GST Offenses, Penalties, Appeals Under GST

Page Contents

BRIEF INTRODUCTION

As per the Union Budget 2021, which was presented on 1^st February 2021, the following provisions were inserted in respect of penalty and appeal –

The section 50 of the CGST Act 2017, was amended and it provides for a retrospective charge of interest on net cash liability and the said charge shall be effective from 1st July 2017.
Where the orders involve detention and seizure of goods and conveyance under section 130, an amount equal to 25% of penalty needs to be paid for making an application of appeals under section 107 of the CGST Act.

It is to be noted that for the effective implementation of any tax law, there is a need for having a strict action against tax offenders. Thus, to have effective implementation of India’s new GST tax regime, the government implemented a three-pronged approach involving interest, monetary penalties, and prosecution.

PENALTY

Where any offense has been committed, a penalty is required to be paid under GST laws. The penalty depends upon the various parameters –

1. Under Sec 122(1), the following defaults involve a penalty of Rs 10,000 or the amount of tax involved, whichever is higher.

- - Supply of goods/services without issuing an invoice or issuing an incorrect or false invoice.
  - Issuing an invoice without supplying goods and/or services.
  - TDS deducted but not deposited with the government.
  - TCS collected but not deposited with the government.
  - TDS deducted in contravention with the provisions.
  - TCS collected in contravention with the provisions.
  - Claiming of full or partial input tax credit without receiving the goods and/or services.
  - Refund of tax obtained by fraud.
  - Distributing the input tax credit in a manner against the prescribed standards.
  - Submitting fake financial records, or producing fake accounts, documents ad returns.
  - Liable to take registration, but fails to take one.
  - False information is furnished in the registration application.
  - Not allowing an officer from performing their duties.
  - Transfer of taxable goods through conveyance, without proper documents
  - Suppressing the turnover, with the intention to evade tax
  - Failure in maintaining proper books of accounts and documents
  - Supplying of goods where the goods are liable for confiscation
  - Failure to furnish information as required by the CGST/SGST officers.
  - Issuance of invoice or document using GSTIN of another person.
  - Tampering with material evidence crucial for proceeding.
  - The Tampering with any goods, detained, seized, or attached, as an evidence in a proceeding.

Where any information is required from an electronic commerce operator under Sec. 122, and the supplier fails to furnish the required information, a penalty of Rs 25000 be levied.
CGST Act provides for a reduction in penalties where the default involve failure to pay or underpays the tax owed erroneously, provided the same is not done deliberately by fraud, wilful misstatement, or the suppression of facts. In this case, the penalty levied could be reduced to 10 percent of the tax to be paid, provided the same shall not be less than Rs 10,000.
Offence where the person is not involved in any evasion directly but is a party to evasion or fails to attend summons or produce necessary documents. Penalty would be up to Rs 25,000.
Default in providing the information return, a penalty of Rs 100 per day, subject to a maximum of Rs 5,000 rupees.
Person fails to furnish statistics or wilfully furnishes false statistics; the penalty would be –

- First-time offense – Rs 10,000
- Continuing offense – Rs 10,000 plus Rs 100 per day starting from the second day of default, subject to maximum of Rs 25,000 rupees.

Where no specific penalty provided in the law, the amount of penalty be Rs 25,000.

It can be seen that the amount of penalty in GST regime has increased substantially than that in the earlier tax laws. This shows that the government is pretty much serious regarding proper GST compliance. However, the government has provided for certain relief and exemption for penalty as well. These are as follows –

1. The penalty shall not be levied, where the amount of default of tax is less than Rs 5,000 rupees and documentation errors are easily rectifiable.

1. Proper safety nets have been established, to determine the degree and severity of a breach.

1. Penalty be imposed only after issuing a show cause notice or giving the assessee, a chance to be heard.

1. Any sought of voluntary disclosure by a person to a tax authority, regarding any default, be considered as a mitigating
  factor for levy of penalty.

