Bare Act text

(1) An applicant may, either before or after the institution of prosecution, make an application under sub-section (1) of section 138 in FORM GST CPD-01 to the Commissioner for compounding of an offence.

What Rule 162 actually asks you to do if you want to compound a GST offence

Rule 162 is a short rule with a simple message: if you are facing a possible or actual GST prosecution, the way to ask for compounding is to fill in FORM GST CPD-01 and submit it to the Commissioner. You do not have to wait for a prosecution to be filed against you — the rule expressly says you can apply either before or after prosecution is instituted. Compounding is not an automatic right to a free pass; it is a scheme under section 138 of the CGST Act where you pay a prescribed amount, and on payment the prosecution against you generally comes to an end. The rule itself only deals with the mechanics of applying — the substance, including which offences can be compounded, the amounts payable, the time limits and what happens if you default on payment, is governed by section 138 and the related rules.

Key definitions

Compounding of an offence

A statutory mechanism that lets a person accused of a (compoundable) GST offence pay a prescribed amount instead of facing prosecution. Once the offence is compounded and the amount is paid, the accused generally cannot be prosecuted again for the same offence.

Commissioner

The senior GST officer designated under the CGST Act who receives and decides compounding applications made under section 138(1) through FORM GST CPD-01.

Institution of prosecution

The point at which criminal proceedings for the GST offence are formally started, typically after a sanction for prosecution. Rule 162 allows an application for compounding either before this point or after it.

FORM GST CPD-01

The prescribed application form used to request compounding of an offence under section 138(1) of the CGST Act. Rule 162 requires that the application be made in this form.

Compounding in GST law: what section 138 provides and what Rule 162 supports

Compounding of GST offences is the substantive power under section 138 of the CGST Act, 2017; Rule 162 prescribes the procedure and the form for invoking that power.

Chapter XIX of the CGST Act, 2017 deals with offences and penalties. Within that scheme, section 138 creates the compounding mechanism: offences under the Act may, subject to conditions and limits, be compounded by paying a prescribed amount instead of continuing (or beginning) a criminal prosecution. Compounding is a genuine alternative to trial — on payment of the compounding amount, the scheme provides that no further proceedings lie and the accused stands discharged of prosecution for that offence.

Section 138 is not unlimited. Certain offences are expressly excluded from compounding, there is a monetary cap tied to the tax involved, and the scheme conditions compounding on the payment of tax, interest and penalty involved in the offence. Rule 162 does not create these rights; it simply tells the applicant how to ask for them — in the prescribed form, to the right authority, at the right stage.

Remember

Rule 162: applying in FORM GST CPD-01 to the Commissioner

The application must be made under section 138(1), in FORM GST CPD-01, to the Commissioner — and timing is flexible: before or after prosecution is instituted.

Rule 162(1) identifies three things the applicant must get right. First, the application is made under sub-section (1) of section 138 of the CGST Act, which means it invokes the substantive compounding power in the Act. Second, it must be in FORM GST CPD-01 — the prescribed application form — and not in a free-form letter. Third, it is addressed to the Commissioner, the officer empowered to compound the offence.

The rule's most practically useful feature is its timing flexibility. A person who anticipates prosecution can apply before proceedings are instituted, potentially avoiding a criminal case altogether. A person against whom prosecution has already been launched can still apply, and if compounding succeeds, the pending prosecution is brought to an end on payment of the compounding amount.

What the application procedure requires

• Identify the offence for which compounding is sought and confirm it is compoundable under section 138.

• File the application in FORM GST CPD-01 addressed to the Commissioner.

• Apply either before prosecution is instituted or after it has begun — both stages are permitted.

• Be prepared to establish that tax, interest and penalty involved in the offence have been paid, since compounding under section 138 is conditioned on those payments.

The wider machinery: timelines, amounts, payment and default

Rule 162 is the entry point; the limits, payment terms and consequences of default come from section 138 itself and the linked rules.

Section 138 does not leave the compounding amount open-ended. It prescribes a formula linked to the tax involved in the offence, sets an overall maximum, and allows the Government to set lower and upper thresholds by notification. The scheme also imposes a time discipline: an application generally has to be made within a prescribed period, and the scheme expressly limits how many times a person can compound offences.

