Though everyone is eager to know about do’s and don’ts under the proposed GST regime, however the other aspect which is not much discussed on many platforms but otherwise is equally important and very crucial part of every law is its penal provisions and their applicability for the proper regulations of the law. In the way the charging sections & the regulatory provisions are important for every taxation regime, similarly to enforce any such law properly, it is equally important to make strict provisions in case of non compliance of any such law.
In our earlier articles we have discussed about various returns and information to be filed, records to be maintained, documents to be carried by a courier of goods, manner of payment and credit of taxes etc. As the GST law is new and mistakes or errors are bound to happen, so in this article we will discuss about the consequences of failure to follow the law properly, in other word we will discuss here that what will happen in case of non-compliance of provisions under GST?
Consequences of non- compliance under GST may be in form of Interest, Late fee, Penalties, Fines, Detention/ Seizure of goods, Confiscation of goods, Prosecution, Arrest, Decline in registered person’s compliance rating etc. Also such interest, late fee and penalties etc. imposed under GST can’t be paid by utilizing Input tax credit available in the electronic credit ledger of the registered person, rather these payments has to be made through cash mode only. In some cases, prosecution launched under GST is cognizable and non-bailable. So, proper caution and care should be taken to avoid making any such offenses under the proposed GST regime.
In the para above, we used the words detention of goods, seizure of goods and confiscation of goods. Actually, detention here implies to restricting the access of goods or conveyance to its owner, which are still in possession of the owner, Seizure means taking the physical possession of the goods or conveyance from its original owner and confiscation means taking the ownership of such goods and conveyance form its original owner. Therefore provisions have been made under rule 8(3) of Invoice Rules to issue invoice or debit notes in pursuance of any tax payable in accordance with the provisions of section 74, section 129 or section 130 of CGST Act 2017, whereby any such invoice or debit note shall prominently contain the words “INPUT TAX CREDIT NOT ADMISSIBLE”.
Also though some of the penalties under GST are imposed only on registered person, while other penalties may be imposed on taxable person and also there are some penalties which can be imposed on any person whether he is registered, taxable, un-registered person, consultant, transporter or any such person. As per section 2(107) of CGST Act 2017 “taxable person means a person who is either registered or is liable to be registered under section 22 or 24”
Now that we are familiar with most of the terms used in the penal provisions under the GST law, so let us now one by one discuss the consequences of non- compliance under GST.
1. Interest on delayed payment of tax. [Section 50]
| S.No. | Event | Who will pay interest | Amount of Interest |
| 1. | In case ITC claimed by the recipient in the statement of inward supplies filed by him, is not confirmed by the supplier in his return then due to this mismatch u/s 42(10) | Recipient shall pay | Interest at such rate, not exceeding twenty-four percent, as may be notified by the Government on the recommendations of the Council. |
| 2. | In case credit note issued by supplier is not confirmed by the recipient in his return, then due to this mismatch u/s 43(10) | Supplier shall pay | Interest at such rate, not exceeding twenty-four percent, as may be notified by the Government on the recommendations of the Council. |
| 3. | In other cases, where a person suo-motto discovers any omission or incorrect particulars in the returns filed by him, as a result of which he fails to pay the tax or any part thereof within the period prescribed.
|
Such person shall suo-motto pay | interest at such rate, not exceeding eighteen percent, as may be notified by the Government on the recommendations of the Council.
However, this discovery of such omission or incorrect particulars therein shall be suo-motto and not as a result of scrutiny, audit, inspection or enforcement activity by the tax authorities. |
2. Late fee.
| S.No. | Default | Penalty |
| 1. | Failure to furnish
· the details of outward supplies required under section 37. · the details of inward supplies required under section 38. · returns required under section 39 (i.e. Regular returns , returns filed by Composition dealer, TDS returns , returns filed by ISD & returns filed by Non-resident taxable person). · Final returns required under section 45 in case of cancelled dealers.
|
100 per day
Maximum upto Rs. 5000/-
Note: Monthly TCS return and Annual TCS returns are filed u/s 52 & not under section 39 (so so late fee is prescribed for them, residual penalty may be imposed on them) |
| 2. | Failure to furnish Annual Return u/s. 44.
|
100 per day
Maximum upto 0.25% of his turnover in ths State or Union territory. |
| 3. | Failure to furnish TDS certificate within five days of crediting the amount so deducted to the Government. | 100 per day
Maximum upto Rs. 5000/- |
3. Penalties under section 122.
Penalties under GST are imposed not only on registered persons, but any person who aids or abets any of the offenses under GST shall be liable for penalty. Also in case of such person amount of penalty is much more than that prescribed for a registered person. General penalties for most common defaults and offenses are imposed under section 122 of CGST Act 2017. Some of these penalties are imposed only on registered person, some on taxable person and some penalties can be imposed on any person. These penalties are broadly classified into four categories.
