Section 137 of the Central Goods and Services Tax Act, 2017 deals with offences by companies and the liability of persons associated with those companies.
The provision is important because a company is a separate legal person, but GST offences may involve the actions or omissions of particular individuals responsible for the conduct of the company’s business. Section 137 establishes when the company itself, and when particular individuals such as directors, managers, secretaries or other officers, can be treated as guilty of an offence under the CGST Act.
The section also extends a similar framework to partnership firms, Limited Liability Partnerships (LLPs), Hindu Undivided Families (HUFs) and trusts. At the same time, it provides a statutory defence where the person proves that the offence was committed without their knowledge or that they exercised all due diligence to prevent its commission.
What Is Section 137 of the CGST Act?
Section 137 is titled “Offences by companies.”
The provision contains four sub-sections:
- Section 137(1) deals with a company and persons who were in charge of and responsible for the conduct of its business.
- Section 137(2) deals with directors, managers, secretaries and other officers where the offence was committed with their consent or connivance or was attributable to their negligence.
- Section 137(3) extends the framework to partnership firms, LLPs, HUFs and trusts.
- Section 137(4) provides a defence based on lack of knowledge or due diligence.
The provision is primarily relevant to criminal prosecution for offences under the GST law, particularly offences covered by Section 132. CBIC’s prosecution instruction specifically explains that, in the case of companies, both the legal person and relevant natural persons can be liable for prosecution under the CGST Act.
Why Is Section 137 Important?
A company acts through human beings.
For example, a company may have:
- directors;
- a chief executive;
- finance officers;
- tax professionals;
- managers;
- authorised signatories;
- accountants; and
- other employees.
If an offence is committed in connection with the company’s business, the law must determine who can be proceeded against.
Section 137 provides that framework.
It does not simply say that every employee or every director is automatically guilty. Instead, it identifies particular circumstances in which individuals can be treated as guilty and also provides a defence where the statutory conditions are satisfied.
Section 137(1) – Liability of Company and Persons in Charge
Section 137(1) provides that where an offence under the CGST Act has been committed by a company, every person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business, as well as the company, shall be deemed to be guilty of the offence.
Such persons can therefore be proceeded against and punished in accordance with the Act.
This subsection contains two important components:
- The company itself.
- Every person who was in charge of and responsible to the company for the conduct of its business at the relevant time.
Example
Suppose Company A commits an offence under the CGST Act during FY 2025-26.
At the time of the offence, a particular person was responsible for managing the company’s relevant business operations.
If the statutory requirements of Section 137(1) are satisfied, both the company and the person falling within the provision may be proceeded against.
The relevant question is not simply whether the individual held a particular job title. The statutory test focuses on whether the person was in charge of and responsible to the company for the conduct of its business.
What Does “In Charge of and Responsible to the Company” Mean?
This expression is important because Section 137 does not make every person associated with a company automatically liable.
The statutory language focuses on the person’s actual responsibility for the conduct of the company’s business at the time the offence was committed.
Therefore, the position of the person, their responsibilities and their involvement in the relevant business activities can become important when applying Section 137.
A person should not be treated as automatically liable merely because their name appears somewhere in the company’s records.
The specific statutory conditions have to be examined.
Timing Is Important Under Section 137(1)
Section 137(1) refers to a person who, at the time the offence was committed, was in charge of and responsible to the company for the conduct of its business.
Therefore, the relevant period matters.
Example
Suppose an alleged GST offence relates to conduct in January 2025.
A person became a director of the company in January 2026.
The fact that the person is a director when prosecution is later initiated does not by itself establish that the person was in charge of and responsible for the company’s business when the alleged offence was committed.
The relevant facts and statutory requirements must be examined with reference to the time of the offence.
Section 137(2) – Consent, Connivance or Negligence
Section 137(2) creates another basis for individual liability.
It applies where:
- an offence under the CGST Act has been committed by a company; and
- it is proved that the offence was committed with the consent or connivance of, or was attributable to the negligence of, a director, manager, secretary or other officer of the company.
In such a case, that director, manager, secretary or other officer is also deemed to be guilty of the offence and can be proceeded against and punished accordingly.
This subsection is distinct from Section 137(1).
