OFFENCES AND PENALTIES

1.1 The word “offence” has not been defined in the Model GST Law. It comes from the Latin word “offendere” which means “strike against” and this, in the context of a tax law, is derived as striking against the law. The Courts have interpreted “offence” as violation of a law in force and for the violation of which the law prescribes a penalty.

1.2 The Model GST Law codifies the offences and penalties in Chapter XVI. The Act list 21 offences in section 66, apart from the penalty prescribed under section 8 for availing compounding by a dealer who is not eligible for it. The said offences are as follows:-

1) Making a supply without invoice or with false/incorrect invoice

2) Issuing an invoice without making supply

3) Not paying tax collected for a period exceeding 3 months

4) Not paying tax collected in contravention of the Act for a period exceeding 3 months

5) Non deduction or lower deduction of tax deducted at source or not depositing tax deducted at source under section 37

6) Non collection or lower collection of or non-payment of tax collectible at source under section 43C

7) Availing/utilizing input tax credit without actual receipt of goods and/or services

8) Fraudulently obtaining any refund

9) Availing/distributing input tax credit by an Input Service Distributor in violation of Section 17

10) Furnishing false information or falsification of financial records or furnishing of fake accounts/documents with intent to evade payment of tax

11) Failure to register despite being liable to pay tax

12) Furnishing false information regarding mandatory fields for registration

13) Obstructing or preventing any official in discharge of his duty

14) Transporting goods without prescribed documents

15) Suppressing turnover leading to tax evasion

16) Failure to maintain accounts/documents in the manner specified in the Act or failure to retain accounts/documents for the period specified in the Act

17) Failure to furnish information/documents required by an officer in terms of the Act/Rules or furnishing false information/documents during the course of any proceeding

18) Supplying/transporting/storing any goods liable to confiscation

19) Issuing invoice or document using GSTIN of another person

20) Tampering/destroying any material evidence

21) Disposing of /tampering with goods detained/seized/attached under the Act.

PENALTY:

2.1 Penalty has been held by the Courts to be a substantive levy which means that no penalty can be levied for any breach unless the law specifically provides for it. The word “penalty” has not been defined in the model Law but judicial pronouncements and principles of jurisprudence have laid down the nature of a penalty as:

  • a temporary punishment or a sum of money imposed by statute, to be paid as punishment for the commission of a certain offence;
  • a punishment imposed by law or contract for doing or failing to do something that was the duty of a party to do.

2.2 Any law that casts an obligation to carry out a certain act or to refrain from doing something must also provide for penal action in the event of the violation of the statutory obligation otherwise it becomes difficult to administer or enforce the law. But the penal provisions can be invoked only after serving a notice to show cause and affording an opportunity of hearing to the person proceeded against. The levy of penalty is subject to a certain disciplinary regime which is based on jurisprudence, principles of natural justice and principles governing international trade and agreements. Such general discipline is enshrined in section 68 of the Act. Accordingly

  • no penalty is to be imposed without issuance of a show cause notice and proper hearing in the matter, affording an opportunity to the person proceeded against to rebut the allegations levelled against him,
  • the penalty is to depend on the totality of the facts and circumstances of the case
  • the penalty imposed is to commensurate to the degree and severity of breach of the provisions of the law or the rules alleged,
  • the nature of the breach is to be specified clearly in the order imposing the penalty,
  • the provisions of the law under which the penalty has been imposed and the range or quantum of penalty specified in the law for the offence alleged to have been committed

Section 68 further specifies that, in particular, no substantial penalty is to be imposed for —

  • any minor breach (minor breach has been defined as a violation of the provisions in a case where the tax involved is less than Rs.5000), or
  • a procedural requirement of the law, or
  • an easily rectifiable mistake/omission in documents (explained in the law as an error apparent on record) that has been made without fraudulent intent or gross negligence.

Further, wherever penalty of a fixed amount or a fixed percentage has been provided in the Act, the provisions of this Chapter shall not apply.

