COMPOUNDING OF OFFENCES UNDER GST (PART-1)

[Dr. Sanjiv Agarwal]

Statutory Provision (Section 138)

Section 138 provides for compounding of offences by the competent authorities under the CGST Act, 2017 and Rule 162 of CGST Rules, 2017 deals with the manner and procedure for compounding of offences.

(1) Any offence under this Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case be, of such compounding amount in such manner as may be prescribed:

Provided that nothing contained in this section shall apply to-

1. a person who has been allowed to compound once in respect of any of the offences specified in clauses (a) to (f) of sub-section (1) of section 132 and the offences specified in clause (l) which are relatable to offences specified in clauses (a) to (f) of the said sub-section;
2. a person who has been allowed to compound once in respect of any offence, other than those in clause (a), under this Act or under the provisions of any State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act or the Integrated Goods and Services Tax Act in respect of supplies of value exceeding one crore rupees;
3. a person who has been accused of committing an offence under this Act which is also an offence under any other law for the time being in force;
4. a person who has been convicted for an offence under this Act by a court;
5. a person who has been accused of committing an offence specified in clause (g) or clause (j) or clause (k) of sub-section (1) of section 132; and
6. any other class of persons or offences as may be prescribed:

Provided further that any compounding allowed under the provisions of this section shall not affect the proceedings, if any, instituted under any other law:

Provided also that compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences.

(2) The amount for compounding of offences under this section shall be such as may be prescribed, subject to the minimum amount not being less than ten thousand rupees or fifty per cent. of the tax involved, whichever is higher, and the maximum amount not being less than thirty thousand rupees or one hundred and fifty per cent. of the tax, whichever is higher.

(3) On payment of such compounding amount as may be determined by the Commissioner, no further proceedings shall be initiated under this Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.

Meaning of ‘compounding’

‘Compounding’ has not been defined in GST Act or Rules. However, ‘Compounding’ means payment of monetary compensation or fine, instead of undergoing prosecution for an offence committed, which warrants such prosecution.

Section 320 of the Code of Criminal Procedure defines ‘compounding’ as to forbear from prosecution for consideration or any private motive. Aiyar’s Law Lexicon defines it variously as “arranging, coming to terms; condone for money”. Compounding is thus, a legally recognized arrangement, whereby the person charged with an offence is offered the option of avoiding prosecution and imprisonment in lieu of monetary considerations by way of penalty; compounding is essentially a contract between the state and the offender whereby the state secures revenue and the offender secures immunity from prosecution.

Compounding is nothing but a sort of compromise between the offender and the department to avoid criminal proceedings and is a punishment outside the court proceedings. Oxford Dictionary defines it as ‘forbear from prosecuting in exchange for money or other consideration; condone for money’. Compoundable offence is an offence which the law allows to be compounded between the parties; an offence which is capable of being compounded.

The offence of accepting or agreeing to accept consideration for not disclosing information that might assist in convicting or prosecuting someone who has committed an arrestable offence (consideration here does not include reasonable compensation for loss or injury caused by the offence). There is also a special statutory offence of advertising a reward for stolen goods on the basis that no question will be asked or that the person producing the goods ‘will be safe from inquiry’(England) Oxford Law Dictionary, 5th Edn, 2003).

Compounding is a compromise arrangement between administrator of statute and the person who has committed an offence. Compounding involves receipt of consideration in return of non-prosecution of person who has committed an offence (1997) 24 CLA 214 (CLB).

Compounding results in dropping of prosecution proceedings and once the offence is compounded, penalty or prosecution proceedings cannot be taken up for same offence. Compounding order cannot be challenged by either of the parties and appeal against such order does not lie. Such matters cannot be revived or reopened. Compounding is not a right but discretion of the compounding authority.

In STATE OF ANDHRA (NOW ANDHRA PRADESH) VERSUS BELLAMKONDA VENKATA SUBBAIAH AND ANOTHER - 1956 (12) TMI 35 - ANDHRA PRADESH HIGH COURT, it was held that compounding of an offence at the request of the defaulter party is neither an agreement nor a contract. It is a sort of compromise between the two parties ie defaulter/offender and the revenue department.

According to Ramnath Aiyar’s Law Lexicon, ‘compounding’ means “arranging, coming to terms, condone for money” whereas Oxford Dictionary defines ‘compounding’ means “forbear from prosecuting in exchange for money or other consideration, condone for money. Generally, in common parlance compounding termed as “to settle a matter by a money payment, in lieu of other liability”.