A. Penalty of Rs. 10,000/- or an amount equivalent to the amount of tax involved, whichever is higher shall on TAXABLE PERSON be levied:
| If he fails to deduct TDS (either fully or partly). |
| If he fails to deposit TDS (either fully or partly). |
| If he fails to collect TCS (either fully or partly). |
| If he fails to deposit TCS (either fully or partly). |
| If he fails to keep, maintain or retain proper documents and books of accounts. |
| If he fails to furnish information or documents called for by an officer or furnishes false information or documents. |
| If he fails to obtain registration in case he is liable to be registered under this Act. |
| If he fails to fails to pay the legitimate tax collected by him beyond a period of three months from the date on which such payment becomes due. |
| If he fails to fails to pay the illegitimate tax collected by him beyond a period of three months from the date on which such payment becomes due. |
| OR |
| If he supplies any goods or services or both without issue of any invoice. |
| If he issues any invoice or bill without supply of goods or services or both. |
| If he issues an incorrect or false invoice with regard to any supply. |
| If he issues any invoice or document by using the registration number of another registered person. |
| If he takes or distributes ITC in contravention of section 20, or the rules made there under (Input Service Distributor). |
| If he takes or utilizes ITC without actual receipt of goods or services or both. |
| If he fraudulently obtains refund of tax under this Act. |
| If he falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act. |
| If he furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequently. |
| If he obstructs or prevent any officer in discharge of his duties under this Act. |
| If he transports any taxable goods without the cover of documents as may be specified in this behalf. |
| If he suppresses your turnover leading to evasion of tax under this Act. |
| If he supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act. |
| If he tampers with, or destroy any material evidence or document. |
| If he disposes off or tampers with any goods that have been detained, seized, or attached under this Act. |
B. Penalty of Rs. 10,000/- or 100% of tax amount involved whichever is higher, shall be levied in case where a REGISTERED PERSON supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilized for reason of fraud or any wilful misstatement or suppression of facts to evade tax.
C. Penalty of Rs. 10,000/- or 10% of tax amount involved whichever is higher, shall be levied in case where a REGISTERED PERSON supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax.
D. Penalty up to Rs. 25,000/- shall be levied in case of a ANY PERSON (including tax-consultants) who:
- aids or abets any of the offenses specified in clauses A.
- acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made there under.
- receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made there under.
- fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry.
- fails to issue invoice in accordance with the provisions of this Act or the rules made there under or fails to account for an invoice in his books of account.
Apart from these general penalties prescribed under section 122, there are some other event based fines and penalties like:
- Penalty of Rs. 100/- per day or Rs. 5,000/- whichever is less shall be imposed in case of a person who is required to furnish an information return under section 150 but fails to do so within the period specified in the notice issued under sub-section (3) thereof. [Section 123]
- Fine upto Rs. 10000/- shall be imposed in case a person who is required to furnish any information or return under section 151 and he without reasonable cause fails to furnish such information or willfully furnishes or causes to furnish any information or return which he knows to be false. Also in case of a continuing offense this fine may further be extended to 100/- per day subject to a maximum limit of Rs. 25,000/-.[Section 124]
| Section 125 provides for Residual penalty of Rs. 25,000/- which can be imposed on ANY PERSON in case where no specific penalty is provided for any default in this Act. |
Some important point about penalties:
- No penalty shall be imposed on any person without giving him an opportunity of being heard.
- Order imposing penalty must be a speaking order clearly specifying the nature of the breach and the applicable law, regulation or procedure under which the amount of penalty for the breach has been specified.
- 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.
What is minor breach of tax regulations?
(a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less Rs. 5,000/-.
(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.
4. Detention/Seizure of Goods, Conveyance & Documents under section 129. [Penalty]
Where ANY PERSON transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made there under, all such goods and conveyance used as a means of transport for carrying the said goods and documents relating to such goods and conveyance shall be liable to detention or seizure and after detention or seizure, shall be released:
(a) on payment of the applicable tax and penalty equal to 100% of tax payable on such goods, where the owner of the goods comes forward for payment of such tax and penalty;
(b) on payment of the applicable tax and penalty equal to the 50% of the value of the goods reduced by the tax amount already paid thereon, where the owner of the goods does not come forward for payment of such tax and penalty.
In case of exempted goods, this penalty shall be levied at the rate of 2% of the value of goods or Rs. 25,000/-whichever is less. So this penalty is applicable to exempted goods also.
Also in lieu of this penalty, such person may furnish a security equivalent to the amount payable under this section. If such person fails to provide such security or pay penalty within 7 days of detention/seizure of goods, then such goods or conveyance shall be liable to be confiscation under section 130, However this period of 7 days can be reduced by the proper officer in case of perishable or hazardous goods.
