Section 137 at a Glance
Contents
1. Statutory Text of Section 137
(1) Where an offence committed by a person under this Act is a company, every person who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any negligence on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
(3) Where an offence under this Act has been committed by a taxable person being a partnership firm or a Limited Liability Partnership or a Hindu Undivided Family or a trust, the partner or karta or managing trustee shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly and the provisions of sub-section (2) shall, mutatis mutandis, apply to such persons.
(4) Nothing contained in this section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
Explanation.—
(i) “company” means a body corporate and includes a firm or other association of individuals; and
(ii) “director”, in relation to a firm, means a partner in the firm.
Section 137 is part of Chapter XIX dealing with offences, penalties, prosecution and compounding. CBIC's published CGST Act reproduces the four sub-sections and the Explanation defining “company” and “director” for this section. citeturn0search24
2. Section 137 Explained in Simple Language
A company is a legal person, but it can only conduct business through human beings. GST returns are prepared by employees, invoices are issued through accounting systems, payments are approved by management, registrations are maintained by tax teams, and business decisions are taken by directors and officers.
Section 137 provides rules for deciding when a GST offence committed by a company can result in prosecution not only of the company but also of individuals connected with the company's conduct of business.
The section contains two important routes:
- Sub-section (1): focuses on persons who were in charge of and responsible to the company for the conduct of its business at the time of the offence.
- Sub-section (2): separately addresses directors, managers, secretaries and other officers where the offence is proved to have occurred with their consent or connivance, or is attributable to their negligence.
3. Section 137(1): Person in Charge and Responsible for Conduct of Business
Sub-section (1) applies where the offence committed under the CGST Act is a company offence. It identifies two parties:
| Party | Position under Section 137(1) |
|---|---|
| The company | The company itself is deemed guilty and can be proceeded against and punished according to law. |
| Relevant natural persons | Persons who, at the time the offence was committed, were in charge of and responsible to the company for the conduct of its business are also deemed guilty and can be proceeded against and punished accordingly. |
Why the words “at the time the offence was committed” matter
Liability is connected to the period when the alleged offence occurred. A person's role, authority and responsibility during the relevant period therefore become important factual issues.
Why “in charge of” and “responsible to” matter
The section does not simply say that every person employed by a company is liable. It identifies persons who were in charge of and responsible to the company for the conduct of its business at the relevant time.
4. Section 137(2): Consent, Connivance or Negligence
Sub-section (2) operates “notwithstanding” sub-section (1). It addresses a separate factual route by which specified officers may be deemed guilty.
| Term | Plain-language meaning | Practical question |
|---|---|---|
| Consent | Agreement to the conduct. | Did the officer agree to or authorise the conduct forming the offence? |
| Connivance | Knowingly allowing or being involved in wrongful conduct. | Did the officer knowingly permit or facilitate the conduct? |
| Negligence | Failure to exercise required care where the offence is attributable to that negligence. | Did the offence result from the officer's negligence? |
The section specifically names a director, manager, secretary or other officer. The relevant question is not merely the person's title but whether the statutory requirements are established in the case.
5. Section 137(3): Partnership Firm, LLP, HUF and Trust
Section 137 is not limited to companies in the ordinary corporate sense. Sub-section (3) deals specifically with taxable persons that are:
- Partnership firms
- Limited Liability Partnerships (LLPs)
- Hindu Undivided Families (HUFs)
- Trusts
| Taxable person | Person specifically addressed |
|---|---|
| Partnership firm | Partner |
| LLP | Partner |
| HUF | Karta |
| Trust | Managing trustee |
Sub-section (3) says that the relevant person shall be deemed guilty and liable to be proceeded against and punished accordingly, and that sub-section (2) applies mutatis mutandis to such persons.
6. Section 137(4): Defence of No Knowledge or Due Diligence
Sub-section (4) is an important statutory protection. It says that the section does not make such a person liable to punishment if the person proves either of the following:
What can “due diligence” look like in a business?