GST Return Penalty

LATE FILING OF RETURN

The default related to late filing attracts late fees. The amount being Rs. 100 per day of default. The said amount is applicable for each type of GST, thus the effective rate comes out to be Rs. 200/day, subject to the maximum of Rs. 5,000. However, no late fee is levied on IGST.

Apart from the late fee, an interest @ 18% per annum is also required to be paid.

NON-FILING OF RETURN

Where the GST return is not filed, the provision for subsequent filing of other returns is not provided. Thus, late filing leads to a piling of burden, resulting in heavy fines and penalty.

INSPECTION

Under the GST Act, the inspection can be initiated where, the Joint Commissioner of SGST/CGST, have the reasons to believe that to evade tax, a person has suppressed any transaction or claimed excess input tax credit. In such a case, the Joint Commissioner can authorize any other officer, to inspect places of business of the suspected evader.

SEARCH & SEIZURE

The Joint Commissioner has the authority to order for a search. However, the same can be ordered, where he has the reasons to believe that –

some goods have been confiscated.
There is any documents or account which is hidden somewhere and the same useful during proceedings.

GOODS IN TRANSIT

Under this, the person carrying the goods of value exceeding Rs. 50,000 is required to carry the following documents:

The invoice or bill of supply of the goods/service along with the delivery challan.
Copy of e-way bill, properly filed by the supplier and the transporter.

The proper officer can intercept goods in transit and have an inspection of the goods and the documents. Where the goods are found to be in contravention of the GST Act, such goods, related documents, and the vehicle will be seized. And the goods be released only on payment of tax and penalty.

CONFISCATION OF GOODS OR CONVEYANCE

The following defaults lead to the confiscation of goods and/or conveyances and involves a penalty of Rs 10,000 or an amount equal to the tax evaded.

Failing in accounting for the goods on which the tax is to be paid.
Supplying or receiving goods in contravention with any provisions or rules.
Supply undertaken with the intention to evade tax.
Supplying any goods liable to tax without registering them.
Using a conveyance to deliver taxable goods in breach of any provisions or rules.

It is to be noted that the prosecution provisions are much harsher than the monetary penalty.

PERIOD OF IMPRISONMENT

TYPE OF OFFENCE	AMOUNT OF DEFAULT.	PERIOD OF IMPRISONMENT	APPLICATION OF FINE
CERTAIN OFFENSES SPECIFIED IN THE ACT	EXCEEDING RS 500 LAKHS	UP TO 5 YEARS AND NON-BAILABLE	APPLICABLE
CERTAIN OFFENSES SPECIFIED IN THE ACT	EXCEEDING RS 200 LAKHS UP TO RS 500 LAKHS	UPTO 3 YEARS	APPLICABLE
ANY OTHER OFFENSE	EXCEEDING RS 100 LAKHS UP TO RS 200 LAKHS	UPTO 1 YEAR	APPLICABLE
ASSISTS THE COMMISSION OF CERTAIN SPECIFIED OFFENSES		UP TO 6 MONTHS	APPLICABLE
REPETITION OF OFFENSE		UPTO 5 YEARS	APPLICABLE

COMPOUNDING OF OFFENCES UNDER GST

Compounding of offenses is a method to avoid litigation. Where any prosecution for an offense is pending in a criminal court, the accused is required to appear before the Magistrate at every hearing through an advocate. Such an activity involves time and money.

Now, in the compounding, the accused is not required to appear personally and can discharge the liability by making the payment of compounding fee that is capped to the maximum fine as applicable under GST.

Thus, compounding will save time and money. However, the compounding under GST shall not be available where the amount involved exceeds 1 crore.

