Summary: Sections 122 to 138 of Chapter XIX of the CGST Act, 2017, alongside Rule 162 of the CGST Rules, detail offenses and penalties related to various GST compliance aspects, including tax levy, input tax credits, registration, invoices, and filing returns. Sections 125 and 126 offer general and procedural penalties for breaches not explicitly covered elsewhere in the Act. Section 125, as a residual penalty provision, allows fines up to Rs. 50,000 for IGST and Rs. 25,000 each for CGST, SGST, and UTGST for general violations. However, Section 126 stipulates that penalties should not be imposed for minor breaches or easily rectifiable mistakes. Recent notices have targeted non-addition of business premises, imposing maximum penalties under Section 125. Such penalties, though discretionary, often exceed what might be considered reasonable. Case laws, like Jaipur IPL Cricket Pvt. Ltd. and Pallavi Gulati vs Puri Constructions Pvt. Ltd., highlight that penalties should be proportional and not punitive beyond the violation’s context. Recommendations include specific penalties for non-updation issues and pre-notice inquiries to ensure fair enforcement.
Legal Framework
Specifically, sections 122 to 138 of Chapter XIX [Offences and Penalties] of the CGST Act, 2017 in conjunction with Rule 162 of the CGST Rules, provide information on several offenses and associated penalties for contraventions pertaining to: –
Chapter III – levy and collection of taxes, Chapter V – claiming Input tax credits, Chapter VI – Registration under, Chapter VII – Tax invoices, debit notes, and credit notes, Chapter VIII – Books of Accounts as required to be kept by a registered taxable person(s), Chapter IX – Filing Periodical returns/statistics, Requirements for tax deductions and collections under Chapter X,
The majority of these are covered under sections 122, 123, and 124.
*Section 125 & 126*
A residual penalty provision in section 125, ensuring that any violation of the GST laws does not go unpunished has been incorporated for procedural lapses in situations when no specific punishment is specified by the Act,
The penalty under this clause may be as much as Rs. 50,000 for IGST or Rs. 25,000 each for CGST, SGST, and UTGST.
“General penalty 125: Any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided for in this Act, shall be liable to a penalty which may extend to twenty-five thousand rupees.”
At the same time, a set of guiding disciplines are outlined in Section 126 of the CGST Act and must be adhered to when assessing fines under the GST regime. These guidelines guarantee that the punishments are meted out equitably, impartially, and proportionately.
General disciplines related to penalty 126.
(1) No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.
Explanation.––For the purpose of this sub-section,––
(a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than five thousand rupees;
(b) an omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the face of record.
(2) ………………..
Chronicles of SCN u/s 125 in regards to
Non-Addition of Place of Business
Recently, various registered persons were inundated with notices specifically by State GST departments, showing cause as to why a maximum penalty under section 125 of rupees 50,000/- shall not be levied for failing to update additional places of business [in the form of shops, godown, etc.] in the GST profile, based on inputs that are most familiar to them.
Reproducing herewith one such notice: – 
https://drive.google.com/file/d/1G1waBiVeg8D26J7lYTT8EJwrtQIUYc5-/view?usp=sharing
Such notices are initially served without any prescribed form and later are converted into DRC-01 under rule 142(1) (a) [which also covers cases levying penalty under section 125] uploading same electronically.
Note: –
1. Such amendment is governed as per proviso to rule 19(1) of CGST Rules and is required to be filed in Form REG-14 within a period of 15 days of such change.
2. Section 2(85). Defines “place of business” as – A place from where the business is ordinarily carried on, and includes
(a) warehouse, a godown or any other place where a taxable person stores his goods, supplies or receives goods or services or both; or
(b) a place where a taxable person maintains his books of account; or
(c) a place where a taxable person is engaged in business through an agent, by whatever name called;
Understanding on the concerned subject from a Legal Standpoint
1. Amount of Penalty: –
As already discussed in the legal framework section above, section 125 – “General Penalty” is residual in nature and is to be invoked where there is a contravention of law and there is no separate penalty for such contravention in the act.
Although it is quite clear that there is no separate penalty for aforesaid contravention, the phrase “penalty which may extend to twenty-five thousand rupees” shall also be noticed.