The Act does not provide a universal checklist of due diligence for every business. Depending on the facts, evidence of a functioning control environment may include:
- maker-checker controls for GST returns;
- documented GST review procedures;
- reconciliation of sales, purchase and tax ledgers;
- approval limits and segregation of duties;
- periodic review by senior finance personnel;
- internal audit observations and corrective actions;
- training and written instructions to responsible staff;
- review of unusual transactions and high-risk vendors;
- escalation of known GST exceptions to management;
- evidence that identified errors were investigated and corrected.
7. Definitions in the Explanation
7.1 “Company”
For Section 137, “company” means a body corporate and includes a firm or other association of individuals.
This statutory definition is broader than using the word “company” only in the everyday sense of a private limited or public limited company.
7.2 “Director” in relation to a firm
The Explanation provides that, in relation to a firm, “director” means a partner in the firm.
8. Section 137(1) vs Section 137(2)
| Point | Sub-section (1) | Sub-section (2) |
|---|---|---|
| Who is addressed? | Company and persons in charge of and responsible to the company for conduct of business. | Director, manager, secretary or other officer. |
| Main factual focus | Responsibility for conduct of company business at the time of offence. | Consent, connivance or negligence attributable to the person. |
| Timing | Relevant role is assessed when the offence was committed. | Relevant conduct/consent/connivance/negligence must be established in relation to the offence. |
| Does title alone decide liability? | No; the statutory responsibility and facts matter. | No; the section requires the specified basis of liability. |
In practice, the two provisions can overlap. A person may be responsible for the conduct of business and there may also be evidence concerning consent, connivance or negligence. The exact allegations should therefore be read carefully rather than assuming that one label determines the entire case.
9. Practical Examples
A company is prosecuted for an offence involving false invoices. Evidence shows a responsible officer knowingly approved the arrangement. Section 137(2) may become relevant because consent or connivance is one of the statutory grounds.
A person was specifically responsible for the company's GST compliance and business tax operations when the alleged offence occurred. The role and actual responsibilities may become relevant under Section 137(1).
A director holds a board position but another team has operational responsibility for GST. The actual role, knowledge, delegations, controls and evidence are relevant; being described as a director does not by itself answer every Section 137 question.
A tax team repeatedly escalates a serious GST compliance issue and management knowingly ignores it. Depending on the facts and evidence, the conduct may raise questions concerning negligence or other statutory grounds under Section 137(2).
An employee secretly creates false records contrary to company controls and without the knowledge of relevant management. The company's controls, the employee's authority, management knowledge and due-diligence evidence can all become important.
A company has documented controls, independent review, periodic reconciliation and escalation procedures, but an employee deliberately bypasses them. Those records may be relevant to a person's claim that all due diligence was exercised, subject to the facts of the case.
A partnership firm commits a GST offence. Section 137(3) specifically addresses partners and applies the relevant provisions of sub-section (2) with necessary changes.
An LLP is the taxable person involved in the alleged offence. The partners fall within the specific language of Section 137(3), subject to the statutory requirements.
Where the taxable person is an HUF, Section 137(3) identifies the karta for the statutory treatment described in the provision.
Where the taxable person is a trust, Section 137(3) identifies the managing trustee for the statutory treatment described there.
A person joins or leaves the organisation around the time of the alleged offence. The relevant period, actual responsibility and date of the alleged conduct become important factual questions.
The board delegates GST operations to a specific executive and the executive has operational control. The delegation documents, actual conduct and compliance evidence can help establish who was responsible for the relevant business function.
A return contains a genuine clerical error that is later corrected. Section 137 does not itself convert every GST error into a criminal offence; there must first be an offence under the Act and the applicable facts must be established.
A large company has a CFO, finance head, tax head, regional finance managers and accounting staff. Section 137 analysis should identify actual responsibility and the specific allegations rather than treating every senior employee as equally responsible.
An officer did not explicitly approve the conduct but repeatedly failed to act despite relevant responsibilities and warnings. Depending on the evidence, the issue may be examined as negligence rather than consent.
