle object of the penalty and prosecution as observed by the High Court in Bharat Plywood Production Private Ltd. V. Commissioner of Sales Tax, UP, STI 1989 All HC 446, is
“Its principal object is to work as a deterrent against recurrence of a default on the part of the assesses or the person concerned. Its consequences are intended to have effective detriment which will put a stop to the practices which the Legislature considered to be against the public interest.”
Under the Model of GST Act, 2016 also, there is also provision for prosecution under section 73 of the Model GST Act. There are certain offences prescribed under section which will make any person liable for imprisonment/prosecution, if violated. Again, the creation of such statute proceeds on the assumption that society should not suffer injury by act or omission of the defaulter and the deterrent punishment such as prosecution must be launched against the defaulter so as to discourage him to repeat the offence.
Nowadays, tax evasion is treated as socio-economic offence and it must be dealt with strong and effective provisions in the Act. In socio-economic offences, not only one person is effected rather it is the society at large which is affected and is at risk. Hence, in such cases, the loss to society is immense and under such circumstances it is warranted that the prosecution provision must be embodied in the statute. Even in other financial acts also such as Income Tax Act, Excise Act, Service Tax Act, etc. there is also provision for prosecution against the defaulter.
At the same time there is no presumption that everyone knows the law. Under such circumstances, if any offence is committed under bonafide impression or without the knowledge about the law, there is hardly any need to punish or prosecute him. Various courts have held in number of cases that there is no presumption that everyone knows the law. There is no presumption in this country that every person knows the law, it would be contrary to common sense and reason if it were so. Scrutton, L.J. also once said, “It is impossible to know all the statutory law, and not very possible to know all the common law.” But it was Lord Atkin who, as in so many other spheres, put the point in its proper context when he said in Evans V. Bartlam (1937) Ac 473.
“The fact is that there is not and never has been a presumption that everyone knows the law. There is the rule that ignorance of the law does not excuse a maximum of very different scope and application. Motil Lal Padampat Sugar Mills Co. Ltd. Vs. State of U.P and others (1979) 44 STC 42 (SC)”
Law relating to Prosecution under GST Act:
Section 73 of GST Act, 2016 deals with the prosecution of a person, he who commits the following offences:
- Offences which attracts prosecution:
(1) Whoever commits any of the following offences, namely—
(a) Supplies any goods and/or services without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
(b) Issues any invoice or bill without supply of goods and/or services in violation of the provisions of this Act, or the rules made there under;
(c) Collects any amount as tax but fails to pay the same to the credit of the appropriate Government beyond a period of three months from the date on which such payment becomes due;
(d) Collects any tax in contravention of the provisions of this Act but fails to pay the same to the credit of the appropriate Government beyond a period of three months from the date on which such payment becomes due;
(e) Takes and/or utilizes input tax credit without actual receipt of goods and/or services either fully or partially, in violation of the provisions of this Act, or the rules made there under;
(f) Fraudulently obtains refund of any CGST/SGST;
(g) Falsifies or substitutes financial records or produces fake accounts and/or documents or furnishes any false information with an intention to evade payment of tax due under this Act;
(h) Obstructs or prevents any officer in the discharge of his duties under this Act;
(i) 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 reason to believe are liable to confiscation under this Act or the rules made thereunder;
(j) 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 reason to believe are in contravention of any provisions of this Act or the rules made there under;
(k) Fails to supply any information which he is required to supply under this Act or the rules made there under 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
(l) Attempts to commit, or abets the commission of, any of the offences mentioned in clauses (a) to (k) of this section;
- Punishments prescribed for offender:
(1) Person shall be punishable:
(i) In cases where the amount of tax evaded exceeds two hundred and fifty lakh rupees, with imprisonment for a term which may extend to five years and with fine; Page 88 of 190
(ii) In cases where the amount of tax evaded exceeds fifty lakh rupees but does not exceed two hundred and fifty lakh rupees, with imprisonment for a term which may extend to three years and with fine;
(iii) In the case of any other offence where the amount of tax evaded exceeds twenty five lakh rupees but does not exceed fifty lakh rupees, with imprisonment for a term which may extend to one year and with fine.
