The Kerala State Goods and Services Tax (SGST) Department has issued Circular No. 12/2024, clarifying the manner of penalty calculation under the Integrated Goods and Services Tax (IGST) Act, 2017 for show cause notices issued under sections 73(1) and 74(1) of the Kerala SGST Act, 2017. This clarification was needed as field formations required guidance on the correct method to compute penalties under the fourth proviso of Section 20 of the IGST Act. The circular explains that the penalty under the IGST Act is not determined independently but is the sum total of the penalties leviable under both the Central Goods and Services Tax (CGST) Act and the State Goods and Services Tax (SGST) Act. It also provides detailed examples illustrating how penalties should be calculated in various scenarios, ensuring consistent application of the law across different cases. The circular emphasizes that the penalty under the IGST Act should be based on the higher of the two penalties calculated under the CGST and SGST Acts, thereby ensuring that penalties are correctly imposed in line with the provisions of the relevant Acts.
Office of the Commissioner of the State Goods and Services Tax
Department, Tax Towers, Karamana, Thiruvananthapuram
SGST Policy Division
E-mail: [email protected]
Ph: 0471-2785276
No. SGST/53 1 0/2024-PLC6
Circular No.12/2024-Kerala SGST Date: 13-08-2024
Sub: – Manner of penalty calculation under IGST Act, 2017 for the show cause notices issued under section 73(1)/74(1) of the KSGST Act, 2017 read with section 20 of the IGST Act, 2017 – clarifications issued – reg.
1. It has come to the notice that field formations require clarity in the computation and imposition of penalty under the fourth proviso of Section 20 of the Integrated Goods and Services Tax (IGST) Act, 2017 in cases where tax is being demanded under Section 73(1)/74(1) of the Kerala Goods and Services Tax (KSGST) Act, 2017.
2. In order to ensure uniformity in the implementation of the provisions of law across the field formations, in exercise of the powers conferred by section 168 (1) of the Kerala State Goods and Services Tax Act, 2017 (hereinafter referred to as “KSGST Act”), clarifies the issues as under:
3. Section 73 of the KSGST Act, 2017 provides for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful-misstatement or suppression of facts.
4. Section 73(9) of the KSGST Act, 2017 reads as follows: “The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.”
5. Section 74 of the KSGST Act, 2017 provides for the determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized by reason of fraud or any willful-misstatement or suppression of facts.
6. Section 74(1) of the KSGST Act, 2017 reads as follows:
“(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice”
7. Section 20(xxv) of the Integrated Goods and Services Tax Act, 2017 reads as follows: “Subject to the provisions of this Act and the rules made thereunder, the provisions of Central Goods and Services Tax Act relating to,––(i) scope of supply; (ii) composite supply and mixed supply; (iii) time and value of supply; (iv) input tax credit;……………………………………………………………………………… (xvi) demands and recovery;………………. (xxi) offences and penalties;……. (xxv) miscellaneous provisions including the provisions relating to the imposition of interest and penalty, shall, mutatis mutandis, apply, so far as may be, in relation to integrated tax as they apply in relation to central tax as if they are enacted under this Act:
8. The 4th proviso of section 20 of the Integrated Goods and Services Tax Act, 2017 says that “in cases where the penalty is leviable under the Central Goods and Services Tax Act and the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, the penalty leviable under this Act shall be the sum total of the said “
9. In terms of 4th proviso to Section 20 of the IGST Act, the amount of penalty to be quantified/levied is the sum total of the amount of penalty “leviable” under the CGST Act plus the SGST Act. As such, there is no independent provision of its own under the IGST Act to quantify the amount of penalty; it arrives at such quantification through the provisions of the CGST and the SGST Acts.
10. In this scenario, what emerges is that the quantum of penalty under the IGST Act is entirely dependent upon the penalty “leviable” under the CGST and the SGST Acts.
11. As per 4th proviso of Section 20 of IGST Act, the penalty leviable under the IGST Act would be the sum total of the quantum of penalty to be levied under the CGST Act and the SGST Act. This is clarified with an Illustration worked out as under:
12. Illustration: For a service attracting 18% rate of tax, the tax levied under CGST is at the rate of 9% and that under SGST is at the rate of 9%. If it becomes an intra-state supply, the penalty to be levied on each Act is 10% as per section 73(9) of the CGST and the SGST Acts. (i.e., Taxable value x 9% x 10%). Now, applying these rates to the above clause of the IGST Act‑
- Provided also that in cases where the penalty is leviable under the Central Goods and Services Tax Act (i.e., Taxable value x 9% x 10%) or the State Goods and Services Tax Act (i.e., Taxable value x 9% x 10%), the penalty leviable under this Act shall be the sum total of the said penalties ((Taxable value x 9% x 10%) 0 (Taxable value x 9% x 10%))
- Therefore, the penalty is (CGST (Taxable value x 9% x 10%) + SGST (Taxable value x 9% x 10%)), which is equal to 10% of (9% + 9%), i.e., which is equal to 10% of 18%.
- In short, the ‘penalty’ is ten per cent of tax amount under IGST Act. Therefore, as per section 20 of IGST Act, it is the penalty amounts that must be added, (The penalty rates should NOT be added.)