A person demonstrates that the offence occurred without his knowledge and produces supporting evidence. Section 137(4) expressly provides a defence where the person proves the offence was committed without his knowledge.
10. What Evidence Can Matter in a Section 137 Issue?
There is no single document that decides every Section 137 case. Depending on the allegations, the following categories can help establish responsibility, knowledge, controls or due diligence:
| Evidence category | Possible relevance |
|---|---|
| Board resolutions | Allocation of responsibilities and authority. |
| Organisation charts | Reporting structure and functional responsibility. |
| Job descriptions | Formal scope of a person's role. |
| Delegation letters | Specific authority delegated to executives or employees. |
| GST return approvals | Who prepared, reviewed and approved filings. |
| Emails and escalation records | Knowledge of an issue and action taken after escalation. |
| Reconciliation reports | Whether tax data was periodically checked. |
| Internal audit reports | Identification of risks and management response. |
| ERP audit trails | Who created, modified or approved relevant records. |
| Training records | Compliance instructions and staff awareness. |
| Corrective-action records | Whether identified issues were investigated and corrected. |
11. Company-Level GST Controls to Reduce Section 137 Risk
A robust GST control environment helps a company detect errors early and also creates evidence that management took compliance seriously.
Monthly GST management checklist
- Reconcile outward supplies with books and GST returns.
- Review tax liability and payment reconciliation.
- Reconcile purchase records with available GST data and identify exceptions.
- Review unusual credit notes, refunds, ITC and tax adjustments.
- Review e-invoice/e-way bill exceptions where applicable.
- Document material exceptions and responsible owners.
- Track unresolved GST notices and investigations.
- Record management review and corrective action.
12. How Section 137 Fits Into a GST Prosecution Workflow
CBIC's prosecution instructions specifically discuss Section 137 when prosecution is proposed against a legal person and natural persons. The instructions emphasise examination of the persons in charge, responsible persons, and evidence concerning consent, connivance or negligence. citeturn0search26
14. Common Misunderstandings
“Every director is automatically guilty of a GST offence committed by the company.”
Section 137 should not be reduced to that statement. The statutory conditions in sub-sections (1) and (2), and the defence in sub-section (4), matter.
“Only the company can be prosecuted.”
Section 137 expressly contemplates liability of specified natural persons as well as the company.
“Every employee is liable because the employee works for the company.”
No. The section focuses on specified responsibility and, in sub-section (2), consent, connivance or negligence.
“A director's title alone proves consent or connivance.”
No. Consent, connivance or attributable negligence must be established for the route described in sub-section (2).
“If an offence occurred, there is no possible defence for an officer.”
Section 137(4) expressly provides the no-knowledge and due-diligence defence.
“Due diligence means having a GST policy on paper.”
A written policy may be useful, but actual implementation, monitoring, escalation and corrective action can be important evidence.
“Section 137 itself creates the GST offence.”
No. The underlying offence comes from another provision, such as Section 132 or another applicable provision. Section 137 deals with attribution of liability in the circumstances stated there.
“A clerical mistake automatically becomes criminal liability.”
No. Criminal liability requires an offence under the Act and the applicable statutory ingredients. Section 137 does not convert every mistake into an offence.
15. Questions People Commonly Search
- What is Section 137 of the CGST Act?
- What is Section 137 GST in simple language?
- What is offences by companies under GST?
- Can a director be prosecuted for a GST offence?
- Is a company and director both liable under GST?
- What is director liability under Section 137 CGST Act?
- What is consent or connivance under GST prosecution?
- What is due diligence defence under Section 137?
- Are all directors liable for GST offences?
- What is Section 137(4) CGST Act?
- Does Section 137 apply to LLP and partnership firms?
- What is liability of partner under Section 137 GST?
- What is liability of karta under GST offences?
- What is managing trustee liability under GST?
- Section 137 vs Section 132 CGST Act?
- How can a company maintain GST prosecution compliance records?
