Ch 35 - Prosecution and compounding | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 35 - Prosecuti on and compoundi ng 
 
 
 
 
 
CHAPTER 35 
 
Prosecution and compounding 
 
35.1 Civil and criminal liabilities  for Offences 
 
Law without provisions for punishment is like lion without teeth. Like any other law, GST Law provide for 
penalties and punishments for violation of law. 
The word 'Offence' is not defined in Excise law. It is not defined in the Constitution, but Article 367 of the 
Constitution says that unless the context otherwise provides for, words not defined in Constitution, the meaning 
assi gned in the General Sections Act, 1897 may be given. 
Section 3(8) of General Sections Act defines Offence as any act or omission made punishable by any law for 
the time being in force. Section 2(n) of Criminal Procedure Code defines 'offence' as any act or omission made 
punishable by any law for the time being in force'. 
35.1-1 Simultaneous Civil and criminal punishment 
 
The GST Law envisages two types of punishments. These can be simultaneous and concurrent. 
 
Civil Liability - Penalty for violation of statutory provisions i nvolving a penalty of money and confiscation of 
goods. This is a civil penalty and can be adjudged in departmental adjudication. This penalty can be imposed 
by departmental authorities 
In Indo-China Steam Navigation v. Jaswant Singh 1983(13) ELT 1392 = AIR 1964 SC 1140 = 1964(6) 
SCR 594 (SC - 5 member Constitution Bench), it was held that the adjudicating officer is not a Tribunal or 
Court, though he has to act in a quasi-judicial manner. 
Criminal  Liability - Criminal punishment is of imprisonment and fine; which can be granted only in a criminal 
court after prosecution. These are provided in GST law. 
35.1-2 Penalty  and punishment for same offence 
 
Article 20(2) of Constitution of India provides that no person can be prosecuted and punished twice for the 
same offence. 
In Shiv Dutt Rai Fateh Chand v. UOI (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= (1984) 145 ITR 
664 (SC), it was observed that the word 'offence' as mentioned in Article 20 relates to persons who are 
charged with a crime before criminal court. - - It does not include 'penalty' levied under tax laws imposed by 
departmental authorities. A penalty imposed by tax authorities is only a civil liability. 
In Maqbool Hussain v. State of Bombay AIR 1953 SC 325 = 1953 SCR 730 reproduced  in 1983 (13) 
ELT  1284  (SC  Constitution  Bench)  that  proceedi ngs  before  revenue  authorities  are  in the  nature  of 
administrative enquiries. These are di fferent from the proceedings in a criminal court where the enquiry is on 
the basis of evidence tendered on oath. - . - Proceedings before adjudicating authority is not 'prosecution' and 
the order of confiscation is not a 'punishment'. - . - Hence simultaneous punishments through departmental 
adjudication and prosecution in a court of law would not amount to double punishment for the same offence 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 35 - Prosecuti on and compoundi ng 
 
 
 
 
 
CHAPTER 35 
 
Prosecution and compounding 
 
35.1 Civil and criminal liabilities  for Offences 
 
Law without provisions for punishment is like lion without teeth. Like any other law, GST Law provide for 
penalties and punishments for violation of law. 
The word 'Offence' is not defined in Excise law. It is not defined in the Constitution, but Article 367 of the 
Constitution says that unless the context otherwise provides for, words not defined in Constitution, the meaning 
assi gned in the General Sections Act, 1897 may be given. 
Section 3(8) of General Sections Act defines Offence as any act or omission made punishable by any law for 
the time being in force. Section 2(n) of Criminal Procedure Code defines 'offence' as any act or omission made 
punishable by any law for the time being in force'. 
35.1-1 Simultaneous Civil and criminal punishment 
 
The GST Law envisages two types of punishments. These can be simultaneous and concurrent. 
 
Civil Liability - Penalty for violation of statutory provisions i nvolving a penalty of money and confiscation of 
goods. This is a civil penalty and can be adjudged in departmental adjudication. This penalty can be imposed 
by departmental authorities 
In Indo-China Steam Navigation v. Jaswant Singh 1983(13) ELT 1392 = AIR 1964 SC 1140 = 1964(6) 
SCR 594 (SC - 5 member Constitution Bench), it was held that the adjudicating officer is not a Tribunal or 
Court, though he has to act in a quasi-judicial manner. 
Criminal  Liability - Criminal punishment is of imprisonment and fine; which can be granted only in a criminal 
court after prosecution. These are provided in GST law. 
35.1-2 Penalty  and punishment for same offence 
 
