India Plans To Increase Time Limit To Prosecute GST Evaders – BQ Exclusive
A cardboard cut-out of Indian Prime Minister Narendra Modi, accompanied by a message that reads “GST, The Youth Welcomes Change Of An Era, The New Power Of Economy,” stands in New Delhi, India. (Photographer: Anindito Mukherjee/Bloomberg)

India Plans To Increase Time Limit To Prosecute GST Evaders – BQ Exclusive

India plans to increase the time limit to prosecute evaders of goods and service tax, according to a senior official, at a time Prime Minister Narendra Modi’s government is looking to ease taxation rules to prevent harassment and improve business sentiment.

Under the Central Goods and Services Tax Act, if there’s a loss to the exchequer of over Rs 5 crore under Section 132, then the tax authorities have powers to arrest company officials. Sections 132 (1)(e) and 132 (1)(i) of the CGST Act provide for a prison term of up to five years and a fine.

The time limit for initiating prosecution, however, is derived from the Criminal Prosecution Code, 1973. After such evasion is detected, the trial by an adjudicating or a competent authority is required to be completed:

  • Within a year if imprisonment term is one year.

  • Within three years if imprisonment term is one to three years.

To remove these limits, the government proposes to insert Central GST laws in the Economic Offences (Inapplicability of Limitation) Act, 1974, the official quoted earlier said on the condition of anonymity as details aren’t public yet. Provisions of the CrPC aren’t applicable to economic offences covered under this act.

A similar change will have to be made in state GST laws as well, the official said.

The proposed change is similar to powers that existed in central excise and the pre-GST indirect tax regime, said L Badri Narayanan, partner at Laxmikumaran & Sridharan. The move won’t allow offenders to avoid prosecution based on technicalities, he said. Unlike other offences, tax offences are complex, and proceedings take more time, he said.

Narayanan, however, said it is expected that the government will lay down proper guidelines for exercising such powers by the department to ensure these are not abused.

The proposed changes have been approved by the Law Committee — a panel of state and central government officers tasked with making GST-related legal changes, the official quoted earlier said. The changes will have to be approved by the GST Council, he said.

Currently, the decision to prosecute is usually taken by an adjudicating authority, the official quoted earlier said. During this time, the period allowed for prosecution usually lapses in cases where imprisonment does not exceed three years, the official said, explaining why the change is required.

An email sent to the Finance Ministry spokesperson seeking details didn't elicit a response.

Krishan Arora, a partner at Grant Thornton India LLP, however, called the proposal contrary to the government’s intention to decriminalise various laws to lift business sentiment.

“This would provide more powers to officers for arresting taxpayers suspected of tax evasion at a time when the government's focus is to impose monetary fines and penalties rather than imprisonment for offences in an effort to improve business sentiment, cut unwanted harassment and litigation,” he said.

According to Rajat Mohan, partner at AMRG & Associates, if the changes are implemented, tax authorities will tighten the noose on tax evaders liable for prosecution. This, he said, will give investigators ample time to probe and prosecute.

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