16. Frequently Asked Questions
1. What is Section 137 of the CGST Act?
Section 137 deals with offences by companies and specifies circumstances in which a company and certain persons associated with it may be deemed guilty and proceeded against.
2. Can a company itself be prosecuted?
Yes. Section 137(1) expressly provides for the company to be deemed guilty and liable to be proceeded against and punished accordingly where the statutory conditions apply.
3. Can a director be prosecuted?
A director may fall within Section 137 depending on the applicable sub-section and facts. Under sub-section (2), consent, connivance or negligence attributable to the director is specifically addressed.
4. Are all directors automatically liable?
No. The actual statutory conditions, role, responsibility and evidence must be considered.
5. What does “in charge of and responsible to the company” mean?
It refers to the person's responsibility for the conduct of the company's business at the time of the offence. Actual role and responsibility can therefore be important.
6. What is consent under Section 137(2)?
It refers to an offence being committed with the person's consent, subject to proof of the statutory requirement.
7. What is connivance?
In ordinary language, it concerns knowingly allowing or being involved in wrongful conduct. The exact legal application depends on the facts and evidence.
8. What is negligence under Section 137?
Section 137(2) addresses an offence attributable to negligence on the part of a director, manager, secretary or other officer. Whether negligence is established depends on the facts.
9. What is the defence under Section 137(4)?
A person can avoid punishment under the section if the person proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the offence.
10. Does Section 137 apply to LLPs?
Yes. Section 137(3) specifically covers taxable persons that are LLPs and addresses partners.
11. Does Section 137 apply to partnership firms?
Yes. Section 137(3) specifically covers partnership firms and partners.
12. Does Section 137 apply to HUFs?
Yes. Section 137(3) specifically addresses an HUF and its karta.
13. Does Section 137 apply to trusts?
Yes. Section 137(3) specifically identifies the managing trustee for a taxable person that is a trust.
14. Does changing a director after an offence remove liability?
Changing the office-holder does not by itself decide the issue. Section 137 focuses on the relevant period and statutory conditions.
15. What documents help demonstrate due diligence?
Depending on the facts, evidence can include tax review procedures, reconciliations, approvals, escalation emails, audit records, training, internal controls and corrective-action documentation.
16. Is Section 137 the same as Section 132?
No. Section 132 specifies punishable GST offences and punishment categories, while Section 137 deals with attribution of offences by companies and specified persons.
17. Is Section 137 a tax demand provision?
No. It is part of the offences/prosecution framework and should not be confused with ordinary tax assessment, demand or penalty provisions.
18. Does every GST return error create Section 137 liability?
No. There must first be an applicable offence under the Act, and the requirements for attributing that offence to the relevant company/person must also be considered.
17. Quick Revision – Section 137
- Section 137 = Offences by companies.
- Under 137(1), the company and persons in charge of and responsible to the company for conduct of business at the time of the offence are addressed.
- Under 137(2), a director, manager, secretary or other officer can be addressed where consent, connivance or attributable negligence is proved.
- 137(3) covers partnership firms, LLPs, HUFs and trusts, identifying partners, karta and managing trustee as applicable.
- 137(4) provides a defence where the person proves lack of knowledge or that all due diligence was exercised to prevent the offence.
- The Explanation defines “company” broadly for this section.
- In relation to a firm, “director” means a partner.
- Section 137 does not itself create the underlying GST offence; the relevant offence provision must also be identified.
- Actual responsibility, knowledge, consent, connivance, negligence and compliance controls can be important factual issues.
- Sections 132 to 138 should be read together when analysing GST prosecution matters.
18. Legal Disclaimer
This page is provided for general educational and compliance-workflow purposes. GST law, rules, notifications, circulars, instructions, evidence law, criminal procedure and judicial interpretation can change, and the legal position can depend on the facts, date, jurisdiction and exact proceeding. Before taking a tax, accounting, litigation or criminal-law decision, verify the law applicable to the relevant period and obtain professional advice where appropriate. This page is not a substitute for professional legal advice.