Article 20(2) of Constitution of India provides that no person can be prosecuted and punished twice for the 
same offence. 
In Shiv Dutt Rai Fateh Chand v. UOI (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= (1984) 145 ITR 
664 (SC), it was observed that the word 'offence' as mentioned in Article 20 relates to persons who are 
charged with a crime before criminal court. - - It does not include 'penalty' levied under tax laws imposed by 
departmental authorities. A penalty imposed by tax authorities is only a civil liability. 
In Maqbool Hussain v. State of Bombay AIR 1953 SC 325 = 1953 SCR 730 reproduced  in 1983 (13) 
ELT  1284  (SC  Constitution  Bench)  that  proceedi ngs  before  revenue  authorities  are  in the  nature  of 
administrative enquiries. These are di fferent from the proceedings in a criminal court where the enquiry is on 
the basis of evidence tendered on oath. - . - Proceedings before adjudicating authority is not 'prosecution' and 
the order of confiscation is not a 'punishment'. - . - Hence simultaneous punishments through departmental 
adjudication and prosecution in a court of law would not amount to double punishment for the same offence 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
and is not hit by Article 20(2) of the Constitution. Thus, these two types of punishments are independent of 
each other and both can be imposed simultaneously. In other words, a person can be prosecuted in criminal 
court and at the same time penalty can be imposed by departmental authorities for the same offence - quoted 
with approval in Director of Enforcement v. MCT M Corporation  (P.) Ltd. AIR 1996 SC 1100 = 1996 
AIR SCW 636 = 88 Comp Cas 449 = (1996) 2 SCC 471 also fo lowed in Assistant Collector of Customs 
v. L R Malwani - 110 ELT 317 (SC 5 member bench) - similar views in Tiwari Kanhayalal v. CIT - (1975) 
100 ITR 5 (SC) * State of Karnataka  v. Sir Janakusa  J Bakale 1999(113) ELT 375 (SC 3 member 
bench) * Thomas Dana  v. State of Punjab  AIR 1969 SC 375 = 110 ELT 63 (SC 5 member bench) * 
Standard Chartered  Bank v. Directorate  of Enforcement (2006) 67 SCL 2 = 197 ELT 18 (SC 3 member 
bench) * Bharjatiya Steel Industries v. CST (2008) 11 SCC 514 = 13 VST 514 (SC). 
In P. Jayappan  v. S.K. Perumal, First ITO - AIR 1984 SC 1693 = 1984 Supp SCC 437 = 19 Taxman 1= 
149 ITR 696 (SC), it was held that pendency of reassessment proceedings cannot act as bar to the institution 
of criminal prosecution.  The criminal court has no doubt to give due regard to the result of departmental 
proceedings  and in appropriate  case, it may drop the criminal proceedings  in light of an order passed in 
departmental adjudication. However, the decision in departmental adjudication is not binding on the criminal 
court and the criminal court has to judge the case independently on the evidence placed before it. (In this case, 
it was also observed that even if penalty is upheld in departmental adjudication, conviction in criminal court for 
the same offence will not automatica ly fo low) - fo lowed in Madura Chit and Investments (P.) Ltd. v. ITO 
- (1995) 83 Taxman 85 (Mad HC). 
 
In KTMS Mohammed v. UOI - 75 Comp Cas 321 = 65 Taxman 130 = AIR 1992 SC 1831 = (1992) 3 
SCC 178 = 197 ITR 196 = 1992 AIR SCW 2062 (SC), it was held that though criminal court has to judge 
the case independently,  there is no legal bar to give due regard to departmental proceedings.  - . - If the 
departmental authority absolves the party, the very basis of prosecution may be nu lified. - . - Criminal case 
may be kept pending at the discretion of magistrate. 
35.1-3 Departmental adjudication and criminal proceedings independent 
 
Pending criminal matter is not impediment to proceed with the civil suit - State of Rajasthan  v. Kalyan 
Sundaram  - (1996) 86 Comp Cas 433 (SC). * Guru Granth  Saheb Sthan Meerghat  v. Ved Prakash 
(2013) 7 SCC 622. 
Departmental adjudication can proceed even when criminal case is pending as both are independent of each 
other. - Maniklal Pokhraj Jain v. CC (Preventive), Bombay - 1986 (26) ELT 689 (Bom HC) - fo lowed in 
Satyanarayan  v. CCE - 1987 (29) ELT 450 (CEGAT). Same view in Sri Ambal Mills Ltd. v. ACCE - 
1995 (76) ELT 517 (Mad HC). 
 
Departmental  Adjudication  can  continue  even  if a  person  is  acquitted  in  criminal  court  -  CCE  v.  K 
Ranganathan  - 1995 (76) ELT 261 (Mad HC) also in K P Abdul Majeed v. CCE - (1995) 79 ELT 554 
(Mad HC DB) * Rekhi Road Liners v. CC - (1999) 113 ELT 413 (Mad HC DB) * Radha Govind v. CC 
2002(142) ELT 338 (CEGAT). 
 
Even if accused  is  exonerated  in departmental  proceedings,  criminal proceedings  on same  charges  can 
continue - State (NCT of Delhi) v. Ajay Kumar Tyagi (2012) 9 SCC 685. 
35.2 Prosecution for Offences under GST Law 
 
As per section 132(1) of CGST Act, whoever commits any of the fo lowing offences, namely— 
 
(a)   supplies any goods or services or both without issue of any i nvoice, in violation of the provisions of 
this Act or the rules made thereunder, with the intention to evade tax 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 35 - Prosecuti on and compoundi ng 
 
 
 
 
 
CHAPTER 35 
 
Prosecution and compounding 
 
35.1 Civil and criminal liabilities  for Offences 
 
Law without provisions for punishment is like lion without teeth. Like any other law, GST Law provide for 
penalties and punishments for violation of law. 
The word 'Offence' is not defined in Excise law. It is not defined in the Constitution, but Article 367 of the 
Constitution says that unless the context otherwise provides for, words not defined in Constitution, the meaning 
assi gned in the General Sections Act, 1897 may be given. 
Section 3(8) of General Sections Act defines Offence as any act or omission made punishable by any law for 
the time being in force. Section 2(n) of Criminal Procedure Code defines 'offence' as any act or omission made 
punishable by any law for the time being in force'. 
35.1-1 Simultaneous Civil and criminal punishment 
 
The GST Law envisages two types of punishments. These can be simultaneous and concurrent. 
 
Civil Liability - Penalty for violation of statutory provisions i nvolving a penalty of money and confiscation of 
goods. This is a civil penalty and can be adjudged in departmental adjudication. This penalty can be imposed 
by departmental authorities 
In Indo-China Steam Navigation v. Jaswant Singh 1983(13) ELT 1392 = AIR 1964 SC 1140 = 1964(6) 
SCR 594 (SC - 5 member Constitution Bench), it was held that the adjudicating officer is not a Tribunal or 
Court, though he has to act in a quasi-judicial manner. 
Criminal  Liability - Criminal punishment is of imprisonment and fine; which can be granted only in a criminal 
court after prosecution. These are provided in GST law. 
35.1-2 Penalty  and punishment for same offence 
 
