Section 138 lets an accused settle a GST offence by paying a compounding amount, after paying the tax, interest and penalty. Compounding ends the prosecution, but is not available for issuing invoices without supply.
Key points
- Under section 138(1) of the CGST Act, 2017 any offence may be compounded by the Commissioner, before or after prosecution, on payment of the compounding amount, after the tax, interest and penalty have been paid.
- Compounding is not available to a person who has once compounded an offence under clauses (a)–(f), (h), (i) or (l) of section 132(1); to a person accused of issuing invoices without supply (clause (b)); to a person convicted by a court; or to prescribed classes (first proviso, as substituted from 01.10.2023).
- The compounding amount is between 25% and 100% of the tax involved (from 01.10.2023; earlier between Rs. 10,000 or 50% of tax and Rs. 30,000 or 150% of tax, whichever was higher) (section 138(2)).
- On payment, no further proceedings may be initiated for the same offence and pending criminal proceedings abate (section 138(3)).
The provisions
138(1)–(3)Compounding of offences
Statutory text
(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.
*Enforced w.e.f . 1st July, 2017
1. 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).
2. 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).
3. 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).
4. 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).
5. 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).
- Rule 162, CGST Rules; Forms GST CPD-01, CPD-02
Statutory text as published on the CBIC tax information portal, as on 03.10.2026; the numbered notes record each amendment. Official source
Common questions
- Can a GST offence be compounded?
- Yes, under section 138 of the CGST Act on paying 25% to 100% of the tax involved, after paying tax, interest and penalty — except for issuing invoices without supply and for repeat offenders.
Commentary and case notes checked against the judgments and CBIC sources on 04.10.2026.
What it means
The application is in Form GST CPD-01 and the order in CPD-02 (Rule 162). Compounding under the CGST Act does not affect proceedings under any other law (second proviso).