GST evasion, ITC misuse over Rs 5 crore may face prosecution

The monetary threshold, however, will not be applicable for habitual evaders or cases where arrests have been made and prosecution can be launched in such cases irrespective of the monetary amount, the instructions read. “Sanction of prosecution has serious repercussions for the person involved, therefore, the nature of evidence collected during the investigation should be carefully assessed. One of the important considerations for deciding whether prosecution should be launched is the availability of adequate evidence. The standard of proof required in a criminal prosecution is higher than adjudication proceeding as the case has to be established beyond reasonable doubt.”

Prosecution should not be filed merely because a demand has been confirmed in the adjudication proceedings or should not be launched in cases of technical nature, or where additional claim of tax is based on a difference of opinion regarding interpretation of law, the probe wing said. “The evidence collected should be adequate to establish beyond reasonable doubt that the person had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea (criminal intent) for committing the offence.”

Prosecution should normally be launched where the amount of tax evasion, or misuse of ITC, or fraudulently obtained refund is more than Rs 5 crore, it said, adding that launching of prosecution by taxmen means commencement of legal proceedings against the offender.

The monetary limit is not applicable to a company/taxpayer habitually involved in tax evasion or misusing ITC facility or fraudulently obtained refund. “A company/taxpayer would be treated as habitual evader, if it has been involved in two or more cases of confirmed demand (at the first adjudication level or above) of tax evasion/fraudulent refund or misuse of ITC involving fraud, suppression of facts etc in past two years such that the total tax evaded and/or total ITC misused and/or fraudulently obtained refund exceeds Five Hundred Lakh rupees,” the Central Board of Indirect Taxes and Customs (CBIC) said.

“DIGIT database may be used to identify such habitual evaders,” it added.

The instructions further said that where arrests have been made during the course of investigation, and no bail has been granted, all efforts should be made to file prosecution complaints in the court within 60 days of arrest. In all other cases of arrest, prosecution complaints should also be filed within a definite time frame. Decision should be taken on case-to-case basis considering various factors, such as nature and gravity of offence, quantum of tax evaded, or ITC wrongly availed, or refund wrongly takenn and the nature as well as quality of evidence collected, the guidelines read.

Experts said the instructions provide details about prosecution which help in clarity for industry and reduce litigation.

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Saurabh Agarwal, tax partner, EY India, said, “The guidelines issued by CBIC 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. The instruction is welcomed by the industry as it also clarifies that prosecution can only be initiated by the department against the directors looking after operations of the company and not against all directors.”

Abhishek Jain, partner—indirect tax, KPMG in India, said this follows the revision in the monetary limit for prosecution under the Customs Act and also issuance of guidelines by the GST investigation wing specifying the conditions and procedure pursuant to which arrest can be made. “On similar lines, considering that launching of prosecution has serious implications for the person involved, the GST investigation wing has issued guidelines to ensure that the same is not made routine. Both field formations and taxpayers should take note of these guidelines and ensure compliance,” Jain added.