Lawmakers have kept it at the discretion of the Proper officer to decide the amount, but it is worth pointing out that all such notices are being served with a maximum penalty of 50k [CGST-SGST each] whereas it can be kept low owing to the nature of lapse.
Note: – Intention to reduce the maximum penalty can also be warranted through Circular number 64/38/018 dated 14-09-2018 issued by CBIC regarding minor mistakes in the Eway bill where it was instructed to reduce the penalty to 1000/- [CGST+SGST] in place of 50,000/- rupees.
2. Double-Jeopardy: –
The Constitution of India offers protection against Double Jeopardy under Article 20(2) which reads- “No person shall be prosecuted and punished for the same offence more than once.”
It has been observed in several incidents, where penalties in multiples of number of premises have been levied, which is completely against the Indian Constitution and the basis for the CGST Act of 2017.
It is important to realize that failure to maintain “Non-addition of a place of business,” whether for one or more locations, will strictly be considered a “single offence” of the same kind.
How can a person demonstrate their intention to correct the violation until and unless they are allowed to file a REG-14? If, after the application is submitted, any un-updated premises are still present, additional penalty under Section 125 (if any) shall be assessed.
3. Section 126: –
Another crucial consideration is that, if the goods kept in these non-updated facilities are bought on tax invoice/bill of supply and are properly accounted for, then in such case there is neither any revenue loss to the government on procurement nor any such possibility in future on account of such remissness.
If such premises are not added, it is considered simple negligence and does not involve any form of tax evasion.
Thought shall be given to the idea behind incorporating section 126 – “General disciplines related to penalty” sub-section 1 which conveys that no officer may impose penalties for infractions of tax laws or procedural requirements, including, but not limited to, any easily corrected omission or mistake in documentation made without willful misconduct or egregious negligence.
Such activity of non-additional can quite comfortably be qualified as a “minor breach” in terms of explanation to said sub-section.
Hence there shall rather a notice be served in the form of warning u/s 126 rather than show causing u/s 125 for the concerned negligence
4. Relevant Case Law:
a. Jaipur IPL Cricket Pvt. Ltd. and Ors. vs. Sp. Director Directorate of Enforcement (Appellate Tribunal FEMA) Case No. FPA-FE-9/MUM/2013 dated 11-Jul-2019; (2019) 8 TMI 133 (ATFEMA)
The respondent in this case was penalized by the National Anti-Profiteering Authority for failing to transfer the input tax credit (ITC) benefit to the purchasers of apartments in their project. The respondent was found accountable for a fine in accordance with CGST Act Section 122(1)(i). The High Court did note, however, that the respondent had not broken the law on purpose and that their actions were neither dishonest nor a purposeful disobedience of their legal obligations. The punishment was thus lifted.
If a penalty u/s 122(1)(i) can be dropped, then levying penalty u/s 125 where no quantifiable amount is involved, shall be reconsidered keeping in view the above judgement.
b. Pallavi Gulati vs Puri Constructions Pvt. Ltd. (National Anti-Profiteering Authority) Case No. 30/2019, dated 08-May-2019; MANU/NT/0029/2019
The FEMA Appellate Tribunal noted in this case that the imposition of a penalty is discretionary in nature and that reasonable, impartial, and pertinent factors must be taken into account while exercising such discretion. The tribunal also ruled that discretionary measures taken to impose penalties could not be motivated by irrational, ambiguous, or fantastical reasons.
Levying a penalty of 50,000/- for non-addition of the place of business shall be re-think in regards to the above observation by the tribunal, as it is irrational.
5. Suggestions:-
a. CBIC shall come up with a specific penalty or Standard Operating procedure for situations expressly linked with non-updation of place of business rather than leaving it ambiguous, prompting to qualify such act of mere negligence leviable to penalty u/s 125 by the proper officers.
b. To avoid litigation and uphold the spirit of the GST Law, which forbids punishing the innocent, the field formations must inquire upon the person about the status of such unadded premises before serving SCN.
*****
Author can be reached at:- Email: – [email protected], Mobile: – 9826818888
Author Bio