PROSECUTION

Prosecution involves conducting of legal proceedings against someone in respect of a criminal charge. Where a person with a deliberate intention to fraud, commits an offence, shall be liable to prosecution under GST, and shall face criminal charges. Some of these cases are as follows –

Issuance of invoice without supplying any goods/services and claiming the input credit or refund by fraud.
Obtaining refund under CGST/SGST by fraud.
submission fake financial records/documents or files, and fake returns to evade tax.
Assisting another person to commit fraud under GST.

ARREST

Where the Commissioner of CGST/SGST believes that a person has committed a certain offense, he can make an order for the arrested under GST Act. The arrested person shall be informed about the grounds for the arrest and once arrested, the said person be appeared before the magistrate within 24 hours of arrest.

APPEALS

Where a person is unhappy with any decision or order passed against him under GST can apply for the appeal against such decision. The first appeal can be made against the order of the adjudicating authority and the same be filed with the First Appellate Authority.

Where the aggrieved person is not happy with the decision of the First Appellate Authority they can appeal to the National Appellate Tribunal, if still not satisfied, they can go to the High Court, and if still unsatisfied, the last resort is to appeal to the Supreme Court.

To avoid such a long process of appeal and litigation, the taxpayer may apply for the advance ruling under GST, where they can seek clarification from GST authorities on GST treatment before starting the proposed activity.

FAQs GST OFFENSES, PENALTIES & APPEALS

What is the definition of offence under GST?

Offence is the breach of any law or rule and provisions prescribed under the GST Act and Rules.

What are the different types of offences prescribed under GST?

Under Sec 122(1), the following defaults involve a penalty of Rs 10,000 or the amount of tax involved, whichever is higher.

Supply of goods/services without issuing an invoice or issuing an incorrect or false invoice.
Issuing an invoice without supplying goods and/or services.
TDS deducted but not deposited with government.
TCS collected but not deposited with the government.
TDS deducted in contravention with the provisions.
TCS collected in contravention with the provisions.
Claiming of full or partial input tax credit without receiving the goods and/or services.
Refund of tax obtained by fraud.
Distributing the input tax credit in a manner against the prescribed standards.
Submitting fake financial records, or producing fake accounts, documents ad returns.
Liable to take registration, but fails to take one.
False information furnished in the registration application.
Not allowing an officer from performing their duties.
Transfer of taxable goods through conveyance, without proper documents
Suppressing the turnover, with the intention to evade tax
Failure in maintaining proper books of accounts and documents
Failure to furnish information as required by the CGST/SGST officers.
Supplying of goods where the goods are liable for confiscation
Issuance of invoice or document using GSTIN of another person.
Tampering with material evidence crucial for proceeding.
Tampering with any goods, detained, seized, or attached, as an evidence in a proceeding.

What does penalty mean under GST?

Penalty has not been specifically defined in GST; however, a penalty is a punishment imposed by law for committing of an offence or failing to do something.

