Introduction
It is common knowledge that GST officials issue penalty notices u/s 125 of the GST Act for late filing of a GST return on the pretext that no specific penalty is provided for late filing of GST return and this offence falls in the residuary penal provision contained in Section 125 of the GST Act.
The imposition of penalties under tax statutes requires a careful interpretation of legislative intent, fairness, and proportionality. Under the Goods and Services Tax (GST) regime, taxpayers often face challenges in timely filing of returns. There could be multiple factors wherein the assessee could be validly prevented by a sufficient & reasonable cause from filing of Return in time. The crucial question is whether a general penalty under Section 125 of the GST Act can be imposed for such delays, despite the specific late fees prescribed under Section 47 of the GST Act. This article examines the legal framework, judicial precedents, and key principles such as mens rea, legality and proportionality in penalty imposition.
Understanding Section 125 of the GST Act
There are different penalties provided under the GST Act for different contraventions & failures but Section 125 of the Central Goods and Services Tax (CGST) Act, 2017, is a residuary provision that states:
“Any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided, shall be liable to a penalty which may extend to twenty-five thousand rupees.”
This section serves as a catch-all provision, intended to penalize violations that do not have specific penalties under other provisions of the Act. There is a capping of Rs. 25000/- under Section 125 of the GST Act which implies that the penalty ought to commensurate with the gravity of contravention- the extent of delay, the size/volume of the GST & Return and the frequency of the contraventions.
Late Filing of GST Returns and Statutory Provisions
The key issue is whether late filing of GST returns, which already attracts late fees under Section 47, falls within the scope of Section 125.
The GST Act explicitly prescribes late fees for delayed filing of returns under Section 47, which reads as under:
“47. (1) Any registered person who fails to furnish the details of outward or inward supplies required under section 37 or section 38 or returns required under section 39 or section 45 by the due date shall pay a late fee of one hundred rupees for everyday during which such failure continues subject to a maximum amount of five thousand rupees.
(2) Any registered person who fails to furnish the return required under section 44 by the due date shall be liable to pay a late fee of one hundred rupees for every day during which such failure continues subject to a maximum of an amount calculated at a quarter per cent of his turnover in the State.” A reading of the above Section 47(2) of the Act, it is clear that any registered person, who fails to furnish the return required under section 44 by the due date shall be liable to pay a late fee of one hundred rupees for every day during which such failure continues subject to a maximum of an amount calculated at a quarter per cent of his turnover in the State.”
This indicates that late filing is not an offense warranting an additional penalty beyond the prescribed late fee. Imposing a further penalty under Section 125 would contradict the specific penalty structure established by the legislature.
Role of Sections 126 and 127
Section 126: No Penalty for Minor Breaches Section 126 emphasizes the principle of proportionality in penalty imposition. It reads as under:
“No penalty shall be imposed for minor breaches of tax regulations or procedural requirements where the amount of tax involved is minimal and there is no fraudulent intent or gross negligence.”
Since late filing of returns is primarily a procedural lapse, rather than an act of fraud or tax evasion, imposing an additional penalty under Section 125 would be inconsistent with Section 126, referred above. In a majority of cases, the delay in filing return is due to software problems, problem of connectivity or an inadvertent error and there is no fraudulent intent or deliberate negligence of the assessee.
Section 127: Power to Impose Penalty Discretionarily Section 127 empowers tax authorities to impose penalties after affording an opportunity to be heard. However, any such imposition must be reasonable, proportionate, and consistent with statutory provisions. This section speaks of the principles of justice as the assessee should be given sufficient opportunity to present his case.
Mens Rea and Judicial Precedents
The doctrine of mens rea (guilty mind) is a well-established principle in taxation law. Courts have consistently held that penalties should not be imposed for mere procedural lapses unless accompanied by willful neglect or fraudulent intent.
It would be pertinent to refer to the landmark judgment of the Apex Court in Hindustan Steel Ltd. v. State of Orissa (1970) 25 STC 211 (SC) wherein the Court categorically held thus:
“Penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation.”
This precedent suggests that late filing of GST returns, if unaccompanied by fraud or tax evasion, should not attract punitive penalties beyond statutory late fees.
Several courts have consistently held that procedural delays should not attract punitive penalties under Section 125 or similar enactments. The Apex Court in M/s Padmini Products Ltd. v. CCE (1989) 4 SCC 275 ruled in cases where non-compliance is merely technical and does not involve deliberate defiance of the law or willful suppression of facts reopening of assessments should not be resorted. The Court held thus:
” It was observed by this Court that some- thing positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability beyond the period of six months had to be established.”
It is well established that mere procedural non compliance must be viewed in light of Sections 126 & 127 to avoid imposition of unjustified penalties especially when there is no revenue loss. The Courts have held that be it any enactment, a mechanical imposition of penalty for non compiance, without considering the taxpayer’s bonafide intent, is bad in law. It is no longer Res Integra that penalty should not be imposed for procedural lapses unless there is deliberate defiance of law.
It would be apposite to refer to M/S Rathore Building Material vs. The Commissioner Of State Tax And 2 Others in Writ Tax No. 1361 of 2023 decided on 01.12.2023 (Neutral Citation No. – 2023: AHC:227550) wherein the Allahabad High Court held that mere delay in filing returns, without intent to evade tax, cannot be treated as a punishable offense warranting penalty under Section 125 when specific provisions exist for late fees.