5. Confiscation of goods or conveyances under section 130. [Fine & Penalty]
The goods or the conveyances shall be liable to confiscation under section 130 and the person shall be liable to penalty under section 122, where:
| Any person supplies or receives any goods in contravention of any of the provisions of this Act or the rules made there under with intent to evade payment of tax. |
| Any person does not account for any goods on which he is liable to pay tax under this Act. |
| Any person supplies any goods liable to tax under this Act without having applied for registration. |
| Any person contravenes any of the provisions of this Act or the rules made there under with intent to evade payment of tax. |
| Any person uses any conveyance as a means of transport for carriage of goods in contravention of the provisions of this Act or the rules made there under (unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance). |
Whenever confiscation of any goods or conveyance is authorized by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit i.e. both fine (in lieu of confiscation) u/s. 130 and penalty u/s 122 shall be levied in such cases.However:
- such fine shall not exceed the market value of the goods confiscated, less the tax chargeable thereon.
- aggregate of such fine and penalty leviable shall not be less than the amount of penalty leviable under sub-section (1) of section 129.
Also where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.
Liability of the owner of such goods or conveyance or the person referred above shall not be limited to such fine only but they, shall, in addition to fine, be also liable to any tax, penalty and charges payable in respect of such goods or conveyance.
In case such fine is not paid within 3 months, the proper officer may, after satisfying himself that the confiscated goods or conveyance are not required in any other proceedings under this Act, dispose of such goods or conveyance and deposit the sale proceeds thereof with the Government. This 3 months time is the maximum time allowed to pay fine and the proper officer may reduce this time also depending upon the circumstances and nature of goods confiscated.
| No confiscation made or penalty imposed, shall prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of this Act or under any other law for the time being in force i.e. if the law permits, prosecution may also be launched against the person irrespective of the fact that such person has already paid penalty or the goods against which penalty is imposed are already confiscated by the department. |
6. Punishment for certain offences under section 132.
| S.No. | Offence | Whether bailable or non-bailable? |
| (a) | supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made there under, with the intention to evade tax; | non-bailable |
| (b) | issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act, or the rules made there under leading to wrongful availment or utilization of input tax credit or refund of tax; | non-bailable |
| (c) | avails input tax credit using such invoice or bill referred to in clause (b); | non-bailable |
| (d) | collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due; | non-bailable |
| (e) | evades tax, fraudulently avails input tax credit or fraudulently obtains refund and where such offense is not covered under clauses (a) to (d); | Bailable |
| (f) | falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information with an intention to evade payment of tax due under this Act; | Bailable |
| (g) | obstructs or prevents any officer in the discharge of his duties under this Act; | Bailable |
| (h) | acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with, any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made there under; | Bailable |
| (i) | receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made there under; | Bailable |
| (j) | tampers with or destroys any material evidence or documents; | Bailable |
| (k) | fails to supply any information which he is required to supply under this Act or the rules made there under or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; or | Bailable |
Whoever commits, attempts to commit, or abets the commission of any of the offences mentioned above shall not only be liable to fine but shall also be punishable in cases where the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken:
1. exceeds Rupees five crores , with minimum imprisonment of 6 months which may extend to five years. Also such an offence shall be non-bailable in all cases.
2. exceeds Rupees two crores but does not exceed Rupees five crores, with minimum imprisonment of 6 months which may extend to three years.
3. exceeds Rupess one crore but does not exceed Rupees two crores, with minimum imprisonment of 6 months which may extend to one year.
In cases where he commits or abets the commission of an offense specified in clause (f) or clause (g) or clause (j), he shall be punishable with imprisonment which may extend to six months.
Where any person convicted of an offense under this section is again convicted of an offense under this section, then, he shall be punishable for with imprisonment for a term up to five years with fine.
7. Goods and Services Tax Compliance Rating under section 149
(1) Every registered person may be assigned a goods and services tax compliance rating score by the Government based on his record of compliance with the provisions of this Act.
(2) The goods and services tax compliance rating score may be determined on the basis of such parameters as may be prescribed.
(3) The goods and services tax compliance rating score may be updated at periodic intervals and intimated to the registered person and also placed in the public domain in such manner as may be prescribed.
As of now, such compliance rating has been directly related with provisions for issue of refunds under rule 3 of refund rules.
Non-compliance of any provision under GST is going to cost very heavy not only on the registered person but also on the taxable person, consultants, transporters and any other person directly or indirectly related to such non-compliance. So my advice to all of us is to be alert, be updated, understand the law fairly well, educate our clients about the new law and encourage our clients to be punctual and regular in their tax filings.
Suggestions are invited at khatrimithun@hotmail.com
Disclaimer: This article includes general information about legal issues and developments in the proposed law of GST in India. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances.
We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.
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