Compounding of offences under Section 138
A route out of prosecution, on payment, subject to exclusions. It closes the criminal case, not the tax case.
Section 138 permits the Commissioner, on payment of the compounding amount, to compound any offence under the Act, either before or after the institution of prosecution, subject to the exclusions and conditions prescribed. The exclusions include specified offences and persons who have previously compounded in the circumstances stated. On compounding, no further proceedings shall be initiated for the same offence and any prosecution already instituted shall stand abated. The compounding amount and the procedure have been amended and the current provision must be verified.
What compounding does and does not do
It closes the prosecution for the compounded offence, and abates a prosecution already instituted.
It does not extinguish the tax, interest or penalty liability, which continues under the ordinary provisions.
It is available before or after prosecution is instituted, which means the decision can be taken at different stages, with different consequences for the criminal record.
It is not available for the excluded offences and persons, and the exclusions are the first thing to check.
The decision
Where the documentary position is weak and personal exposure is real, compounding is frequently the right answer, because the cost of a criminal trial to an individual exceeds the compounding amount.
Where the documentary position is strong, compounding concedes the offence and should be resisted.
The tax case must be considered together with it. Compounding an offence relating to a transaction while contesting the tax on the same transaction is a position that requires care.
The compounding amount is prescribed, and after the amendments it is computed by reference to the tax involved. Verify the current computation before advising.
What to do on Monday
Check the exclusions before considering compounding at all.
Compute the compounding amount under the current provision and compare it with the cost of trial.
Take the compounding decision and the tax decision together, not separately.
Where the documentary position is strong, defend rather than compound.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Does compounding remove the tax liability?
No. It closes the prosecution only.
Can any offence be compounded?
No. The specified offences and persons are excluded. Check the exclusions first.
Can we compound after a prosecution has begun?
Yes, and the prosecution abates on compounding.
Is compounding an admission for the tax case?
It sits uncomfortably with contesting the tax on the same transaction. Take the two decisions together.
How is the amount computed?
As prescribed by the provision as amended, by reference to the tax involved. Verify the current computation.
In this cluster
- Section 128A: the waiver that is arithmetic, not amnesty
- SPL-01 and SPL-02: filing the Section 128A waiver application correctly
- Withdrawing an appeal to access the waiver: the sequencing risk
- Amnesty for revocation of cancelled registrations
- Late fee waivers for GSTR-9 and GSTR-10
- Should you settle or litigate? A decision framework
- Section 128A waiver: the eligibility and savings working sheet
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.