Article 20(2) of Constitution of India provides that no person can be prosecuted and punished twice for the 
same offence. 
In Shiv Dutt Rai Fateh Chand v. UOI (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= (1984) 145 ITR 
664 (SC), it was observed that the word 'offence' as mentioned in Article 20 relates to persons who are 
charged with a crime before criminal court. - - It does not include 'penalty' levied under tax laws imposed by 
departmental authorities. A penalty imposed by tax authorities is only a civil liability. 
In Maqbool Hussain v. State of Bombay AIR 1953 SC 325 = 1953 SCR 730 reproduced  in 1983 (13) 
ELT  1284  (SC  Constitution  Bench)  that  proceedi ngs  before  revenue  authorities  are  in the  nature  of 
administrative enquiries. These are di fferent from the proceedings in a criminal court where the enquiry is on 
the basis of evidence tendered on oath. - . - Proceedings before adjudicating authority is not 'prosecution' and 
the order of confiscation is not a 'punishment'. - . - Hence simultaneous punishments through departmental 
adjudication and prosecution in a court of law would not amount to double punishment for the same offence 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
and is not hit by Article 20(2) of the Constitution. Thus, these two types of punishments are independent of 
each other and both can be imposed simultaneously. In other words, a person can be prosecuted in criminal 
court and at the same time penalty can be imposed by departmental authorities for the same offence - quoted 
with approval in Director of Enforcement v. MCT M Corporation  (P.) Ltd. AIR 1996 SC 1100 = 1996 
AIR SCW 636 = 88 Comp Cas 449 = (1996) 2 SCC 471 also fo lowed in Assistant Collector of Customs 
v. L R Malwani - 110 ELT 317 (SC 5 member bench) - similar views in Tiwari Kanhayalal v. CIT - (1975) 
100 ITR 5 (SC) * State of Karnataka  v. Sir Janakusa  J Bakale 1999(113) ELT 375 (SC 3 member 
bench) * Thomas Dana  v. State of Punjab  AIR 1969 SC 375 = 110 ELT 63 (SC 5 member bench) * 
Standard Chartered  Bank v. Directorate  of Enforcement (2006) 67 SCL 2 = 197 ELT 18 (SC 3 member 
bench) * Bharjatiya Steel Industries v. CST (2008) 11 SCC 514 = 13 VST 514 (SC). 
In P. Jayappan  v. S.K. Perumal, First ITO - AIR 1984 SC 1693 = 1984 Supp SCC 437 = 19 Taxman 1= 
149 ITR 696 (SC), it was held that pendency of reassessment proceedings cannot act as bar to the institution 
of criminal prosecution.  The criminal court has no doubt to give due regard to the result of departmental 
proceedings  and in appropriate  case, it may drop the criminal proceedings  in light of an order passed in 
departmental adjudication. However, the decision in departmental adjudication is not binding on the criminal 
court and the criminal court has to judge the case independently on the evidence placed before it. (In this case, 
it was also observed that even if penalty is upheld in departmental adjudication, conviction in criminal court for 
the same offence will not automatica ly fo low) - fo lowed in Madura Chit and Investments (P.) Ltd. v. ITO 
- (1995) 83 Taxman 85 (Mad HC). 
 
In KTMS Mohammed v. UOI - 75 Comp Cas 321 = 65 Taxman 130 = AIR 1992 SC 1831 = (1992) 3 
SCC 178 = 197 ITR 196 = 1992 AIR SCW 2062 (SC), it was held that though criminal court has to judge 
the case independently,  there is no legal bar to give due regard to departmental proceedings.  - . - If the 
departmental authority absolves the party, the very basis of prosecution may be nu lified. - . - Criminal case 
may be kept pending at the discretion of magistrate. 
35.1-3 Departmental adjudication and criminal proceedings independent 
 
Pending criminal matter is not impediment to proceed with the civil suit - State of Rajasthan  v. Kalyan 
Sundaram  - (1996) 86 Comp Cas 433 (SC). * Guru Granth  Saheb Sthan Meerghat  v. Ved Prakash 
(2013) 7 SCC 622. 
Departmental adjudication can proceed even when criminal case is pending as both are independent of each 
other. - Maniklal Pokhraj Jain v. CC (Preventive), Bombay - 1986 (26) ELT 689 (Bom HC) - fo lowed in 
Satyanarayan  v. CCE - 1987 (29) ELT 450 (CEGAT). Same view in Sri Ambal Mills Ltd. v. ACCE - 
1995 (76) ELT 517 (Mad HC). 
 
Departmental  Adjudication  can  continue  even  if a  person  is  acquitted  in  criminal  court  -  CCE  v.  K 
Ranganathan  - 1995 (76) ELT 261 (Mad HC) also in K P Abdul Majeed v. CCE - (1995) 79 ELT 554 
(Mad HC DB) * Rekhi Road Liners v. CC - (1999) 113 ELT 413 (Mad HC DB) * Radha Govind v. CC 
2002(142) ELT 338 (CEGAT). 
 
Even if accused  is  exonerated  in departmental  proceedings,  criminal proceedings  on same  charges  can 
continue - State (NCT of Delhi) v. Ajay Kumar Tyagi (2012) 9 SCC 685. 
35.2 Prosecution for Offences under GST Law 
 
As per section 132(1) of CGST Act, whoever commits any of the fo lowing offences, namely— 
 