Some common offence and penalty –

SR.NO	SECTION	PARTICULARS	TYPE OF DEFAULT	SECTION OF DEFAULT	AMOUNT OF PENALTY
1.	RULE 18 OF THE CGST RULES,2017	DISPLAY OF REGISTRATION CERTIFICATE AND GSTIN ON THE BOARD, WHERE THE PERSON UNDERTAKES BUSINESS ACTIVITIES.	FAILURE TO DISPLAY THE REGISTRATION NUMBER AND GSTIN ON THE BOARD OF PRINCIPAL PLACE OF BUSINESS.	SECTION 125 OF THE CGST ACT, 2017.	RS.25,000/-
2	RULE 5 (1) OF THE CGST RULES,2017	THE PERSON OPTING FOR COMPOSITION LEVY TO MENTION THE WORDS “COMPOSITION TAXABLE PERSON, AND SHALL NOT COLLECT TAX ON SUPPLIES”, ON THE TOP OF THE BILL OF SUPPLY, PLACE OF BUSINESS AND ANY OFFICIAL COMMUNICATIONS.	FAILURE TO COMPLY WITH THE PROVISIONS APPLICABLE ON COMPOSITE TAXPAYERS.	RULE 125 OF THE CGST RULES, 2017.	RS.25,000/-
3	SECTION 22 & SECTION 24 OF THE CGST ACT,2017	LIABILITY TO GET REGISTERED UNDER GST WHERE THE AGGREGATE TURNOVER EXCEEDS RS.20 LACS AND RS.10 LACS AND IS THE SUPPLIER IS LIABLE TO TAKE COMPULSARY REGISTRATION.	FAILURE TO GET REGSITERED.	SECTION 122 OF THE CGST ACT,2017	RS.10,000/-
4	RULE 31(1) & (2) OF TH CGST RULES,2017	THE SUPPLIER SHALL ISSUE THE INVOICE BEFORE THE DATE ON WHICH THE SAID INVOICE IS OUGHT TO BE ISSUED. ALSO, THEY SHALL NOT ISSUE INVOICE WITHOUT MAKING THE SUPPLY.	FAILURE TO ISSUE INVOICE WITHIN THE DUE DATE, OR ISSUED INVOICE WITHOUT MAKING SUPPPLY.	SECTION 122 OF THE CGST ACT, 2017.	RS.10,000/- OR AMOUNT EQUAL TO THE TAX EVADED.
5	RULE 46 OF THE CGST RULES,2017	EVERY INVOICE ISSUED BE SIGNED BY THE AUTHORIZED SIGNATORY.	INVOICE NOT AUTHORISED BY THE AUTHORIZED SIGNATORY.	SECTION 122 OF THE CGST ACT,2017	RS.10,000/-
6	SECTION 49 (8) OF THE CGST ACT,2017	AMOUNT OF TAX COLLECTED, BE DEPOSITED WITH THE GOVERNMENT WITHIN THE PRESCRIBED PERIOD.	AMOUNT COLLECTED BUT NOT PAID TO GOVERNMENT EVEN AFTER THE PERIOD OF THREE MONTHS.	SECTION 122 OF THE CGST ACT,2017	RS.10,000/- OR AMOUNT EQUAL TO THE TAX EVADED.
7	SECTION 70 OF THE CGST ACT,2017	A SUMMON CAN BE ISSUED BY THE PROPER OFFICER FOR THE REPRESENTATION BY THE TAXPAYER FOR PROVIDING CERTAIN INFORMATION.	THE TAXPAYER DOESNOT APPEAR IN FRONT OF PROPER OFFICER, AFTER RECEIVING THE SUMMON.	SECTION 122 (3) OF THE CGST ACT,2017	RS.25,000/-
8	SECTION 68(1) OF THE CGST ACT,2017	INSPECTION OF GOODS IN TRANSIT OF VALUE EXCEEDING RS.50,000/-	SUPPLY OF GOODS IN TRANSIT WITHOUT PROPER DOCUMENTATION.	RULE 138 OF THE CGST RULES, 2017	RS.10,000/-
9	SECTION 150 OF THE CGST ACT, 2017.	THE TAXPAYER IS REQUIRED TO FURNISH THE INFORMATION RETURN.	FAILS TO FURNISH INFORMATION RETURN.	SECTION 123 OF THE CGST ACT,2018	RS.10,000/-
10	RULE 59(1) OF THE CGST RULES,2017 AND 61 (5) OF THE CGST RULES,2017	FURNISH OF MONTHLY RETURN FOR DETAILS OF OUTWARD SUPPLIES OF GOODS OR SERVICES AND THE OUTWARD AND INWARD SUPPLIES, DETAILS OF ITC AND THE DUTY LIABILITY.	NON-FILING OF GSTR 1 BEFORE THE DUE DATE,		LATE FEES RS.20 PER DAY FOR NIL RETURNS. AND RS.50 (RS.25 CGST + RS.25 SGST) PER DAY FOR OTHER RETURNS.
11	SECTION 16 OF THE CGST ACT,2017	NO REGISTERED PERSON IS ENTITLED TO AVAIL ITC UNLESS THE PERSON IS IN RECEIPT OF DUTY PAYING DOCUMENTS.	CLAIMING ITC ON THE BASIS OF FAKE DOCUMENT OR NON-RECEIPT OF GOODS OR SERVICES.		RS.10,000/- OR 100% OF ITC AVAILED WHICH IS HIGHER + INTEREST @24% p.a.
12	SECTION 35 OF THE CGST ACT,2017 AND RULE 56 OF THE CGST RULES,2017	PROPER MAINTENANCE OF ACCOUNTS AND RECORD IN THE PRINCIPAL PLACE OF BUSINESS AND BRANCHES AS WELL.	FAILURE TO MAINTAIN MANDATORY RECORDS.	SECTION 122 OF THE CGST ACT,2017	RS.25,000/-
13	SECTION 51 OF THE CGST ACT,2017	SUPPLIER REQUIRED TO DEDUCT TDS AND DEPOSIT IT WITH GOVERNMENT.	FAILS TO DEDUCT TDS AND PAY TO THE GOVERNMENT.	SECTION 122 OF THE CGST ACT,2017	RS.10,000/- HOWEVER, THIS SECTION HAS BEEN POSTPONED TILL JUNE’18
14	SECTION 52 OF THE CGST ACT,2017	TCS REQUIRED TO BE COLLECTED BY THE E-COMMERCE OPERATORS AN THE SAME BE DEPOSITED WITH THE GOVERNMENT.	FAILS TO COLLECT TCS AND PAY TO THE GOVERNMENT.	SECTION 122 OF THE CGST ACT,2017	RS.10,000/- HOWEVER, THIS SECTION HAS BEEN POSTPONED TILL JUNE’18
15	SECTION 125 OF THE CGST ACT,2017	GENERAL PENALTY PROVISION UNDER CGST ACT, 2017.	WHERE THE DEFAULT IS NOT PROVIDED WITH ANY PENALTY.		RS.25,000/-

