Proposed restructuring of GST prosecution, sentencing and arrest powers

This article examines the 57th GST Council’s recommendations to recast GST prosecution, sentencing and arrest powers, with particular focus on Section 132 and the proposed omission of Section 69 of the CGST Act, 2017.

These changes matter because they will materially reshape criminal exposure under GST, especially for ITC disputes, fake invoice cases and large-value refund matters, and will require practitioners to recalibrate litigation and settlement strategy once enacted.

Issue, law, position, action

1. Scope of prosecutable conduct under the revamped Section 132(1)

Issue

How far do the recommendations narrow or redefine the categories of conduct that can attract prosecution under Section 132(1)?

Governing law (current position)

• Section 132(1) presently lists a range of offences, including:
  • Clause (a): taxable supply without invoice, with intent to evade tax.
  • Clause (b): issuance of invoice/bill without supply, leading to wrongful ITC or refund (fake invoices).
  • Clause (c): availing/utilising ITC based on specified documents or otherwise, in a fraudulent manner.
  • Clause (e): wrongful refund of tax.
  • Clause (f): falsification of financial records or furnishing false information with intent to evade tax.
  • Clause (h): specified knowing dealings with goods liable to confiscation, plus a residual “in any other manner deals with such goods”.
  • Clause (i): knowingly receiving or dealing with certain non-compliant services.
• Clauses (g), (j) and (k) stand omitted with effect from 1 October 2023 via the Finance Act, 2023.
• Offences are linked to punishment slabs under Section 132(1)(i)–(iv) and the enhanced punishment rule for repeat offenders under Section 132(2).

Recommended changes

Key recommendations of the 57th Council (subject to final statutory text) are:

• Section 132(1)(a)
  • Retained, but subject to a higher monetary trigger (discussed separately).
• Section 132(1)(b)
  • Retained for fake invoice scenarios, but with the monetary threshold aligned to a proposed ₹5 crore statutory trigger instead of the current ₹1 crore band for this clause.
• Section 132(1)(c)
  • Narrowed to focus on:
    • fraudulent availment of ITC without actual receipt of goods or services, or
    • availment without any invoice/bill or other valid documentation.
  • The present wider sweep, covering other forms of fraudulent ITC (including those based on invoices under clause (b)), is proposed to be trimmed.
• Section 132(1)(e)
  • Deletion of the words “evades tax”, so the clause would be oriented towards fraudulent refunds not captured by clauses (a)–(d), instead of acting as a broad residual offence for “tax evasion” generally.
• Section 132(1)(h)
  • Removal of the residual expression “or in any other manner deals with such goods”, confining liability to specifically listed acts such as knowingly transporting, concealing, storing, selling or purchasing goods liable to confiscation.
• Section 132(1)(i)
  • Omitted entirely, removing the standalone offence of knowingly receiving or dealing with services supplied in contravention of GST provisions.
• Section 132(1)(f)
  • No specific change announced, though its interaction with the proposed monetary threshold is yet to be clarified.

Better view and likely legal position

Based on the recommendations:

• Fraud-focused realignment
  The offence set is being tightened around clearly fraudulent conduct (fake invoices, non-existent supplies, sham ITC and abusive refunds), with less room to rope in genuine commercial transactions where:
  • supplies are actually received,
  • documentation is in order, and
  • the dispute is essentially about eligibility/interpretation under Section 16 or rate classification.
• Clause (c) narrowing
  Once amended, clause (c) should not ordinarily support prosecution where:
  • goods/services have in fact been received,
  • invoices exist and correspond to real supplies, and
  • the dispute arises from supplier non-payment, technical lapses, or bona fide interpretational disagreements on ITC.
    Civil consequences under Sections 73, 74 and 74A will remain fully available.
• Clause (e) refocusing
  Deleting “evades tax” will restrict use of clause (e) to wrongdoing linked to refunds. Authorities will need to locate the alleged conduct within clauses (a)–(d) or the revised refund-focused clause (e) instead of relying on a broadly worded residuary offence.
• Clause (h) precision
  Liability will attach only where the person carries out one of the specific listed activities in relation to confiscable goods. Peripheral actors who are not engaged in these enumerated acts will be harder to prosecute under clause (h) alone.
• Omission of clause (i)
  Service recipients will no longer face a standalone offence merely for knowingly receiving services supplied contrary to GST provisions, though they may still be prosecuted under other clauses (e.g. fake ITC, falsified records) where the factual matrix so warrants.

Action points for practitioners

1. Re-assess criminal exposure in ongoing matters

   • Identify which pending cases rest primarily on:
     • the broadened pre-amendment language of clause (c),
     • “evades tax” in clause (e),
     • the residual phrase in clause (h), or
     • clause (i) alone.
   • Flag such matters as potential candidates for relief once the amending Act and savings clauses are available.

2. Reframe pleadings in ITC disputes

   • In cases with genuine receipt of supplies and intact documentation, emphasise that, under the proposed framework, such matters are intended to remain within civil adjudication rather than prosecution, citing Section 16-based compliance.

3. Advise clients on structuring documentation

   • Strengthen evidence of actual receipt (e.g. delivery records, service reports, e-way bills, payment proofs) to clearly distinguish genuine transactions from non-existent supply situations targeted by the revised Section 132(1)(c).

2. Statutory monetary threshold of more than ₹5 crore under Section 132

Issue