Section 132 prosecution: offences, thresholds and compounding

A tax dispute becomes a criminal case at a number. Knowing the number changes the strategy.

Anandaday Misshra, Founder and Managing Partner, AMLEGALS · 8 min read · updated 3 September 2026

The short answer

Section 132 lists the offences, including supplying goods or services without an invoice, issuing an invoice without a supply, availing credit using such an invoice, collecting tax and not paying it, and obstructing an officer. Punishment is graded by the amount of tax evaded, credit wrongly availed or refund wrongly taken, with the highest band attracting imprisonment up to five years, and the offences at the highest band are cognizable and non bailable. Offences may be compounded under Section 138 in the manner and on payment of the amount prescribed, subject to the exclusions.

The structure

The gravity, and the bailable or non bailable character, is determined by the amount involved, with the thresholds set out in the section as amended.

For the specified offences at the highest band, the offence is cognizable and non bailable, which is the trigger for the arrest power under Section 69.

Certain offences are punishable irrespective of the amount, including falsification of records, obstruction of an officer, and tampering with material evidence.

A second or subsequent conviction attracts an enhanced punishment.

Section 137 provides for the liability of a company's officers, with a defence of absence of knowledge or the exercise of due diligence.

The defence

The amount. The threshold determines the gravity, and the department's quantification is frequently overstated by aggregating years, by including interest and penalty, or by counting the same amount twice under two heads. Establishing the correct figure can move the case to a lower band.

The ingredient. Each offence has its own elements, and mens rea is inherent in most of them. A wrong claim, disclosed and reasoned, is not an offence.

The person. Section 137 requires findings specific to the officer proceeded against, and a director without a role in the transactions has a statutory defence.

The documents. These are documentary offences, and the defence is the same three layer evidence file that answers the tax demand — existence, consumption and diligence.

Compounding

Section 138 permits compounding on payment of the compounding amount prescribed, subject to the exclusions, which include the specified offences and persons previously convicted or who have compounded before in the specified circumstances.

Compounding does not remove the tax liability; it closes the prosecution.

The decision is strategic. Where the documentary position is weak and the personal exposure is real, compounding is often the right answer. Where the position is strong, compounding concedes the offence.

The compounding amount and the procedure have been amended, and the current provision must be checked before advising.

What to do on Monday

Establish the correct quantum early; it decides the band, the bailability and the strategy.
Answer each offence's ingredients separately rather than the case as a whole.
For every individual named, file a separate defence on knowledge and diligence.
Evaluate compounding on the documentary strength, and take the decision with the tax case in view.

On your own facts

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 practice

Questions we are asked on this

Can prosecution be launched before the tax demand is adjudicated?

The statute does not require adjudication first, and departments do launch prosecution in parallel. The absence of a determination is a material argument on the ingredient and on quantum.

Is a director automatically liable?

No. Section 137 requires findings specific to the officer, with a defence of absence of knowledge or due diligence.

Does paying the tax end the prosecution?

No. Compounding under Section 138 is the mechanism for closing the prosecution, on the conditions prescribed.

Which offences are non bailable?

The specified offences at the highest amount band. Establish the correct amount first, because the band decides the character.

Is compounding an admission?

It closes the prosecution on payment and is inconsistent with contesting the offence. Take the decision with the tax case in view.

In this cluster

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.