13. The above scenario can be explained with the following examples (assume the tax rate is 18%)$
Example 1: An adjudicating authority has decided to confirm a demand under section 73 of the Act for the non-payment of the following taxes:
| Inv. No. | Inv. Date | Tax Period |
Taxable Value |
IGST | CGST | SGST |
| IG031 | 10.06.2019 | June 2019 | 2,00,000 | 36,000 | ||
| CS046 | 21.07.2019 | July 2019 | 10,00,000 | 90,000 | 90,000 | |
| CS082 | 12.10.2019 | Oct. 2019 | 15,00,000 | 1,35,000 | 1,35,000 | |
| Total | 27,00,000 | 36,000 | 2,25,000 | 2,25,000 |
The adjudicating authority should impose the penalty under the IGST Act in the following manner:
| Description | Calculation | Penalty amount (Rs.) |
| Penalty leviable under the CGST & the SGST Acts are 10% or 10,000/- each whichever is higher. | CGST=25,00,000 x 9% x 10%
(or) 10,000 whichever is higher SGST = 25,00,000 x 9% x 10% (or) 10,000 whichever is higher |
22,500/- (CGST)&22,500 (SGST) |
| Penalty leviable under IGST Act (as per 4th proviso of section 20 of the IGST Act) | CGST = 2,00,000 x 9% x 10% (or) 10,000 whichever is higher
+ SGST = 2,00,000 x 9% x+10,000) 10% (or) 10,000 whichever is higher |
3,600 (1,800+1,800) or
20,000 (10,000 whichever is higher. Here it is Rs. 20,000/- |
Example 2: An adjudicating authority has decided to confirm a demand under section 73 of the Act for the following items of ineligible ITC utilized by a taxable person.
| Inv. No. | Inv. Date | Tax Period |
Taxabl
Value |
IGST | CGST | SGST |
| H3744 | 14.04.2020 | Apr. 2020 | 72,00,000 | 12,96,000 | ||
| P4180 | 08.08.2020 | Aug. 2020 | 1,00,00,000 | 18,00,000 | ||
| Total | 1,72,00,000 | 30,96,000 |
The adjudicating authority should impose the penalty under the IGST Act in the following manner;
| Description | Calculation | Penalty amount (Rs.) |
| Penalty leviable under IGST Act (as applicable in CGST Act) | 1,72,00,000 x 9% x 10%Here, (or) 10,000 whichever is higher
+ 1,72,00,000 x 9% x 10% whichever (or) 10,000 whichever is higher |
Here, the Penalty to be imposed is Rs. 3,09,600/- (1,54,800 + 1,54,800)or20000 (10,000+10,000) is higher and not ‘0’ (as there is no demand in CGST & SGST)) |
Example 3: An adjudicating authority has decided to confirm a demand under section 73 of the Act for the following taxes not paid by a taxable person.
| Inv. No. | Inv. Date | Place of Supply | Taxabl
Value |
IGST | CGST | SGST |
| G123 | 14.04.2020 | Delhi | 15,00,000 | 2,70,000 | ||
| G252 | 08.05.2020 | Karnataka | 24,00,000 | 4,32,000 | ||
| G300 | 10.06.2020 | Tamil Nadu | 3 5,00,000 | 6,30,000 | ||
| G567 | 13.07.2020 | Odisha | 10,00,000 | 1,80,000 | ||
| G1012 | 12.11.2020 | Kerala | 10,00,000 | 0 | 90,000 | 90,000 |
| Total | 94,00,000 | 15,12,000 | 90,000 | 90,000 |
Here, the Place of Supply extends across multiple states. Here the penalty levied cannot be apportioned among all the states involved, nor can it be exclusively credited to any particular state. In such a situation, all the recipient states have suffered tax loss in these transactions and are entitled to receive the penalty as per the place of supply provisions of the Act. Therefore, the calculation of penalty under IGST Act shall be made in the following manner:
| Description | Destination | Calculation | Penalty amount (Rs.) |
| Penalty leviable under IGST Act | Delhi | 15,00,000 x 9% x 10% (or) 10,000 whichever is higher
+ 15,00,000 x 9% x 10% (or) 10,000 whichever is higher |
IGST – 27,000/- 13,500+13,500 (or)10,000+10,000 whichever is higher |
| Karnataka | 24,00,000 x 9% x 10%IGST (or) 10,000 whichever is higher
+ 24,00,000 x 9% x 10% (or) 10,000 whichever is higher |
IGST – 43,200/-
21,600+21,600 (or) 10,000+10,000 whichever is |
|
| Tamilnadu | 35,00,000 x 9% x 10% (or) 10,000 whichever is higher
+ 35,00,000 x 9% x 10% (or) 10,000 whichever is higher |
IGST – 63,000/- 31,500+31,500 (or) 10,000+10,000 whichever is higher |
|
| Odisha | 10,00,000 x 9% x 10% IGST (or) 10,000 whichever is higher
+ 10,00,000 x 9% x 10% (or) 10,000 whichever is higher |
IGST – 20,000/-
9,000+9,000 (or) 10,000+10,000 whichever is |
|
| Kerala | 10 00 000 x 9% x 10%CGST | ||
| The penalty is to be levied under the CGST & the SGST Act and it is calculated at the rate of 10% or 10,000/- each, whichever is higher. | Kerala (CGST + SGST) | 10,00,000 x 9% x 10% (or) 1 0,000 whichever is higher
and 10,00,000 x 9% x 10% (or) 10,000 whichever is higher
|
CGST – 10,000/
& SGST – 10,000/- |
| The total penalty under IGST is = 27000 + 43200 + 63000 + 20000 = Rs.1,53,200/- and not Rs. 1,51,200/- (10% of IGST total tax liability). | |||
Difficulty, if any, in the implementation of the above instructions may please be brought to the notice of the undersigned.
ABRAHAM RENN S IRS
Commissioner
To
All Concerned
