Compounding of offences
Section 138, CGST Act
Straight from CBIC
Official source, not a summary of a summary
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Amendment history
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Section 138 allows COMPOUNDING of offences (paying a compounding amount to avoid prosecution) on payment of tax, interest and penalty – not available for certain repeat or specified serious offences; the compounding amount is capped as prescribed.
What this means in practice
The parts that actually decide cases — the things a practitioner checks first.
Compounding is NOT available for the fake-invoice offence under 132(1)(b), for a person who has already compounded once for an offence above Rs 1 crore, or where the offence is also an offence under the NDPS, FEMA or similar laws.
The Finance Act 2023 reduced the compounding amount to between twenty-five and one hundred per cent of the tax involved, from the earlier fifty to one hundred and fifty per cent.
Apply in CPD-01 before or after prosecution begins; the order is CPD-02, and payment must follow within thirty days. Tax, interest and penalty must be paid first.
Compounding ends the prosecution but does not undo the demand or the penalty already confirmed.
Questions people actually ask
Real questions we get on this provision, answered straight.
Is compounding worth it if prosecution has been launched?+
Often yes – the compounding amount is now twenty-five to one hundred per cent of the tax, against the risk of imprisonment and a criminal record, and it closes the prosecution. It is not available for fake invoicing under 132(1)(b), for a second compounding above Rs 1 crore, or where the conduct is also an offence under specified other laws.
How this provision is built
The skeleton, clause by clause — useful when a notice cites a specific sub-clause.
The exact words of the law
1,756 characters, uneditedReproduced from the CBIC text. We explain it above — but you should always be able to read it yourself.
Read the full provision+
(1) Any offence under this Act may, either before or after the institution of prosecution, be compounded by the Commissioner on payment, by the person accused of the offence, to the Central Government or the State Government, as the case be, of such compounding amount in such manner as may be prescribed : Provided that nothing contained in this section shall apply to- 1 [
(a) a person who has been allowed to compound once in respect of any of the offences specified in clauses
(a) to (f), (h),
(i) and
(l) of sub-section
(1) of section 132;]
(b) 2 [****]; 3 [
(c) a person who has been accused of committing an offence under clause
(b) of sub-section
(1) of section 132;]
(d) a person who has been convicted for an offence under this Act by a court;
(e) 4 [****] and
(f) any other class of persons or offences as may be prescribed: Provided further that any compounding allowed under the provisions of this section shall not affect the proceedings, if any, instituted under any other law: Provided also that compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences.
(2) The amount for compounding of offences under this section shall be such as may be prescribed , subject to the minimum amount not being less than 5 [twenty-five per cent. of the tax involved and the maximum amount not being more than one hundred per cent. of the tax involved].
(3) On payment of such compounding amount as may be determined by the Commissioner, no further proceedings shall be initiated under this Act against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.
High Court cases on this section
Judgments in our index that cite this provision. Being listed does not make a case good law — it may have been appealed or distinguished since. Read it before relying on it.
HARISH WADHWANI v. DIRECTORATE GENERAL OF GOODS AND SERVICE TAX INTELLIGENCE/DGGI,
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KAMALPREET SINGH v. STATE(DIRECTORATE GENERAL OF GST INTELLIGENCEW) CHD
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SANTOSH WADHWANI v. DIRECTORATE GENERAL OF GOODS AND SERVICE TAX INTELLIGENCE/DGGI
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RAMAN KUMAR CHAURASIA AND ANOTHER v. DIRECTORATE GENERAL OF GST INTELLIGENCE, LUDHIANA AND ANOTHER
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DIPANSHU ANAND v. PRINCIPAL COMMISSIONER, CENTRAL GST LUDHIANA AND ANOTHER
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DEEPAK GOYAL v. INSPECTOR (ANTI-EVASION), CGST COMMISSIONERATE, LUDHIANA
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AMIT GUPTA v. DIRECTORATE GENERAL OF GST INTELLIGENCE
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What changed, and when
The amendment trail, newest first — because the version that applies to your case depends on the period.
2023-10-01 · Substituted
28/2023 – CT
Substituted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023 – CT dated 31st july, 2023 . ) by s. 157 of The Finance Act 2023 (No. 8 of 2023).
2023-10-01 · Omitted
28/2023 – CT
Omitted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023 – CT dated 31st july, 2023. ) by s. 157 of The Finance Act 2023 (No. 8 of 2023).
2023-10-01 · Substituted
28/2023 – CT
Substituted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023 – CT dated 31st july, 2023 . ) by s. 157 of The Finance Act 2023 (No. 8 of 2023).
2023-10-01 · Omitted
28/2023 – CT
Omitted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023 – CT dated 31st july, 2023 . ) by s. 157 of The Finance Act 2023 (No. 8 of 2023).
2023-10-01 · Substituted
28/2023 – CT
Substituted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023 – CT dated 31st july, 2023 . ) by s. 157 of The Finance Act 2023 (No. 8 of 2023).
Where this comes from
Text reproduced from the Central Board of Indirect Taxes and Customs, as available on 2026-09-05. The explanation and practice notes above are GSTZone’s own, written for this hub. If you spot anything out of date, tell us and we’ll fix it — this hub is checked daily against CBIC.
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