Consent
Consent refers to circumstances in which the relevant officer agreed to or authorised the conduct associated with the offence.
Example
Suppose a company’s responsible officer knowingly approves a GST transaction that results in an offence under the Act.
If the required elements are proved, the officer’s consent may become relevant under Section 137(2).
Connivance
Connivance refers to involvement in or tacit cooperation with the conduct constituting the offence.
It can involve a situation where an officer knowingly permits or participates in conduct that results in the offence.
The actual facts and evidence must be examined in each case.
Negligence
Section 137(2) also covers an offence attributable to the negligence of a director, manager, secretary or other officer.
This means that individual liability can arise where the offence is attributable to the person’s negligence, subject to the requirements of the provision.
However, the statutory defence under Section 137(4) remains relevant where the person can establish that the offence occurred without their knowledge or that they exercised all due diligence to prevent it.
Section 137(1) vs Section 137(2)
The two provisions should not be confused.
| Section | Main basis |
|---|---|
| Section 137(1) | Person was in charge of and responsible to the company for conduct of its business at the time of the offence |
| Section 137(2) | Offence was committed with the consent or connivance of, or was attributable to negligence of, a director, manager, secretary or other officer |
Both provisions can result in individual liability, but the statutory basis is different.
Liability of Directors
A director can come within Section 137 in different circumstances.
For example, a director may be relevant under Section 137(1) if the director was in charge of and responsible to the company for the conduct of its business.
A director may also be covered by Section 137(2) where the offence is proved to have been committed with the director’s consent or connivance or is attributable to the director’s negligence.
Therefore, being a director and being liable under Section 137 are not necessarily identical concepts.
The particular role and circumstances have to be examined.
Liability of Managers
Managers are expressly mentioned in Section 137(2).
Where an offence has been committed by a company and the statutory requirements concerning consent, connivance or negligence are established, a manager may be deemed guilty under the provision.
A manager’s actual responsibilities and involvement can therefore become important in determining the applicability of Section 137.
Liability of Secretaries
A secretary is also specifically mentioned in Section 137(2).
If the conditions of that subsection are satisfied, a secretary can be proceeded against in relation to the offence.
Again, the provision requires examination of the relevant circumstances rather than treating the job title alone as conclusive.
Other Officers
Section 137(2) also covers “other officer” of the company.
Therefore, the provision is not restricted only to directors, managers and secretaries.
If another officer falls within the statutory requirements concerning consent, connivance or negligence, Section 137(2) may apply.
Section 137(3) – Partnership Firm, LLP, HUF and Trust
Section 137(3) extends the framework beyond companies.
It provides that where an offence under the CGST Act has been committed by a taxable person being:
- a partnership firm;
- a Limited Liability Partnership;
- a Hindu Undivided Family; or
- a trust,
the relevant partner, karta or managing trustee, as applicable, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Section 137(3) also provides that the provisions of Section 137(2) apply mutatis mutandis to such persons.
What Does “Mutatis Mutandis” Mean?
The expression “mutatis mutandis” means that the relevant provisions apply with the necessary changes required by the different context.
Therefore, Section 137(2)’s framework concerning consent, connivance and negligence is applied correspondingly to the persons identified under Section 137(3).
Partnership Firm
Where the taxable person is a partnership firm and an offence is committed, Section 137(3) specifically addresses the liability of the partner.
This should be read along with the statutory explanation to Section 137, under which “director” in relation to a firm means a partner in the firm.
Limited Liability Partnership
An LLP is expressly included in Section 137(3).
Therefore, the provision does not apply only to traditional partnership firms.
An LLP that is a taxable person can also fall within the company-offence framework specified by Section 137.
Hindu Undivided Family
Where the taxable person is an HUF, Section 137(3) refers to the karta.
The karta is therefore the person specifically identified by the provision for the purposes of the statutory framework.
Trust
Where the taxable person is a trust, Section 137(3) identifies the managing trustee.
The provision therefore recognises different forms of taxable persons and identifies the corresponding responsible person for the offence framework.
Section 137(4) – Defence of No Knowledge or Due Diligence
Section 137(4) provides an important protection.
It states that nothing in Section 137 shall make a person liable to punishment under the CGST Act if that person proves:
- the offence was committed without the person’s knowledge; or
- the person had exercised all due diligence to prevent the commission of the offence.