(a)   supplies any goods or services or both without issue of any i nvoice, in violation of the provisions of 
this Act or the rules made thereunder, with the intention to evade tax 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
(b)   issues any invoice or Bill without supply of goods or services or both in violation of the provisions of 
this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit 
or refund of tax. 
(c)   avails input tax credit using such invoice or Bill referred to in clause (b). 
(d)   co lects any amount as tax but fails to pay the same to the Government beyond a period of three 
months from the date on which such payment becomes due; 
(e)   evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offence 
not covered under clauses (a) to (d) 
(f)  falsifies or substitutes financial records or produces fake accounts or documents or furnishes any 
false information with an intention to evade payment of tax due under this Act 
(g)   obstructs or prevents any officer in the discharge of his duties under this Act 
(h)   acquires  possession  of,  or  in any way  concerns  himself  in transporti ng,  removing,  depositing, 
keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he 
knows or has reason to believe are liable to confiscation under this Act or the rules made thereunder. 
(i)   receives or is in any way concerned with the supply of, or in any other manner deals with any supply 
of services which he knows or has reason to believe are in contravention of any provisions of this 
Act or the rules made thereunder. 
(j)   tampers with or destroys any material evidence or documents 
(k)  fails to supply any information which he is required to supply under this Act or the rules made 
thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that 
the information supplied by him is true) supplies false information; or 
(l)   attempts to commit, or abets the commission of, any of the offences mentioned in sections (a) to (k) 
of this section; 
shall be punishable — 
 
(i)   in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized 
or the amount of ref und wrongly taken exceeds five hundred lakh rupees, with imprisonment for a 
term which may extend to five years and with fine. 
(ii)   in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized 
or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five 
hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine. 
(iii)   in the case of any other offence where the amount of tax evaded or the amount of input tax credit 
wrongly availed or utilized or the amount of refund wrongly taken exceeds one hundred lakh rupees 
but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to 
one year and with fine; 
(iv)  in cases where he commits or abets in the commission of an offence specified in clause (f), (g) or (j), 
with imprisonment for a term which may extend to six months or with fine or with both. 
35.2-1 Repeat  conviction 
 
If any person convicted of an offence under this section is again convicted of an offence under this section, 
then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term 
which may extend to five years and with fine - section 132(2) of CGST Act. 
35.2-2 Minimum punishment for certain offences 
Page 4


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 35 - Prosecuti on and compoundi ng 
 
 
 
 
 
CHAPTER 35 
 
Prosecution and compounding 
 
35.1 Civil and criminal liabilities  for Offences 
 
Law without provisions for punishment is like lion without teeth. Like any other law, GST Law provide for 
penalties and punishments for violation of law. 
The word 'Offence' is not defined in Excise law. It is not defined in the Constitution, but Article 367 of the 
Constitution says that unless the context otherwise provides for, words not defined in Constitution, the meaning 
assi gned in the General Sections Act, 1897 may be given. 
Section 3(8) of General Sections Act defines Offence as any act or omission made punishable by any law for 
the time being in force. Section 2(n) of Criminal Procedure Code defines 'offence' as any act or omission made 
punishable by any law for the time being in force'. 
35.1-1 Simultaneous Civil and criminal punishment 
 
The GST Law envisages two types of punishments. These can be simultaneous and concurrent. 
 
Civil Liability - Penalty for violation of statutory provisions i nvolving a penalty of money and confiscation of 
goods. This is a civil penalty and can be adjudged in departmental adjudication. This penalty can be imposed 
by departmental authorities 
In Indo-China Steam Navigation v. Jaswant Singh 1983(13) ELT 1392 = AIR 1964 SC 1140 = 1964(6) 
SCR 594 (SC - 5 member Constitution Bench), it was held that the adjudicating officer is not a Tribunal or 
Court, though he has to act in a quasi-judicial manner. 
Criminal  Liability - Criminal punishment is of imprisonment and fine; which can be granted only in a criminal 
court after prosecution. These are provided in GST law. 
35.1-2 Penalty  and punishment for same offence 
 
Article 20(2) of Constitution of India provides that no person can be prosecuted and punished twice for the 
same offence. 
In Shiv Dutt Rai Fateh Chand v. UOI (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= (1984) 145 ITR 
664 (SC), it was observed that the word 'offence' as mentioned in Article 20 relates to persons who are 
charged with a crime before criminal court. - - It does not include 'penalty' levied under tax laws imposed by 
departmental authorities. A penalty imposed by tax authorities is only a civil liability. 
In Maqbool Hussain v. State of Bombay AIR 1953 SC 325 = 1953 SCR 730 reproduced  in 1983 (13) 
ELT  1284  (SC  Constitution  Bench)  that  proceedi ngs  before  revenue  authorities  are  in the  nature  of 
administrative enquiries. These are di fferent from the proceedings in a criminal court where the enquiry is on 
the basis of evidence tendered on oath. - . - Proceedings before adjudicating authority is not 'prosecution' and 
the order of confiscation is not a 'punishment'. - . - Hence simultaneous punishments through departmental 
adjudication and prosecution in a court of law would not amount to double punishment for the same offence 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
and is not hit by Article 20(2) of the Constitution. Thus, these two types of punishments are independent of 
each other and both can be imposed simultaneously. In other words, a person can be prosecuted in criminal 
court and at the same time penalty can be imposed by departmental authorities for the same offence - quoted 
with approval in Director of Enforcement v. MCT M Corporation  (P.) Ltd. AIR 1996 SC 1100 = 1996 
AIR SCW 636 = 88 Comp Cas 449 = (1996) 2 SCC 471 also fo lowed in Assistant Collector of Customs 
v. L R Malwani - 110 ELT 317 (SC 5 member bench) - similar views in Tiwari Kanhayalal v. CIT - (1975) 
100 ITR 5 (SC) * State of Karnataka  v. Sir Janakusa  J Bakale 1999(113) ELT 375 (SC 3 member 
bench) * Thomas Dana  v. State of Punjab  AIR 1969 SC 375 = 110 ELT 63 (SC 5 member bench) * 
Standard Chartered  Bank v. Directorate  of Enforcement (2006) 67 SCL 2 = 197 ELT 18 (SC 3 member 
bench) * Bharjatiya Steel Industries v. CST (2008) 11 SCC 514 = 13 VST 514 (SC). 
In P. Jayappan  v. S.K. Perumal, First ITO - AIR 1984 SC 1693 = 1984 Supp SCC 437 = 19 Taxman 1= 
149 ITR 696 (SC), it was held that pendency of reassessment proceedings cannot act as bar to the institution 
of criminal prosecution.  The criminal court has no doubt to give due regard to the result of departmental 
proceedings  and in appropriate  case, it may drop the criminal proceedings  in light of an order passed in 
departmental adjudication. However, the decision in departmental adjudication is not binding on the criminal 
court and the criminal court has to judge the case independently on the evidence placed before it. (In this case, 
it was also observed that even if penalty is upheld in departmental adjudication, conviction in criminal court for 
the same offence will not automatica ly fo low) - fo lowed in Madura Chit and Investments (P.) Ltd. v. ITO 
- (1995) 83 Taxman 85 (Mad HC). 
 