Default has real consequences. If the applicant fails to pay the compounded amount within the time allowed, the compounding fails — and the scheme treats that failure seriously, with the prosecution proceeding as if no compounding had taken place. Repeat offenders face a statutory bar: the benefit of compounding is not available indefinitely, and a person who has already compounded offences may be ineligible for compounding a subsequent offence.

Remember

The offences behind a compounding application: sections 122 and 132

Compounding applications arise out of GST offences — chiefly the serious offences punishable with imprisonment under section 132, with lesser contraventions dealt with by penalty under section 122.

Section 122 of the CGST Act prescribes monetary penalties for a range of contraventions — from not issuing invoices to incorrect availment of input tax credit. These are civil penalty proceedings, not prosecution. Prosecution proper — the criminal process that compounding is designed to cut short — arises under section 132, which criminalises serious GST offences such as tax evasion through fraud or suppression, fake invoices, and wrongful refund claims, with punishments graded by the amount of tax involved.

Rule 162's phrase 'either before or after the institution of prosecution' makes sense against this background. Prosecution is formally instituted only after the competent authority sanctions it, and an accused can seek compounding at either stage. If compounding succeeds before prosecution, no case is filed; if it succeeds afterwards, the pending case is closed on payment.

Civil penalty vs criminal prosecution vs compounding

How the Commissioner's discretion is understood

Compounding is a discretionary benefit, not an entitlement — the Commissioner decides each application on its merits within the statutory limits.

The text of section 138 and Rule 162 makes clear that compounding is something the authority 'may' grant, subject to conditions — which courts have generally read as conferring a discretion on the compounding authority rather than creating an automatic right. An applicant must therefore present a complete and honest application; the authority may decline compounding where the statutory conditions are not satisfied or the offence is not compoundable.

Because the decision is quasi-judicial in character, general principles of natural justice apply to the process — an applicant whose application is being considered, particularly one facing rejection, is ordinarily entitled to a fair opportunity to be heard. However, at the time of writing, no judgment resolving a dispute specifically about section 138 or Rule 162 has been verified for citation here, so readers should treat the application of these general principles to GST compounding as a matter of settled administrative-law practice rather than settled GST-specific precedent.

Practical walkthrough: from notice to compounding

A compounding application succeeds or fails on preparation — eligibility, correct form, full payment readiness and accurate disclosure.

Applying for compounding in practice

1. Confirm eligibility:

   Check that the offence falls within section 138 and is not one of the excluded offences; confirm you have not already exhausted the statutory limit on compounding offences.

2. Prepare FORM GST CPD-01:

   Fill in the prescribed form with accurate particulars of the offence, the taxpayer identity and the stage of proceedings.

3. Settle underlying dues:

   Ensure the tax, interest and penalty involved in the offence have been paid, since section 138 conditions compounding on those payments.

4. Submit to the Commissioner:

   File the completed application with the Commissioner having jurisdiction, whether prosecution is pending or merely anticipated.

5. Respond and pay:

   Engage with any queries from the authority; if compounding is granted, pay the compounded amount within the prescribed time to obtain the full benefit.

6. Track the outcome:

   If compounding is granted and payment completed, prosecution for that offence is closed; if payment defaults, the prosecution process resumes.

Example

Common mistakes

Related provisions

Practical checklist

1. Verify the offence is compoundable

   Read section 138 carefully to confirm that the offence in question is not among the excluded categories and that the statutory cap on compounding has not already been used up.

2. File FORM GST CPD-01 to the Commissioner

   Complete the prescribed form accurately and submit it under section 138(1); timing can be before or after prosecution is instituted.

3. Pay underlying tax, interest and penalty

   Section 138 conditions compounding on payment of the dues involved in the offence, so arrange these payments before or along with the application.

4. Pay the compounded amount promptly

   Once compounding is granted, pay the full compounded amount within the prescribed time — default means the compounding fails and prosecution can proceed.

Frequently asked questions