This subsection is important because Section 137 does not eliminate the possibility of a statutory defence.
Defence Based on Lack of Knowledge
A person may seek to establish that the offence was committed without their knowledge.
For example, suppose a person associated with a company did not know about a particular transaction that was carried out by another part of the organisation.
If the person can establish the relevant statutory defence, Section 137(4) may protect that person from punishment under the section.
The actual defence depends on the evidence and circumstances.
Defence Based on Due Diligence
The second defence is based on due diligence.
A person may establish that they exercised all due diligence to prevent the commission of the offence.
This is important for businesses because effective internal controls, supervision and compliance systems can be relevant to demonstrating the steps taken to prevent GST violations.
What Is Due Diligence?
Section 137 does not provide a detailed checklist defining due diligence.
In practical terms, businesses should maintain appropriate compliance controls such as:
- GST return review;
- invoice verification;
- reconciliation of tax records;
- review of input tax credit;
- approval procedures;
- tax compliance monitoring;
- proper accounting systems;
- employee training;
- internal audits; and
- documented corrective actions.
Whether these steps establish the statutory defence depends on the facts of the particular case.
Section 137 Does Not Automatically Make Every Director Guilty
This is an important point for companies.
Section 137 should not be read as saying that every director of every company is automatically guilty whenever the company commits a GST offence.
Section 137(1) refers to persons who were in charge of and responsible to the company for the conduct of its business at the time of the offence.
Section 137(2) separately refers to consent, connivance or negligence of specified officers.
Section 137(4) provides a defence based on lack of knowledge or due diligence.
Therefore, the statutory conditions must be examined for the particular individual.
Company and Individual Liability Can Coexist
Section 137 allows liability to extend to both the company and relevant individuals.
CBIC’s prosecution instruction specifically states that, in cases involving companies, both the legal person and the natural person can be liable for prosecution under Section 132 when the requirements of Section 137 are satisfied.
This means that prosecution of an individual does not necessarily replace prosecution of the company.
Both may be proceeded against where the law permits.
Relationship Between Section 137 and Section 132
Section 132 of the CGST Act identifies specified GST offences and provides punishments for them.
Section 137, on the other hand, deals with who can be treated as guilty when an offence is committed by a company or certain other taxable persons.
A simplified way to understand the relationship is:
Section 132 → Specifies GST offences and punishments
Section 137 → Addresses attribution of those offences to companies and responsible individuals
CBIC’s prosecution instructions specifically discuss Section 137 in the context of prosecution under Section 132.
Section 137 and Criminal Prosecution
Section 137 is particularly relevant where the GST authorities consider prosecution for an offence.
CBIC’s prosecution instruction states that where prosecution against a legal person, including a natural person, is proposed, the requirements of Section 137 must be considered.
The instruction also requires the relevant authorities to examine the evidence and identify the persons who can properly be proceeded against.
Therefore, Section 137 is not simply a provision about ordinary GST tax assessment.
It is closely connected with the prosecution framework under the GST law.
Prosecution Does Not Mean Automatic Conviction
Being proceeded against under Section 137 does not itself mean that the person has been convicted.
The provision concerns who may be deemed guilty and proceeded against and punished according to law.
Actual criminal liability is ultimately determined through the applicable legal and judicial process.
This distinction is important when discussing GST prosecution involving company directors or officers.
Example – Company Offence
Suppose Company A commits a GST offence.
At the relevant time:
- Person X is responsible for the company’s business operations.
- Person Y is a director but has no role in the relevant operations.
- Person Z is a finance manager who knowingly approved the relevant transaction.
Section 137 may operate differently for each person.
Person X may fall within Section 137(1) if the statutory requirements are satisfied.
Person Z may be relevant under Section 137(2) if the offence is proved to have been committed with Z’s consent or connivance or is attributable to Z’s negligence.
Person Y cannot be treated as automatically guilty merely from the fact of holding the position of director; the applicable statutory requirements and evidence must be examined.
Example – Due Diligence Defence
Suppose a company has implemented:
- multiple-level invoice verification;
- GST return reconciliation;
- ITC review;
- compliance approvals;
- internal audit procedures; and
- documented employee controls.