(2) If any person convicted of an offence under this section is again convicted of and offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine
Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, the imprisonment referred to in sub-sections (1) and (2) shall not be for a term of less than six months.
- Bailable and Non-Bailable offences:
Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this Act, except the offences referred to in sub-section (4) shall be non-cognizable and bailable.
| Prosecution under Section 73 of Goods and Service Tax Act, 2016 | ||
| Tax Evaded | Prosecution | Bailable/Non-Bailable |
| Exceeds Rs. 2.50 Crores | Maximum 5 years and fine | Non-Bailable |
| Exceeds Rs. 50 Lakhs but less than Rs. 2.50 Crores | Maximum 3 years and fine | Bailable |
| Exceeds Rs. 25 Lakhs but less than Rs. 50 Lakhs | Maximum 1 year and fine | Bailable |
| Subsequent Offence u/s 73 | 5 years for every subsequent offence | — |
- Cognizance of Offences:
No court shall take cognizance of any offence punishable except with the previous sanction of the designated authority, and no Court inferior to that of a Magistrate of the First Class, shall try any such offence.
- Presumption of Culpable Mental State:
In any prosecution for an offence under this Act which requires a culpable mental state on the part of the accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution.
Explanation.— In this section, “culpable mental state” includes intention, motive, knowledge of a fact, and belief in, or reason to believe, a fact.
For the purposes of this section, a fact is said to be proved only when the Court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability.
- Relevancy of Statements under Circumstances:
(1) A statement made and signed by a person before any gazette officer of CGST/IGST/SGST during the course of any inquiry or proceeding under this Act shall be relevant, for the purpose of proving, in any prosecution for an offence under this Act, the truth of the facts which it contains, Page 89 of 190
(a) When the person who made the statement is dead or cannot be found, or is incapable of giving evidence, or is kept out of the way by the adverse party, or whose presence cannot be obtained without an amount of delay or expense which, under the circumstances of the case, the Court considers unreasonable; or
(b) When the person who made the statement is examined as a witness in the case before the Court and the Court is of the opinion that, having regard to the circumstances of the case, the statement should be admitted in evidence in the interests of justice.
(2) The provisions of sub-section (1) shall, so far as may be, apply in relation to any proceeding under this Act, other than a proceeding before a Court, as they apply in relation to a proceeding before a Court.
- Person deemed to be guilty under section 77 the GST Act, 2016
| Person deemed to be guilty under the Act | |
| In case of | Person |
| Company | Person in-charge or responsible for conducting the business as well as the company.In case the director/ mangaer/ secretary or other officer of the company is found to have given consent to connivance or is attributable to any negligence on his part shall also be person guilty. |
| In case of Hindu Undivided Family(HUF) | Karta of such HUF |
| Partnership or LLP | The partner or Designated Partner |
| Trust | Managing Trustee |
- No Punishment if the offence is without knowledge:
No punishment shall be given to person deemed to be guilty is it is proved that the offence was committed without his knowledge or that he had exercised all due diligences to prevent the commission of such offence.
Following Considerations merit attention:
Careful and deep study of the above said provisions reveal that the objective of prosecution shall be accomplished successfully if following points are kept in mind by the prosecuting agencies. These are as under:
Prosecution should not be made with biased mind and proper application of min should be there on the part of Assessing Authority, failure of which they can be held responsible under the provisions of the Act. The views propounded by the Hon’ble High Court in Kapoor Weaving Factory V. The State of Punjab (1980) 48 STC 494 (P&H) which is reproduced as under:
“ It is well setteled that the authority has to act honestly and to give its decisions on the basis of some evidences which has been brought to the notice of the assessee in accordance with the principles of natural justice.”
Prosecution proceedings should not be initiated in a casual manner and should be initiated where there are grave offences. Gravity of the offence must be considered while prosecuting the assessee as we cannot equate a tax evader with a criminal. The prosecution must be given in rarest of rare cases only. Even the Hon’ble Supreme Court in case of M/s Steel Authority of India Ltd. V. Sales Tax Officer, Rourkela-1 Circle and Others (2008) 32 PHT 122 (SC) has held that the order should not be passed in casual manner.
