To make GST regime less onerous, the Centre and states have decided to water down the penal provisions to ensure a trader gets immediate bail if the alleged tax evasion is up to Rs.2 crore.
The GST Council, at its last meeting, has decided that the provision of arrest will be restricted to forgery and non- deposit of collected taxes with the exchequer within the stipulated timeframe.
"In case of offences where the amount does not exceed Rs.2 crore, the person arrested for violation of GST laws will be entitled to bail," an official said, adding that the penal provisions in the GST will be less onerous than the provision in the Indian Penal Code (IPC) for the same type of offences.
Under the IPC 1860, forgery and cheating are non- bailable offence, which means that bail can only be granted by a court.
Most other offences like availing of wrong input tax credit or refund and failure to furnish documents, which were earlier listed in the revised draft GST law for prosecution, will not lead to arrest but may attract only financial penalty.
While in the case of service tax, there is a provision of arrest for non-deposit of the tax beyond Rs.50 lakh with the government, the excise law gives the Commissioner discretion to invoke arrest provision in the case of default.
PwC Leader (indirect tax) Pratik Jain said the arrest provisions as per the revised model GST law may lead to undue harassment for traders.
"To start with, there should be lighter penal provision for offences for at least two years as GST is a new tax regime and traders would need time to understand the law," Jain said.
Though anti-profiteering and prosecution provisions may act as a deterrent for tax evasion, these are likely to do more harm than good under GST, KPMG (India) Partner Indirect Tax Harpreet Singh said.
"Whenever sweeping powers are given to officials with discretion and subjectivity, it is likely to result in rampant misuse of authority creating hardships for GST dealers," Singh said.