An employee nevertheless commits an offence without the knowledge of a particular responsible officer.
If the officer can establish that the offence occurred without their knowledge or that they exercised all due diligence to prevent it, Section 137(4) may become relevant.
Whether the defence succeeds depends on the evidence.
Explanation to Section 137 – Meaning of Company
Section 137 contains an important Explanation.
For the purposes of the section, “company” means a body corporate and includes a firm or other association of individuals.
This definition is important because the word “company” in Section 137 is broader than the ordinary understanding of a company incorporated under company law.
It specifically includes:
- a body corporate;
- a firm; and
- other associations of individuals.
Meaning of Director in Relation to a Firm
The Explanation also states that “director”, in relation to a firm, means a partner in the firm.
This provision helps adapt the terminology of Section 137 to the structure of a partnership firm.
It should be read together with Section 137(3), which specifically addresses partnership firms, LLPs, HUFs and trusts.
Section 137 and Compliance Responsibility
Section 137 highlights why companies need clearly documented GST responsibilities.
A company should identify:
- who supervises GST compliance;
- who approves tax returns;
- who reviews ITC;
- who controls invoicing;
- who handles GST notices;
- who maintains tax records; and
- who has authority over tax-related transactions.
Proper allocation of responsibilities can help establish a stronger compliance framework.
Importance of Internal Controls
A GST compliance system should ideally include documented controls for:
GST Registration
Verify that registrations are accurate and updated.
Tax Invoices
Check that invoices contain the required information and reflect actual supplies.
Input Tax Credit
Review eligibility and supporting documents before claiming ITC.
Returns
Reconcile return data with books and other GST records.
Payments
Ensure tax liabilities are discharged within applicable timelines.
Reconciliations
Regularly reconcile:
- books;
- GSTR-1;
- GSTR-3B;
- electronic ledgers;
- purchase records; and
- other relevant GST data.
Review of Notices
GST notices should be escalated to the appropriate tax and legal personnel.
These controls do not automatically establish a Section 137 defence, but they are relevant to maintaining responsible GST compliance.
Section 137 and Former Directors or Officers
Because Section 137(1) refers to the person who was in charge of and responsible to the company at the time the offence was committed, the relevant period is important.
A person who joins the company later should not automatically be treated as responsible for conduct that occurred before their involvement.
Similarly, a person who has left the company may still need to be considered in relation to an offence committed during the period when they had the relevant responsibility.
The facts of the case and the person’s actual role during the relevant period are important.
Section 137 and Company Restructuring
Changes such as:
- appointment of new directors;
- resignation of directors;
- change of managers;
- restructuring of departments; or
- changes in tax responsibility
can make the timing of the alleged offence particularly important.
Companies should therefore maintain proper records of management responsibilities and authorisations.
Section 137 and Partnership Firms
For a partnership firm, Section 137(3) must be considered along with the Explanation to Section 137.
A partner may come within the statutory framework, and the provisions of Section 137(2) apply mutatis mutandis.
This means that the firm’s structure and the partner’s role should be examined rather than relying solely on a generic assumption about partnership liability.
Section 137 and LLPs
LLPs are specifically mentioned in Section 137(3).
Therefore, an LLP is not outside the scope of the provision merely because it has a separate legal structure.
The statutory framework specifically provides for offences committed by a taxable person that is an LLP.
Section 137 and HUF
For an HUF, the provision specifically refers to the karta.
The karta may therefore be relevant when an offence is committed by an HUF that is the taxable person.
The due-diligence and lack-of-knowledge framework under Section 137(4) remains relevant to the extent applicable.
Section 137 and Trusts
For a trust, Section 137(3) identifies the managing trustee.
Where the statutory conditions are met, the managing trustee can be proceeded against under the framework provided by Section 137.
Section 137 vs Section 89
Section 89 deals with the liability of directors of private companies for certain unpaid tax, interest and penalty of the company.
Section 137 is different.
| Provision | Main subject |
|---|---|
| Section 89 | Liability of directors of private companies for specified tax, interest and penalty dues |
| Section 137 | Criminal offence attribution and prosecution involving companies and responsible persons |
Section 89 concerns a particular liability to pay tax, interest or penalty.
Section 137 concerns offences and the persons who may be treated as guilty of those offences.
