The government is evaluating removal of clauses in the law that provide officers powers to arrest taxpayers suspected of evasion.
It is also considering revoking powers to arrest in case of claiming undue input tax credit or for want of actual invoicing, leaving out bank accounts from the ambit of attaching properties and limiting the scope of criminal offence to only high values of fraud.
The move follows the government’s broader drive to decriminalise minor offences across several laws including the Companies Act, where technical and procedural defaults such as shortcomings in corporate social responsibility reporting, inadequacies in board report, filing defaults, delay in holding annual general meetings among others have been decriminalised.
“There has been a debate about building into statutes, criminal liability for acts that are civil in nature. Hence, for Companies Act, certain amendments are proposed to be made that will correct this. Similarly, other laws would also be examined, where such provisions exist and attempts would be made to correct them,” Finance minister Nirmala Sitharaman had said in her Budget speech in February.
Most government departments are looking to decriminalise laws administered by them. The department of financial services recently proposed decriminalisation of as many as 19 laws including the Negotiable Instruments Act, SARFAESI Act, LIC Act, PFRDA Act, RBI Act, NHB Act, Banking Regulation Act, Chit Funds Act, Insurance Act, Payment and Settlements Systems Act and NABARD Act as part of the move.
“We’re reviewing industry suggestions… things will move fast,” said a senior official.
Under Section 132 (1) of the Central GST Act, falsification of documents for obtaining refunds, dealing in confiscated goods, abetment to committing the offences in the section and obstructing officers from discharging their duties – punishable with up to five years in prison – have been put up for decriminalisation.
“Historically, in many cases the provision of arrest has been invoked but prosecution does not take place… many of these laws prescribe jail terms without allowing for distinction between intentional fraud and inadvertent mistakes,” said an industry executive asking not to be identified.
Supply of goods without issuing invoice, issuing fake invoice for wrongfully availing input tax credit, non-payment of tax to government within three months of collecting the tax, should be struck down as non-bailable and cognizable offence, the industry suggested.
“These laws have not only served as breeding grounds for corruption and harassments, but has created an atmosphere of terror in the trade and industry,” a senior industry executive said, asking not to be identified.
Some laws lack specificity and their vagueness leaves room for harassment and misuse by the the tax officer. The industry also suggested that the GST Council may issue circulars or guidelines or safe harbour provisions on the basis of monetary thresholds for arrest or prosecution, in line with global practices.
The industry also suggested a complete overhaul of Section 138 related to compounding of offences, since in present form it is not applicable on a taxpayer accused of committing an offence under the Act.
“Attaching bank accounts which a taxpayer uses to pay GST leads to a vicious circle,” said another executive. Section 83 of the GST Act permits tax authorities to provisionally attach properties of taxpayers, including bank accounts for a year as an anti-evasion method, which the industry has sought to be removed.
“Rationalising some of the provisions permitting arrests will go a long way in alleviating the fear of misuse that businesses have, especially when the government wants to create an environment that promotes new business,” said Pratik Jain, partner and leader, indirect tax at PwC India.
While some industry bodies have made representations to the CBIC, others have sought responses from individual industry members which will be submitted this week.
“There have been instances of abuse of such powers (to arrest) as well in the past and assessees have been coerced to make upfront GST payment in case of genuine interpretation issues as well,” said Rajat Bose, partner at law firm Shardul Amarchand Mangaldas & Co.