Election campaigns are a source of misinformation where politicians advance their election agendas by misrepresenting legal issues. The general public is oblivious and lacks the resources to verify and fact-check these claims and accept such affirmations as indisputable truth. In a recent press conference, Mr. Arvind Kejriwal made Ten Promises to the Citizens of this Nation, among which one was to remove Goods and Services Tax Network (GSTN) from Prevention of Money Laundering Act (PMLA) to resuscitate freedom of doing business in the country. He criticized the current regime for fostering an environment of fear among business owners of being prosecuted for Goods and Services Tax (GST) offences under PMLA after the Central Government notified the inclusion of GSTN under PMLA on 7th July 2023.
This notification caused a frenzy among the opposition parties in various states, raising apprehensions that this decision was detrimental to the interests of small traders and against the basic fundamentals of decriminalizing violations under GST Act. Opposition parties’ spokespersons misinterpreted the objective of the notification, generating a significant uproar by claiming that it would allow the sharing of information about GST taxpayers by GSTN which is the technology backbone of GST with the investigating authorities like the Enforcement Directorate (ED). Whereas the correct interpretation of the notification would show that Tax authorities were the recipients of the information under it, the real intent of this notification was to allow the Financial Intelligence Unit (FIU) to share information about possible instances of tax evasion and money laundering with the Tax authorities, empowering them with relevant data to initiate proceedings of their own.
Mehmet Murat Ildan once said, “The politicians of your country will always try to encircle you with the high walls of lies! You must know that the truth is beyond the walls and without meeting the truth you cannot meet the freedom!”
Therefore, it becomes important for the people to be legally informed, as false assertions by politicians are likely to influence the voting spirit of the citizens.
Interplay of Tax Evasion and Money Laundering
It is important to highlight the interlink between Tax evasion and Money Laundering to understand the intent of the notification. Tax Evasion is an offence under the Central Goods and Services Tax Act, whereas PMLA punishes a person who is involved in any process or activity connected with the proceeds of crime. Tax Evasion is a source of illicit income, i.e., proceeds of crime, that can be laundered through various means. On the other hand, money laundering can be used as a way to integrate the illicit earnings into the mainstream economy. Upon successfully integrating the earnings, the source of such funds may be concealed to evade taxes. Hence, the relationship between Tax Evasion and Money laundering is succinct and careful study of the two offences show that one can lead to the other.
Legality of the Notification
PMLA provides three types of information exchange and collection, the first is intelligence collection, the second is evidence collection, and the third is sharing some evidence with the concerned authority/body which has the power under any law to investigate further. The notification is with regard to the third type of information exchange that is entailed under Section 66 of the PMLA.
Section 66 has two parts under Sub-section 1, the first part explains that during an investigation of an offence under PMLA if the Enforcement Directorate is informed about a violation of laws related to tax, duty, cess, dealings in foreign exchange, or prevention of illicit traffic in narcotic drugs and psychotropic substances under the Narcotic Drugs and Psychotropic Substances Act, 1985 it has the power to share that information with any officer, authority/body performing functions under any law. The second part confers the power upon the central government to add such authority/body for the purpose of disclosing information.
A bare reading of the Section 66 clarifies the doubt related to the legality and purpose of the notification. No such requirement of the parliamentary debate or a GST council Meet before issuing the notification forms a part of this provision.
Does the notification reclassify GST offenses as Money Laundering under the PMLA?
ED has the power to enforce the PMLA, offences under PMLA are Scheduled and Predicate offences i.e. offences listed in the Schedule to the PMLA. A Scheduled Offence must be a Predicate Offence which means it must be registered with the competent authorities for the PMLA to come into effect, such as offences under Indian Penal Code, Companies Act, Wildlife Protection Act, Arms Act and Narcotic Drugs and Psychotropic Substances (“NDPS”) Act. As previously mentioned, Money Laundering involves using the proceeds of crime which serves as a Predicate Offence in cases under the PMLA. The Predicate Offence is essential to trigger the provisions of PMLA. Whereas offences under the GST are not classified as Scheduled or Predicate offences.
It is pertinent to understand the scope of the powers of ED with respect to the offences under GST. ED may use its wide-ranging power to investigate the offence of Tax Evasion under GST whenever there is an ongoing investigation of a Scheduled Offence under PMLA and the ED is informed about a violation of GST, in such a case the ED has the power to continue the investigation. Whereas, ED does not have an extensive power to investigate the GST crimes as standalone crimes.
Above analysis makes it abundantly clear that the notification in no way hampers the freedom of doing business in India. This is a step in the right direction to strengthen the existing communication flow between the different government departments.
Clarification from the Central Government
During the 50th meeting of GST council, Revenue Secretary Mr. Sanjay Malhotra cleared the doubts of the opposition states, he mentioned that the provision informed under the notification is a requirement of the Financial Action Task Force (FATF) and reaffirmed that the intent of the Notification was to allow the FIU to share information relating to GST Violations with the Tax authorities to empower them for conducting seamless investigations.
Conclusion
Despite the clarification sought by the Opposition, the National Leader of Aam Aadmi Party continues to make promises which can easily deceive the innocent citizens. When people holding positions of responsibility and who are also the flag bearers of truth and integrity make such irresponsible claims, general public is compelled to lose faith in the political system. It shall be the responsibility of not only the citizens to be informed but the media channels to highlight the right from the wrong as the broadcast media enjoys the viewership of the majority of the population in India voting today.
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References:
- Uday Singh Ahlawat, Guneet Mayall, Uday Singh Ahlawat, & Guneet Mayall. (2023, September 1). Prevention of Money Laundering & GST: Continuum. Bar And Bench - Indian Legal News.
- ENS Economic Bureau. (2023, July 12). GST Council meet: Opposition states raise concerns over inclusion of GSTN under PMLA. The Indian Express.
- Parliament of India. (2003). THE PREVENTION OF MONEY-LAUNDERING ACT, 2002. In THE PREVENTION OF MONEY-LAUNDERING ACT, 2002.
- Lies Politics Quotes (59 quotes). (n.d.).
- Tavares, R. (2013). Thematic Paper on Money Laundering: Relationship between Money Laundering, Tax Evasion and Tax Havens.
- MINISTRY OF LAW AND JUSTICE. (2017). THE CENTRAL GOODS AND SERVICES TAX ACT, 2017 [Legal Document]. In THE CENTRAL GOODS AND SERVICES TAX ACT, 2017.
- PTI, & PTI. (2023, July 11). TN opposes inclusion of GSTN under Money Laundering Act’s purview, says it will affect small traders. The New Indian Express.
- ET Bureau. (2023, July 11). Centre allays concerns of states over inclusion of GST network under PMLA. The Economic Times.
- ET Bureau. (2023b, July 12). Bringing GSTN under PMLA will lead to tax terrorism: Congress. The Economic Times.
- Annapoorna. (2023, February 8). Offences and Penalties under GST. Cleartax.