Procedure established under the law for prosecution must be followed in an effective way and prosecution should not be launched in an arbitrary manner. Proper procedural requirements should be complied with in order to prosecute an assessee. An opportunity of being heard should also be given while following the natural law principles and it should not be an empty formality having no sense. Reliance is placed upon Basudeo Jiwery V. Sido Kanhu University (1998) 8 SCC 194, M/s Tinbox Company, New Delvi V. Commissioner of Income Tax, New Delhi 2001 14 ITR (SC)(FB), M/s Braja Lal Banik V. State of Tripura 1990 71 STC 173 (SC) and M/s Fed. Co. Pvt. Ltd. V. S. N. Bilgram AIR 1960 Supreme Court 415
Offence must be established beyond any reasonable doubt because the rule of interpretation in taxing statutes states that benefit of doubt in taxing statutes should be lean in favor of Assessee. So, in order to establish any offence against the assessee under GST, there should not be any probability of doubt. Hon’ble Punjab and Haryana High Court in case of Express Dairy Co. Ltd. Calcutta Vs. Assessing Authority Hisar and others (1971) 28 STC 37 (P&H) has held that:
“It is well known canon of interpretation of taxing statues that if the language is clear and unambiguous, it has to be given it grammatical meaning, but if there is any vagueness or ambiguity in the identification of the subject of tax, the benefit has to be given to the tax payer and to the government.”
Mental state of the defaulter should be considered while prosecuting an assessee because punishment can only be levied if there is bad intention on the part of assessee. The two basic ingredients of punishment must be followed:
- Mens Rea that is guilty mind of the Assessee.
- Actus Reus that is Act or Omission on the part of Assessee.
Logical Conclusions and Suggestions:
Mere incursion of prosecution provision in the Act cannot itself control evasion of tax unless sincere effort is not made by Taxing Authorities, Assessees and Advocates to create conducive tax culture.
- Proper awareness of the law under GST Act should be spread through media conferences etc. Awareness Campaigns should be arranged on the initiative of the Government so as to aware public regarding this new law on goods and services. Proper sessions must be conducted for the authorities as well so that they may be trained enough to implement the provisions lawfully.
- Proper tax culture must be inculcated among general public. The masses must be ensured about the need and importance of tax payment for the welfare of society. Practice of Tax Evasion presents a sorry figure which needs to be cured of with immediate effect.
- Punishment should not be an end in itself and must be given in extreme cases only. Reformation theory of the punishment should be given priority than prosecuting a person under the act. By reforming a assessee, we can save the interests of revenue in future and offender will become useful organ of the society.
- Accountability of the officer in case of negligence on his part should also be there equally and penal provisions should be levied if the authority acts in an arbitrary manner against the assessee. The faith of the assessee must be inculcated in judiciary and rights of assessee under the law has to be secured. All actions of the Officer should be fair and impartial and based upon evidences. In this regard the findings of the Hon’ble Supreme Court cannot be gone unnoticed. In a verdict given by the Hon’ble Supreme Court in Mohinder Singh Gill and Others. V. Chief Election Commissioner, New Delhi, AIR 1978 SC 851, Hon’ble V.K. Krishna Iyer J. held that
“Once we understand the soul of the rule as fair play in action- and it is so- we must hold that it extends to both the fields. After all, administrative power in a democratic setup is not allergic to fairness in action and discretionary executive justice cannot degenerate into unilateral injustice. Nor is there ground to be frightened of delay, inconvenience and expense, if natural justice gains access. For fairness itself is flexible, pragmatic and relative concept, not rigid, ritualistic or sophisticated abstraction. It is not a bull in a China shop nor a bee in once bonnet. Its essence is good conscience in a given situation: nothing more- but nothing less. The ‘Exceptions’ to the rules of natural justice are a misnomer or rather are but a shot hand forma of expressing the Idea that in those exclusionary cases nothing unfair can be inferred by not affording opportunity to present or meet a case.”
Indeed natural justice is pervasive facet of secular law where a spiritual touch enlivens legislation, administration and adjudication, to make fairness a creed of life. It has many colors and shades, many forms and shapes and, save where valid law excludes, it applies when people are affected by acts of authority. It is the bone of healthy government, recognized from earliest times and not a mystic testament of judge-madfe law.