In KTMS Mohammed v. UOI - 75 Comp Cas 321 = 65 Taxman 130 = AIR 1992 SC 1831 = (1992) 3 
SCC 178 = 197 ITR 196 = 1992 AIR SCW 2062 (SC), it was held that though criminal court has to judge 
the case independently,  there is no legal bar to give due regard to departmental proceedings.  - . - If the 
departmental authority absolves the party, the very basis of prosecution may be nu lified. - . - Criminal case 
may be kept pending at the discretion of magistrate. 
35.1-3 Departmental adjudication and criminal proceedings independent 
 
Pending criminal matter is not impediment to proceed with the civil suit - State of Rajasthan  v. Kalyan 
Sundaram  - (1996) 86 Comp Cas 433 (SC). * Guru Granth  Saheb Sthan Meerghat  v. Ved Prakash 
(2013) 7 SCC 622. 
Departmental adjudication can proceed even when criminal case is pending as both are independent of each 
other. - Maniklal Pokhraj Jain v. CC (Preventive), Bombay - 1986 (26) ELT 689 (Bom HC) - fo lowed in 
Satyanarayan  v. CCE - 1987 (29) ELT 450 (CEGAT). Same view in Sri Ambal Mills Ltd. v. ACCE - 
1995 (76) ELT 517 (Mad HC). 
 
Departmental  Adjudication  can  continue  even  if a  person  is  acquitted  in  criminal  court  -  CCE  v.  K 
Ranganathan  - 1995 (76) ELT 261 (Mad HC) also in K P Abdul Majeed v. CCE - (1995) 79 ELT 554 
(Mad HC DB) * Rekhi Road Liners v. CC - (1999) 113 ELT 413 (Mad HC DB) * Radha Govind v. CC 
2002(142) ELT 338 (CEGAT). 
 
Even if accused  is  exonerated  in departmental  proceedings,  criminal proceedings  on same  charges  can 
continue - State (NCT of Delhi) v. Ajay Kumar Tyagi (2012) 9 SCC 685. 
35.2 Prosecution for Offences under GST Law 
 
As per section 132(1) of CGST Act, whoever commits any of the fo lowing offences, namely— 
 
(a)   supplies any goods or services or both without issue of any i nvoice, in violation of the provisions of 
this Act or the rules made thereunder, with the intention to evade tax 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
(b)   issues any invoice or Bill without supply of goods or services or both in violation of the provisions of 
this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit 
or refund of tax. 
(c)   avails input tax credit using such invoice or Bill referred to in clause (b). 
(d)   co lects any amount as tax but fails to pay the same to the Government beyond a period of three 
months from the date on which such payment becomes due; 
(e)   evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offence 
not covered under clauses (a) to (d) 
(f)  falsifies or substitutes financial records or produces fake accounts or documents or furnishes any 
false information with an intention to evade payment of tax due under this Act 
(g)   obstructs or prevents any officer in the discharge of his duties under this Act 
(h)   acquires  possession  of,  or  in any way  concerns  himself  in transporti ng,  removing,  depositing, 
keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he 
knows or has reason to believe are liable to confiscation under this Act or the rules made thereunder. 
(i)   receives or is in any way concerned with the supply of, or in any other manner deals with any supply 
of services which he knows or has reason to believe are in contravention of any provisions of this 
Act or the rules made thereunder. 
(j)   tampers with or destroys any material evidence or documents 
(k)  fails to supply any information which he is required to supply under this Act or the rules made 
thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that 
the information supplied by him is true) supplies false information; or 
(l)   attempts to commit, or abets the commission of, any of the offences mentioned in sections (a) to (k) 
of this section; 
shall be punishable — 
 
(i)   in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized 
or the amount of ref und wrongly taken exceeds five hundred lakh rupees, with imprisonment for a 
term which may extend to five years and with fine. 
(ii)   in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized 
or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five 
hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine. 
(iii)   in the case of any other offence where the amount of tax evaded or the amount of input tax credit 
wrongly availed or utilized or the amount of refund wrongly taken exceeds one hundred lakh rupees 
but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to 
one year and with fine; 
(iv)  in cases where he commits or abets in the commission of an offence specified in clause (f), (g) or (j), 
with imprisonment for a term which may extend to six months or with fine or with both. 
35.2-1 Repeat  conviction 
 
If any person convicted of an offence under this section is again convicted of an offence under this section, 
then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term 
which may extend to five years and with fine - section 132(2) of CGST Act. 
35.2-2 Minimum punishment for certain offences 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
In the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, 
the imprisonment referred to in clauses (i) ( i) and ( i) of sub-section (1) and sub-section (2) shall not be for a 
term of less than six months. 
35.2-3 Offence cognizable  and non-bailable only in specified cases 
 
The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable 
under clause (i) of that sub-section shall be cognizable and non-bailable - section 132(5) of CGST Act. 
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, a l offences under this Act, 
except the offences referred to in section 132(5) (above) shall be non-cognizable and bailable - section 132(4) 
of CGST Act. 
Thus, only offences relating to intentiona ly evading tax and co lecting tax but not paying and where amount 
exceeds Rs 500 lakhs will be cognizable and non-bailable. 
35.2-4 Prosecution only with previous sanction of Commissioner 
 
A person shall not be prosecuted  for any offence under this section except with the previous sanction of 
Commissioner - section 132(5) of CGST Act. 
 