OFFENCE WITH DO NOT ATTRACT ANY PENALTY

TYPE OF OFFENCE	PENALTY
INCORRECT GST CHARGED	NO PENALTY. NEW RETURN BE FILED WITH CORRECT GST AND APPLY FO REFUND OF ALREADY PAID ONE.
INCORRECT FILING OF GST RETURN	NO PENALTY. INTEREST @18% BE PAID ON SHORTFALL AMOUNT
DELAY IN PAYMENT OF INVOICE.	NO PENALTY. ITC CLAIMED, BE REVERSED, IF NOT PAID WITHIN 6 MONTHS.
CHARGING OF INCORRECT GST RATE	NO PENALTY. INTEREST @18% BE PAID ON THE SHORTFALL.

Does the GST act provide for any non-monetary penalty as well?

GST act also provides for imprisonment, where the amount of fraud is very high. The summary of punishment is as follows –

DEFAULT OF TAX	IMPRISONMENT	FINE
RS 100 – 200 LAKHS	UPTO 1 YEAR	APPLICABLE
RS 200 – 500 LAKHS	UPTO 3 YEARS	APPLICABLE
ABOVE RS 500 LAKHS	UPTO 5 YEAR	APPLICABLE

CONCLUSION

After considering the above points, we can conclude, that the statutory provisions have been laid down under GST law for proper and timely compliances by the taxpayers. The provision of penalty has been specified, not only to control tax evasion but also to ensure smooth tax administration by the authorities.

Therefore, proper issuance of tax invoices for supplies of goods and services, timely filing of GST returns, timely payment of taxes, periodically reconciliation of accounting, rightly availing of input tax credit & its utilization, maintain & keep records at the principal place of business and each additional places of business, is required to be followed by each of the taxpayers.

As it is said, “Prevention is always better than cure.”, thus, to avoid penalties or prosecution, businesses should be very careful in GST compliance.

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