Negative List of GST

Quantum of penalty

2.3.1 Section 66(1) Provides that any taxable person who has committed any of the offences mentioned in para 1.2 above shall be punished with a penalty that shall be higher of the following amounts

  • The amount of tax evaded, fraudulently obtained as refund, availed as credit, or not deducted or collected or short deducted or short collected, or
  • A sum of Rs.10,000/‑

2.3.2 Section 66(3) provides for levy of penalty extending to Rs.25,000/- for any person who

  • aids or abets any of the 21 offences,
  • deals in any way (whether receiving, supplying, storing or transporting) with goods that are liable to confiscation,
  • receives or deals with supply of services in contravention of the Act,
  • fails to appear before an authority who has issued a summon,
  • fails to issue any invoice for a supply or account for any invoice required to be issued under law.

2.3.3 Section 66(2) provides that any registered taxable person who repeatedly makes a short payment of tax shall be a liable to penalty which will be the higher of

  • 10% of the tax short paid, or
  • Rs.10,000.

The said sub-section explains that three short payment in respect of three returns during any six consecutive tax periods shall be considered as repeated short payment for the purpose of levy of penalty.

2.3.4 Section 67 of the Model Law provides that any person who contravenes any provision of the Act or the rules made under this Act for which no separate penalty has been prescribed shall be punishable with a penalty that may extend to Rs.25,000/-

2.3.5 If any person transports any goods or stores any such goods while in transit without the documents prescribed under the Act (i.e. invoice and a declaration) or supplies or stores any goods that have not been recorded in the books or accounts maintained by him, then such goods shall be liable for detention along with any vehicle on which they are being transported. Such goods may be released only after payment of the applicable tax, interest and penalty or upon furnishing of security equivalent to the said amount.

2.3.6 Section 8(3) provides that if a person who has opted for composition of his tax liability is found as not being eligible for compounding then such person shall be liable to penalty to an amount equivalent to the tax payable by him under the provisions of the Act i.e. as a normal taxable person and that this penalty shall be in addition to the tax payable by him.

CONFISCATION:

3.1 The word ‘confiscation’ has not been defined in the Act. The concept is derived from Roman Law wherein it meant seizing or taking into the hands of emperor, and transfer to Imperial “fiscus” or Treasury. The word “confiscate” has been defined in Aiyar’s Law Lexicon as to “appropriate (private property) to the public treasury by way of penalty; to deprive of property as forfeited to the State.” 3.2 Section 70 of the Model GST Law provides for confiscation of goods in certain circumstances. Accordingly, goods shall be liable to confiscation if any person

  • supplies any goods in contravention of any provision of this Act and such contravention results in evasion of tax payable under the Act, or
  • does not account for any goods in the manner required under the Act, or
  • supplies goods that are liable to tax under the Act without applying for registration
  • contravenes any provision of the Act/Rules with the intention of evading payment of tax

The title in the confiscated goods shall vest in the Government and every Police officer to whom the proper officer makes a request in this behalf, shall assist in taking possession of the goods. The proper officer shall, after providing an opportunity of being heard by serving a notice on the owner or person in charge of the goods, shall proceed to levy penalty which shall be higher of

• The tax evaded on the confiscate goods or

• Rs.10,000

In terms of section 70(6), the Owner or the person in-charge of the goods liable to confiscation is to be given the option for fine (not exceeding market price of confiscated goods) in lieu of confiscation. This fine shall be in addition to the tax and other charges payable in respect of such goods.

3.3 Section 71 provides that any conveyance carrying goods without the cover of any documents or declaration prescribed under the Act shall be liable to confiscation. However, if the owner of the conveyance proves that the goods were being transported without cover of the required documents/declarations without his knowledge or connivance or without the knowledge or connivance of his agent then the goods shall not be liable to confiscation as aforesaid. If the conveyance is being used for carrying goods or passengers for hire then the owner of such a conveyance may be provided an option to pay a fine equivalent to the tax payable on the goods, in lieu of confiscation. Section 72 provides that the confiscation or penalty under section 70 or 71 shall be without prejudice to any other punishment/action provided in the Act for the offence of carrying goods without cover of the required documents/declaration.

PROSECUTION:

4.1 Prosecution is the institution or commencement of legal proceeding; the process of exhibiting formal charges against the offender. Section 198 of the Criminal Procedure Code defines “prosecution” as the institution and carrying on of the legal proceedings against a person.