35.3 Cognizance of offences by Magistrate of First Class 
 
No  Court  shall take  cognizance  of  any  offence  punishable  except  with  the  previous  sanction  of  the 
Commissioner, and no Court inferior to that of a Magistrate of the First Class, shall try any such offence - 
section 134 of CGST Act. 
35.4 Presumption of culpable mental  state 
 
In any prosecution for an offence under this Act which requires a culpable mental state on the part of the 
accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to 
prove  the  fact that he  had  no  such mental state  with respect  to  the  act charged  as an offence  in that 
prosecution - section 135 of CGST Act. 
"Culpable mental state" includes intention, motive, knowledge of a fact, and belief in, or reason to believe, a 
fact. 
For the purposes of this section, a fact is said to be proved only when the Court believes it to exist beyond 
reasonable doubt and not merely when its existence is established by a preponderance of probability. 
35.5 Offences by Companies and certain other persons 
 
Where an offence committed by a person under this Act is a company, every person who, at the time the 
offence was committed was in charge of, and was responsible to, the company for the conduct of business of 
the company, as we l as the company, shall be deemed to be guilty of the offence and shall be liable to be 
proceeded against and punished accordingly - - section 137(1) of CGST Act. 
Notwithstanding anything contained in section 137(1), where an offence under this Act has been committed by 
a company and it is proved that the offence has been committed with the consent or connivance of, or is 
attributable to any negligence on the part of, any director, manager, secretary or other officer of the company, 
such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be 
liable to be proceeded against and punished accordi ngly - section 137(2) of CGST Act. 
Company  includes  firm and  director  includes  partner  -(a) "company" means a body corporate  and 
includes a firm or other association of individuals; and(b) "director", in relation to a firm, means a partner in the 
firm. 
Liability of partner,  karta or managing trustee - Where an offence under this Act has been committed by 
Page 5


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 35 - Prosecuti on and compoundi ng 
 
 
 
 
 
CHAPTER 35 
 
Prosecution and compounding 
 
35.1 Civil and criminal liabilities  for Offences 
 
Law without provisions for punishment is like lion without teeth. Like any other law, GST Law provide for 
penalties and punishments for violation of law. 
The word 'Offence' is not defined in Excise law. It is not defined in the Constitution, but Article 367 of the 
Constitution says that unless the context otherwise provides for, words not defined in Constitution, the meaning 
assi gned in the General Sections Act, 1897 may be given. 
Section 3(8) of General Sections Act defines Offence as any act or omission made punishable by any law for 
the time being in force. Section 2(n) of Criminal Procedure Code defines 'offence' as any act or omission made 
punishable by any law for the time being in force'. 
35.1-1 Simultaneous Civil and criminal punishment 
 
The GST Law envisages two types of punishments. These can be simultaneous and concurrent. 
 
Civil Liability - Penalty for violation of statutory provisions i nvolving a penalty of money and confiscation of 
goods. This is a civil penalty and can be adjudged in departmental adjudication. This penalty can be imposed 
by departmental authorities 
In Indo-China Steam Navigation v. Jaswant Singh 1983(13) ELT 1392 = AIR 1964 SC 1140 = 1964(6) 
SCR 594 (SC - 5 member Constitution Bench), it was held that the adjudicating officer is not a Tribunal or 
Court, though he has to act in a quasi-judicial manner. 
Criminal  Liability - Criminal punishment is of imprisonment and fine; which can be granted only in a criminal 
court after prosecution. These are provided in GST law. 
35.1-2 Penalty  and punishment for same offence 
 
Article 20(2) of Constitution of India provides that no person can be prosecuted and punished twice for the 
same offence. 
In Shiv Dutt Rai Fateh Chand v. UOI (1983) 53 STC 289 (SC) = AIR 1984 SC 1194= (1984) 145 ITR 
664 (SC), it was observed that the word 'offence' as mentioned in Article 20 relates to persons who are 
charged with a crime before criminal court. - - It does not include 'penalty' levied under tax laws imposed by 
departmental authorities. A penalty imposed by tax authorities is only a civil liability. 
In Maqbool Hussain v. State of Bombay AIR 1953 SC 325 = 1953 SCR 730 reproduced  in 1983 (13) 
ELT  1284  (SC  Constitution  Bench)  that  proceedi ngs  before  revenue  authorities  are  in the  nature  of 
administrative enquiries. These are di fferent from the proceedings in a criminal court where the enquiry is on 
the basis of evidence tendered on oath. - . - Proceedings before adjudicating authority is not 'prosecution' and 
the order of confiscation is not a 'punishment'. - . - Hence simultaneous punishments through departmental 
adjudication and prosecution in a court of law would not amount to double punishment for the same offence 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
and is not hit by Article 20(2) of the Constitution. Thus, these two types of punishments are independent of 
each other and both can be imposed simultaneously. In other words, a person can be prosecuted in criminal 
court and at the same time penalty can be imposed by departmental authorities for the same offence - quoted 
with approval in Director of Enforcement v. MCT M Corporation  (P.) Ltd. AIR 1996 SC 1100 = 1996 
AIR SCW 636 = 88 Comp Cas 449 = (1996) 2 SCC 471 also fo lowed in Assistant Collector of Customs 
v. L R Malwani - 110 ELT 317 (SC 5 member bench) - similar views in Tiwari Kanhayalal v. CIT - (1975) 
100 ITR 5 (SC) * State of Karnataka  v. Sir Janakusa  J Bakale 1999(113) ELT 375 (SC 3 member 
bench) * Thomas Dana  v. State of Punjab  AIR 1969 SC 375 = 110 ELT 63 (SC 5 member bench) * 
Standard Chartered  Bank v. Directorate  of Enforcement (2006) 67 SCL 2 = 197 ELT 18 (SC 3 member 
bench) * Bharjatiya Steel Industries v. CST (2008) 11 SCC 514 = 13 VST 514 (SC). 
In P. Jayappan  v. S.K. Perumal, First ITO - AIR 1984 SC 1693 = 1984 Supp SCC 437 = 19 Taxman 1= 
149 ITR 696 (SC), it was held that pendency of reassessment proceedings cannot act as bar to the institution 
of criminal prosecution.  The criminal court has no doubt to give due regard to the result of departmental 
proceedings  and in appropriate  case, it may drop the criminal proceedings  in light of an order passed in 
departmental adjudication. However, the decision in departmental adjudication is not binding on the criminal 
court and the criminal court has to judge the case independently on the evidence placed before it. (In this case, 
it was also observed that even if penalty is upheld in departmental adjudication, conviction in criminal court for 
the same offence will not automatica ly fo low) - fo lowed in Madura Chit and Investments (P.) Ltd. v. ITO 
- (1995) 83 Taxman 85 (Mad HC). 
 
