Default in timely issuance of tax invoice, consequences (interest, penalty, prosecution), Compounding and Corrective measures

Please find below write up around ‘Default in timely issuance of tax invoice, consequences (interest, penalty, prosecution), compounding and corrective measures’ for your kind perusal:

Brief background: GST law is very specific and settled in terms of issuance of tax invoices on account of supply of goods or services or both and determination of time of supply for discharging of GST liability and implications in case of default in the same w.r.t. interest, penalty, prosecution and compounding of offence reliefs. For the same, please find herewith provisions encapsulating provisions for issuance of a tax invoice and GST liability to be determined according to time of supply provisions for reporting into GST returns, consequences in case of default thereby and compounding provisions.

Goods & Services Tax, business conceptual

Time limit for issuance of tax invoice:

a. Supply of goods: 

Section 31(1) of the CGST Act, 2017 ‘Tax invoice’ provides that a registered person supplying taxable goods shall, before or at the time of: (a) removal of goods for supply to the recipient, where the supply involves movement of goods; or (b) delivery of goods or making available thereof to the recipient, in any other case, issue a tax invoice. 

However, Section 31(4) provides for different mechanism for issuance of tax invoice in case of continuous supply of goods* as: ‘Where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time each such statement is issued or, as the case may be, each such payment is received’. 

*’Continuous supply of goods’ has been defined under section 2(33) to mean: ‘A supply of goods which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, whether or not by means of a wire, cable, pipeline or other conduit, and for which the supplier invoices the recipient on a regular or periodic basis’. 

b. Supply of service:

 Section 31(2) of the CGST Act, 2017 ‘Tax invoice’ provides that a registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed. Further, rule 47 provides the time limit for issuing tax invoice and states that the same shall be issued within a period of thirty days from the date of the supply of service.

However, Section 31(5) provides for different mechanism for issuance of tax invoice in case of continuous supply of services* as: ‘(a) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment; (b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment; (c) where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event’. 

*‘Continuous supply of services’ has been defined under section 2(33) to mean: ‘A supply of services which is provided, or agreed to be provided, continuously or on recurrent basis, under a contract, for a period exceeding three months with periodic payment obligations’.

Time of supply: 

  • Supply of goods: As per section 12(2): ‘The time of supply of goods shall be the earlier of the following dates, namely: (a) the date of issue of invoice by the supplier or the last date on which he is required, under section 31, to issue the invoice with respect to the supply; or (b) the date on which the supplier receives the payment with respect to the supply’. 
  • Supply of service: As per section 13(2): The time of supply of services shall be the earliest of the following dates, namely:— (a) the date of issue of invoice by the supplier, if the invoice is issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier; or (b) the date of provision of service, if the invoice is not issued within the period prescribed under section 31 or the date of receipt of payment, whichever is earlier’.

 * It is imperative to highlight here that section 31 covers both kind of supplies for issuance of tax invoice i.e. regular as well as continuous supply for supply of goods as well as services.

GST and interest liability: 

Prior determination as to whether the supply rendered by registered tax payer to newly onboarded customer gets classified u/s 31(1), 31(2) or 31(5) is necessary for applying time of supply provision u/s 13(2) and once the same is done, interest liability as per section 50 of CGST Act shall attract @18% per annum (to be calculated on per day basis) from the due date of GST liability to the actual date of discharging of such liability.

Demands and Recovery: 

Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts u/s 73 and by reason of fraud or any willful misstatement or suppression of facts u/s 74. Taxpayer may justify and prove with evidence for any genuine/procedural lapse, and request to officer for initiating the proceedings u/s 73 only and not to invoke additional period of serving notice in such case. 

Penalty and prosecution: 

Clause (i) to section 122(1) ‘Penalty for certain offences’ provides: ‘Where a taxable person who supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded whichever is higher’.

In case, registered tax payer reports these unreported invoices prior to service of any notice from department highlighting such deficiency, specific penalty provision as provided supra might not apply in our view and general penalty as provided under Section 125 shall apply which states as: ‘Where 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’.

Further, section 132(1)(a) ‘Punishment for certain offences’ provides: Whoever commits, or causes to commit and retain the benefits arising out of supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax shall be punishable as follows:

In case the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken: Imprisonment for a term Severity
Exceeds five hundred lakh rupees, Which may extend to five years and with fine; Sec 132(5): Cognizable and non-bailable
imprisonment for a term which may extend to five years and with fine; Which may extend to three years and with fine  

Sec 132(4): Non- cognizable and bailable

exceeds one hundred lakh rupees but does not exceed two hundred lakh rupees Which may extend to one year and with fine

As per section 132(2): Where any person convicted of an offence under this section is again convicted of an offence under this section, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to five years and with fine. 

As per section 132(3): The imprisonment referred above, shall in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court, be for a term not less than six months.

 Compounding of offences:

Section 138(1) provides: 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 a person who has been allowed to compound once in respect of offence mentioned above.

Basis the above it can be inferred that the relief of compounding is available only once a tax-lifetime. 

Trust this helps. Should you require any further clarifications or details, please feel free to revert: 

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