4.2 Section 73 of the Model GST Law codifies the major offences under the Act which warrant institution of criminal proceedings and prosecution. 12 such major offences have been listed as follows:

1) Making a supply without issuing an invoice or upon issuance of a false/incorrect invoice

2) Issuing an invoice without making supply

3) Not paying tax collected for a period exceeding 3 months

4) Not depositing any tax that has been collected in contravention of the Act for a period exceeding 3 months

5) Availing or utilizing credit of input tax without actual receipt of goods and/or services

6) Obtaining any fraudulent refund

7) Furnishing false information or falsification of financial records or furnishing of fake accounts/documents with intent to evade payment of tax

8) Obstructing or preventing any official in the discharge of his duty

9) Dealing with goods liable to confiscation i.e. receipt, supply, storage or transportation of goods liable to confiscation

10) Receiving/dealing with supply of services in contravention of the Act

11) Failing to supply any information required of him under the Act/Rules or supplying false information

12) Attempting to commit or abetting the commission of any of the above 11 offences.

4.3 The scheme of punishment provided in section 73(1) is as follows:

Offence involving– Punishment (Imprisonment
extending to–)
Tax evaded exceeding Rs.250 lakh 5 years and fine
Tax evaded between Rs.50 lakh and Rs.250 lakh 3 years and fine
Tax evaded between Rs.25 lakh and Rs.50 lakh 1 years and fine

Section 73(2) provides that a second or any subsequent conviction for an offence in this section shall be punishable with imprisonment for a term that may extend to 5 years and a fine. However, no imprisonment for any of the offences shall be for a period less than six months.

4.4 Section 73(3) and 73(4) provide that:

• All offences where the evasion of tax is less than Rs.250 lakh shall be non-cognizable and bailable,

• All offenceswhere the evasion of tax exceeds Rs.250 lakh shall be cognizable and non-bailable

• No person shall be prosecuted for any offence without the prior sanction of the designated authority.

4.5 In the context of GST Law, in the case of a cognizable offence an arrest can be made without an arrest warrant/FIR and in a bailable offence the bail can be granted, subject to conditions that may be set in this regard, after appropriate bail bond or surety by authority effecting arrest has been furnished. Bail is a matter of discretion in a non-bailable offence and can be granted only by the Court before which the offender has to be produced within 24 hours of arrest. Section 74 provides that no officer inferior to a First Class Magistrate shall be competent to conduct trial for any offence.

4.6 Section 75 presumes the existence of a state of mind (i.e. “culpable mental state” or mens rea) required to commit an offence if it cannot be committed without such a state of mind. While committing an act, a “culpable mental state” is a state of mind wherein

  • the act is intentional,
  • the act and its implications are understood and controllable
  • the person committing the act was not coerced and even overcomes hurdles to the act committed
  • the person believes or has reasons to believe that the act is contrary to law.

4.7 Section 76 provides that any statement made and signed by any person during the course of any proceeding before a gazetted officer of GST is to be relevant for proving its contents during prosecution for any offence if the Court considers it unreasonably difficult or impossible to examine the person making the said statement or the person is prevented by sufficient cause from testifying before the Court.

OFFENCES BY COMPANIES AND CERTAIN OTHER PERSONS:

5.1 Since entities such as companies, firms or trusts, entities do not have a will of their own or the “culpable mental state” (for want of mental faculties), in case offences are committed by such entities it can be assumed that every person who is in-charge of the affairs of such entities, or is entrusted with the responsibility of administering or managing the affairs of these entities, is prime mover or the person who actually committed the offence that has been attributed to the said entity. Section 77 of the Model GST Law recognizes the aforesaid assertion and provides that every person who was in-charge of or responsible to a company for the conduct of its business shall, alongwith the company itself, be liable to be proceeded against and punished for an offence committed by the company while such person was in-charge of the affiars of the company.

5.2 If any offence committed by the company

  • has been committed with the consent/connivance of, or
  • is attributable to negligence of

any officer of the company then such officer shall be deemed to be guilty of the said offence and liable to proceeded against and punished accordingly.