In KTMS Mohammed v. UOI - 75 Comp Cas 321 = 65 Taxman 130 = AIR 1992 SC 1831 = (1992) 3 
SCC 178 = 197 ITR 196 = 1992 AIR SCW 2062 (SC), it was held that though criminal court has to judge 
the case independently,  there is no legal bar to give due regard to departmental proceedings.  - . - If the 
departmental authority absolves the party, the very basis of prosecution may be nu lified. - . - Criminal case 
may be kept pending at the discretion of magistrate. 
35.1-3 Departmental adjudication and criminal proceedings independent 
 
Pending criminal matter is not impediment to proceed with the civil suit - State of Rajasthan  v. Kalyan 
Sundaram  - (1996) 86 Comp Cas 433 (SC). * Guru Granth  Saheb Sthan Meerghat  v. Ved Prakash 
(2013) 7 SCC 622. 
Departmental adjudication can proceed even when criminal case is pending as both are independent of each 
other. - Maniklal Pokhraj Jain v. CC (Preventive), Bombay - 1986 (26) ELT 689 (Bom HC) - fo lowed in 
Satyanarayan  v. CCE - 1987 (29) ELT 450 (CEGAT). Same view in Sri Ambal Mills Ltd. v. ACCE - 
1995 (76) ELT 517 (Mad HC). 
 
Departmental  Adjudication  can  continue  even  if a  person  is  acquitted  in  criminal  court  -  CCE  v.  K 
Ranganathan  - 1995 (76) ELT 261 (Mad HC) also in K P Abdul Majeed v. CCE - (1995) 79 ELT 554 
(Mad HC DB) * Rekhi Road Liners v. CC - (1999) 113 ELT 413 (Mad HC DB) * Radha Govind v. CC 
2002(142) ELT 338 (CEGAT). 
 
Even if accused  is  exonerated  in departmental  proceedings,  criminal proceedings  on same  charges  can 
continue - State (NCT of Delhi) v. Ajay Kumar Tyagi (2012) 9 SCC 685. 
35.2 Prosecution for Offences under GST Law 
 
As per section 132(1) of CGST Act, whoever commits any of the fo lowing offences, namely— 
 
(a)   supplies any goods or services or both without issue of any i nvoice, in violation of the provisions of 
this Act or the rules made thereunder, with the intention to evade tax 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
(b)   issues any invoice or Bill without supply of goods or services or both in violation of the provisions of 
this Act, or the rules made thereunder leading to wrongful availment or utilisation of input tax credit 
or refund of tax. 
(c)   avails input tax credit using such invoice or Bill referred to in clause (b). 
(d)   co lects any amount as tax but fails to pay the same to the Government beyond a period of three 
months from the date on which such payment becomes due; 
(e)   evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offence 
not covered under clauses (a) to (d) 
(f)  falsifies or substitutes financial records or produces fake accounts or documents or furnishes any 
false information with an intention to evade payment of tax due under this Act 
(g)   obstructs or prevents any officer in the discharge of his duties under this Act 
(h)   acquires  possession  of,  or  in any way  concerns  himself  in transporti ng,  removing,  depositing, 
keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he 
knows or has reason to believe are liable to confiscation under this Act or the rules made thereunder. 
(i)   receives or is in any way concerned with the supply of, or in any other manner deals with any supply 
of services which he knows or has reason to believe are in contravention of any provisions of this 
Act or the rules made thereunder. 
(j)   tampers with or destroys any material evidence or documents 
(k)  fails to supply any information which he is required to supply under this Act or the rules made 
thereunder or (unless with a reasonable belief, the burden of proving which shall be upon him, that 
the information supplied by him is true) supplies false information; or 
(l)   attempts to commit, or abets the commission of, any of the offences mentioned in sections (a) to (k) 
of this section; 
shall be punishable — 
 
(i)   in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized 
or the amount of ref und wrongly taken exceeds five hundred lakh rupees, with imprisonment for a 
term which may extend to five years and with fine. 
(ii)   in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilized 
or the amount of refund wrongly taken exceeds two hundred lakh rupees but does not exceed five 
hundred lakh rupees, with imprisonment for a term which may extend to three years and with fine. 
(iii)   in the case of any other offence where the amount of tax evaded or the amount of input tax credit 
wrongly availed or utilized or the amount of refund wrongly taken exceeds one hundred lakh rupees 
but does not exceed two hundred lakh rupees, with imprisonment for a term which may extend to 
one year and with fine; 
(iv)  in cases where he commits or abets in the commission of an offence specified in clause (f), (g) or (j), 
with imprisonment for a term which may extend to six months or with fine or with both. 
35.2-1 Repeat  conviction 
 
If any person convicted of an offence under this section is again convicted of an offence under this section, 
then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term 
which may extend to five years and with fine - section 132(2) of CGST Act. 
35.2-2 Minimum punishment for certain offences 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
In the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, 
the imprisonment referred to in clauses (i) ( i) and ( i) of sub-section (1) and sub-section (2) shall not be for a 
term of less than six months. 
35.2-3 Offence cognizable  and non-bailable only in specified cases 
 
The offences specified in clause (a) or clause (b) or clause (c) or clause (d) of sub-section (1) and punishable 
under clause (i) of that sub-section shall be cognizable and non-bailable - section 132(5) of CGST Act. 
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, a l offences under this Act, 
except the offences referred to in section 132(5) (above) shall be non-cognizable and bailable - section 132(4) 
of CGST Act. 
Thus, only offences relating to intentiona ly evading tax and co lecting tax but not paying and where amount 
exceeds Rs 500 lakhs will be cognizable and non-bailable. 
35.2-4 Prosecution only with previous sanction of Commissioner 
 
A person shall not be prosecuted  for any offence under this section except with the previous sanction of 
Commissioner - section 132(5) of CGST Act. 
 