Section 137 vs Section 88
Section 88 deals with liability in the case of a company in liquidation.
Section 137 deals with offences by companies.
Therefore:
- Section 88 → company liquidation and specified liability;
- Section 137 → offences committed by companies and associated persons.
These provisions operate in different legal contexts.
Section 137 vs Section 132
| Section 132 | Section 137 |
|---|---|
| Specifies GST offences and punishments | Deals with attribution of offences to companies and responsible persons |
| Focuses on the offence itself | Focuses on company and individual responsibility |
| Provides punishment provisions | Determines who may be deemed guilty in specified circumstances |
| Criminal offence provision | Corporate/officer liability provision |
The two provisions therefore work together in GST prosecution matters.
Practical Compliance Checklist for Companies
Companies should consider the following GST compliance measures:
- Clearly assign GST responsibilities.
- Maintain written compliance procedures.
- Review GST returns before filing.
- Reconcile books with GST returns.
- Verify input tax credit claims.
- Maintain proper tax invoices and supporting documents.
- Monitor GST payments and liabilities.
- Maintain records of approvals and reviews.
- Train employees handling GST matters.
- Maintain evidence of internal controls.
- Record corrective actions when discrepancies are identified.
- Preserve relevant records for the statutory retention period.
- Properly document changes in GST responsibility.
- Respond to GST notices within the applicable time.
- Seek professional advice when a matter may involve prosecution.
Key Takeaways of Section 137
Section 137 can be understood through the following points:
- Section 137 deals with offences by companies.
- It is part of Chapter XIX of the CGST Act dealing with offences and penalties.
- Section 137(1) can make both the company and persons in charge of and responsible for the conduct of its business liable to be proceeded against.
- The relevant responsibility is examined at the time the offence was committed.
- Section 137(2) covers directors, managers, secretaries and other officers where consent, connivance or negligence is established.
- Section 137(3) extends the framework to partnership firms, LLPs, HUFs and trusts.
- It identifies the partner, karta or managing trustee, as applicable.
- Section 137(4) provides a defence based on lack of knowledge or due diligence.
- A director is not automatically guilty merely because the person holds the office of director.
- The actual role and statutory conditions must be examined.
- Company liability and individual liability can coexist.
- Section 137 is particularly relevant to prosecution under Section 132.
- “Company” is defined broadly for Section 137 to include a body corporate, firm or other association of individuals.
- “Director” in relation to a firm means a partner.
- Proper GST internal controls can be important for demonstrating compliance and due diligence.
- Section 137 is different from Section 89, which concerns specified liability of directors of private companies for tax, interest and penalty.
- Section 137 is also different from Section 88, which deals with liability in the case of a company in liquidation.
- Being proceeded against under Section 137 does not itself mean that a person has been convicted; the applicable legal process determines criminal liability.
Conclusion
Section 137 of the CGST Act establishes an important framework for dealing with criminal offences committed by companies and certain other taxable persons.
The provision recognises that a company operates through individuals. Accordingly, where an offence is committed by a company, Section 137(1) can extend liability to persons who, at the time of the offence, were in charge of and responsible to the company for the conduct of its business, in addition to the company itself.
Section 137(2) separately addresses directors, managers, secretaries and other officers where the offence is proved to have been committed with their consent or connivance or is attributable to their negligence. Section 137(3) extends the framework to partnership firms, LLPs, HUFs and trusts, while Section 137(4) provides an important defence where the person proves that the offence was committed without their knowledge or that they exercised all due diligence to prevent it.
The section should therefore not be understood as making every director, manager or employee automatically responsible for every GST offence committed by a company. The statutory conditions, the person’s role, the timing of the alleged offence, the available evidence and any applicable defence must be considered.
For businesses, Section 137 also highlights the importance of maintaining effective GST compliance systems, clearly assigning responsibilities, documenting reviews and maintaining evidence of due diligence. CBIC’s prosecution instructions specifically require the relevant authorities to consider Section 137 when deciding against which legal and natural persons prosecution may be pursued.
Section 137 should be read together with Sections 132, 138 and other provisions of Chapter XIX, because Section 132 identifies specified GST offences and punishments, while Section 137 addresses the attribution of such offences to companies and responsible persons.
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