5.3 The above provisions relating to any officer, director or manager, etc. of a company shall apply mutatis mutandis to the partner, managing partner, karta or trustee in the case of any offence is committed by a partnership, LLP, HUF, or trust, as the case may be.

5.4 If the person charged with committing an offence while being an officer in-charge of, or responsible for the conduct of the business of, a company, partnership, LLP, HUF, or trust shall not be liable to prosecuted if he is able to establish that:

  • the offence was committed without his knowledge, or
  • that he took all steps to prevent the commission of the offence.

COMPOUNDING OF OFFENCES:

6.1 Section 320 of the Code of Criminal Procedure defines “compounding” as to forbear from prosecution for consideration or any private motive. Aiyar’s Law Lexicon defines it variously as “arranging, coming to terms; condone for money;”. Compounding is thus is a legally recognized arrangement whereby the person charged with an offence is offered the option of avoiding prosecution and imprisonment in lieu of monetary considerations by way of penalty; compounding is essentially a contract between the State and the offender whereby the State secures revenue and the offender secures immunity from prosecution.

6.2 Section 78 of the Model GST Law provides for compounding of offences. According to the proviso to sub-section (1), the following offences are not eligible for compounding:

  • Offences numbered 1 to 7 of the 12 major offences (outlined in paragraph 4.2 above), if the person charged with the offence had compounded earlier in respect of any of the said offences
  • Aiding/abetting offences numbered 1 to 7 of the 12 major offences, if the person charged with the offence had compounded earlier in respect of any of the said offences
  • Any offence (other than the above offences)under any SGST Act/IGST Act in respect of a supply with value exceeding Rs.1 crore, if the person charged with the offence had compounded earlier in respect of any of the said offences
  • Any offence which is also an offence under NDPSA or FEMA or any other Act other than CGST/SGST
  • Any other class of offences or persons that may be prescribed in this behalf.

6.3 Any other offence may, upon payment of the prescribed (compounding) amount be compounded and such compounding is permissible either before or after the institution of prosecution. Compounding is to be permitted only after payment of tax, interest and penalty and compounding shall not affect any proceeding already instituted under any other law.

6.4 The lower limit for compounding amount is to be the greater of the following amounts:-

  • 50% of tax involved, or
  • Rs.10,000

6.5 The upper limit for compounding amount is to be greater of the following amounts:-

  • 150% of tax involved or
  • Rs.30,000

6.6 Sub-section (3) of section 77 provides that on payment of compounding amount:

  • no further proceeding to be initiated under this Act and, criminal proceeding already initiated to stand abated.

Guidelines for the GST Certification Course

Education Series on Goods & Service Tax

S. No. Title of the Post
1.

Goods and Services Tax (GST): An Overview

2

All about Levy of GST & Exemption from Tax

3.

GST Registration: Law, Business Process & Transitional Provisions

4.

GST- Meaning, Scope, Time & Valuation of Supply of Goods & Services

5

All about Payment of Tax under Goods & Service Tax

6.

Tax on Electronic Commerce Under GST Regime

7.

Tax on Goods Sent on Job Work under Goods & Service Tax (GST)

8

All about Input Tax Credit under Goods & Service Tax (GST)

9

Concept of Input Service Distributor in Goods & Service Tax

10

All about Cross Utilization of CGST/SGST/IGST and Fund Transfer

11

Returns under GST & Matching of Input Tax Credit

12

All about GST Assessment, Provisional Assessment and Audit

13

All about Tax Refund Provisions under GST Law

14

All about Demands and Recovery under GST

15

All about Appeals, Review and Revision in GST

16

All about Advance Ruling in Goods and Service Tax (GST)

17

All about Settlement Commission in Goods and Service Tax (GST)

18

All about Inspection, Search, Seizure and Arrest under GST

19

All about Offences, Penalty, Prosecution & Compounding in GST

20

All about Transitional Provisions in Goods & Service Tax

21

All about Miscellaneous Provisions in GST & IGST

22.

All about Integrated Goods & Service Tax (IGST) Act

23.

All about Place of Supply of Goods and Service under GST

24. All about Frontend Business Process on GST Portal

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