35.3 Cognizance of offences by Magistrate of First Class 
 
No  Court  shall take  cognizance  of  any  offence  punishable  except  with  the  previous  sanction  of  the 
Commissioner, and no Court inferior to that of a Magistrate of the First Class, shall try any such offence - 
section 134 of CGST Act. 
35.4 Presumption of culpable mental  state 
 
In any prosecution for an offence under this Act which requires a culpable mental state on the part of the 
accused, the Court shall presume the existence of such mental state but it shall be a defence for the accused to 
prove  the  fact that he  had  no  such mental state  with respect  to  the  act charged  as an offence  in that 
prosecution - section 135 of CGST Act. 
"Culpable mental state" includes intention, motive, knowledge of a fact, and belief in, or reason to believe, a 
fact. 
For the purposes of this section, a fact is said to be proved only when the Court believes it to exist beyond 
reasonable doubt and not merely when its existence is established by a preponderance of probability. 
35.5 Offences by Companies and certain other persons 
 
Where an offence committed by a person under this Act is a company, every person who, at the time the 
offence was committed was in charge of, and was responsible to, the company for the conduct of business of 
the company, as we l as the company, shall be deemed to be guilty of the offence and shall be liable to be 
proceeded against and punished accordingly - - section 137(1) of CGST Act. 
Notwithstanding anything contained in section 137(1), where an offence under this Act has been committed by 
a company and it is proved that the offence has been committed with the consent or connivance of, or is 
attributable to any negligence on the part of, any director, manager, secretary or other officer of the company, 
such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be 
liable to be proceeded against and punished accordi ngly - section 137(2) of CGST Act. 
Company  includes  firm and  director  includes  partner  -(a) "company" means a body corporate  and 
includes a firm or other association of individuals; and(b) "director", in relation to a firm, means a partner in the 
firm. 
Liability of partner,  karta or managing trustee - Where an offence under this Act has been committed by 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
a taxable person being a partnership firm or a Limited Liability Partnership or a Hindu Undivided Family or a 
trust, the partner or karta or managing trustee, as the case may be, shall be deemed to be guilty of that offence 
and shall be liable to be proceeded against and punished accordingly and the provisions of section 137(2) shall 
apply mutatis mutandis to such persons - section137(3) of CGST Act. 
No punishment if offence without knowledge or when due diligence exercised - Nothing contained in 
this section shall render any such person liable to any punishment provided in this Act, if he proves that the 
offence  was committed  without his knowledge  or that he had exercised  a l due diligence  to prevent the 
commission of such offence - section 137(4) of CGST Act. 
35.6 Compounding of offences 
 
Any offence under the Act may, either before or after the institution of prosecution, be compounded by the 
Competent Authority 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 - 
section 138(1) of CGST Act. 
Compounding  does not  affect  proceedings  under  other  law -  Any compounding  a lowed  under the 
provision of this section shall not affect the proceedi ngs if any, instituted under any other law - second proviso 
to section 138(1) of CGST Act. 
Compounding  only after  tax,  interest  and  penalty  paid  -  Compounding  shall be a lowed  only after 
making payment of tax, interest and penalty i nvolved in such offences - third proviso to section 138(1) of 
CGST Act. 
35.6-1 What  is compounding ? 
 
Fine and imprisonment  can be imposed  only by competent criminal Court. However,  instead of going to 
Court, the offender may agree to pay composition amount. Order for paying composition money can be made 
by quasi-judicial authorities. This is ca led 'compounding of offences'. 
'Compounding' is essentia ly a compromise arrangement between administrator of the enactment and person 
committing an offence. Compounding crime consists of receipt of some consideration (termed as compounding 
fees) in return for an agreement not to prosecute one who has committed an offence - Reliance Industries, In 
re - (1997) 24 CLA 214 (CLB). 
'Compounding' means that the accused and the complainant have come to terms and the dispute between the 
parties has been settled amicably or adjusted by agreement and the complainant agrees not to prosecute the 
accused. If the case is pending, the accused and the complainant then make a joint application to the Court 
that the parties have come to terms and the case may not be proceeded with. 
Thus,  in compounding,  there  is  a  compromise  or  agreement,  while  in case  of imposition  of fine  under 
provisions  of an Act,  there  is no agreement  as such.  Section 320  of Criminal Procedure  Code  permits 
compounding of various offences under Indian Penal Code. 
Such compounding  can be done  either before  or after institution of prosecution.  After payment  of such 
composition amount, prosecution will not be launched, or if it was launched, it will be withdrawn. 
Full  and bona fide disclosure required  for compounding  of offense - In UOI v. Anil Chanana  (2008) 
4 SCC 175 = 222 ELT 481 (SC), it was held that compounding of offences is based on the principle of 
disclosure.  If there are demonstratable  contradictions  or inconsistencies  or incompleteness,  application for 
compounding cannot be entertained. Applicant cannot hoodwink the authority. Applicant has to be a one-time 
evader.  He  has  to  make  a  clean breast  of his  affairs.  Otherwise,  offense  should  not  be  compounded. 
Compounding should be a lowed only in case of doubtful benefit to the Revenue and to prevent needlessly