The brief facts of the case are that a notice dated 28.01.2023 was issued in exercise of powers under Section 46 of the GST Act, the petitioner was asked to furnish the returns within 15 days. It also averred that if the returns were tendered in time stated therein, the proceedings shall be withdrawn. The petitioner in response to the said notice furnished the returns on 07.02.2023. However, the authorities went on to impose a penalty under Section 125 of the GST Act by the impugned order dated 10.02.2023.
The High Court allowing the writ petition of the petitioner/assessee categorically held thus:
“Admittedly since the petitioner had complied with the terms of the show cause notice by furnishing the returns, there was no lawful justification to impose the penalty. The impugned orders dated 10.02.2023 and the order dated 14.03.2023 are contrary to law and passed on non-application of mind.
In the wake of preceding discussion, the impugned order dated 10.02.2023 and the order dated 14.03.2023 are liable to be set aside and are set aside. The writ petition (tax) is allowed.”
It is relevant to refer to a recent judgment of the Madras High Court in the case of Tvl. Jainsons Castors & Industrial Products vs The Assistant Commissioner (St) Ekkatuthangal Assessment Circle in Writ Petition No.36614 of 2024 and W.M.P.No. 39493 of 2024 decided on 4 February, 2025.
The brief facts of the case are that the petitioner had deposited the late fee for filing delayed return as mandated under Section 47 of the TNGST Act, 2017. It was contended by the petitioner that the provision under Section 125 of the Act would apply only in the case where no penalty is levied under Section 47 of the Act. The Court categorically held thus:
“In the event of non-filing of the return, the respondent can call upon the petitioner to pay the late fee in terms of Section 47 of the Act, which is independent provision deals with any default or belated filing of return.”
The Court allowing the Writ observed thus:
“A reading of the above would show that in the event no penalty is separately provided in this act, general penalty would apply. In the present case, penalty was imposed in the form of late fee in terms of Section 47 of the Act. Therefore, general penalty of Rs.50,000/- towards CGST and SGST is not correct and the same is set aside. As far as late fee is concerned, the same is confirmed.”
It would be worthwhile to refer to a recent Allahabad High Court judgment in the case of M/S Ashoka P.U. Foam (India) Pvt. Ltd. vs State Of U.P. And 3 Others decided on 24 January, 2024 in Writ Tax No. 228 of 2020 (Neutral Citation No. 2024: AHC:11844) wherein the High Court while dealing with Penalty provisions under the GST Act observed that mere technical error would not lead to imposition of Penalty & held thus:
“6. In a catena of judgments, this Court has held that presence of mens rea for evasion of tax is a sine qua non for imposition of penalty and mere technical error would not lead to imposition of penalty [see M/s Modern Traders v. State of U.P. and others (Writ Tax No.763 of 2018, decided on 9.5.2018), M/s Galaxy Enterprises v. State of U.P. and others (Writ Tax No.1412 of 2022, decided on 6.11.2023 and Hindustan Herbal Cosmetics v. State of U.P. and others (Writ Tax No.1400 of 2019, decided on 2.1.2024].
7. The imposition of penalties within the realm of tax laws should not be based solely on insignificant technical errors devoid of any financial consequences. The foundational principle guiding this approach is the commitment to maintain a tax system that is characterized by fairness and justice, where the severity of penalties corresponds to the gravity of the offense committed. While penalties serve a pivotal role in ensuring compliance with tax laws, legal frameworks stress the importance of establishing the actual intent to evade taxes as a prerequisite for their just imposition. This emphasis underscores the critical need to differentiate between inadvertent technical errors and purposeful attempts to circumvent tax obligations. Penalties, according to this principle, should be reserved exclusively for cases where concrete evidence points to a deliberate and fraudulent act against the tax system, rather than being applied to situations involving unintentional mistakes. The legal rationale supporting this principle recognizes that the primary purpose of taxation statutes is not to penalize inadvertent errors but rather to address intentional acts of non-compliance. Consequently, the burden of proof falls squarely on tax authorities to demonstrate the genuine intent to evade tax before penalizing taxpayers. This safeguard is indispensable to shield individuals and entities from punitive measures arising from honest mistakes, administrative errors, or technical discrepancies that lack any malicious intent. The fundamental principle requiring an intent to evade tax for the imposition of penalties is crucial for preserving the fairness and integrity of taxation systems. In order to uphold a balanced and equitable approach to tax enforcement, it is imperative to recognize and acknowledge the distinction between technical errors and intentional evasion.”
Conclusion
Given the clear provisions under Section 47 prescribing late fees and the proportionality principles under Sections 126 and 127, imposing penalties under Section 125 for late filing of GST returns would be legally unsustainable. Judicial precedents strongly support the view that penalties should not be imposed for procedural violations in the absence of fraudulent intent or revenue loss. Therefore, unless there is clear evidence of tax evasion or deliberate non-compliance, the imposition of a penalty under Section 125 for late filing of GST returns is legally unwarranted and contrary to the established principles of natural justice.
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