Offenses and Penalties Leviable Under the CGST/SGST Act

The major offenses under the GST Law are those involving the non-payment or short-payment of taxes or improper availment or utilization of input tax credit or erroneous refund which are mostly covered under section 73 and 74 of the CGST Act. There are other offenses under the CGST Act other than those covered under sections 73 and 74 which identify and  penalize the under those who commit an offenses mentioned under section 122 of the CGST Act.

According to section 122(1) of the Act, a taxable person shall be liable to pay a penalty of ten thousand rupees or an amount equal to the Tax evaded / not deducted / collected or input tax credit availed or distributed or fraudulently refund claimed in the matter, as the case may be whichever is higher if the taxable person commits the following offenses under the section:

  • Supplies any goods without invoice
  • Issues invoice without supply of goods
  • Collects tax amount but does not pay the same into the appropriate government treasury
  • Collects tax in contravention of the Act
  • Fails to deduct or collect tax and also fails to pay it to the appropriate governments
  • Takes input tax credit without receipt of goods
  • Obtains refund by fraud
  • Manipulates financial records
  • Fails to get registered
  • Gives false information
  • Transports taxable goods without documents
  • Fails to maintain books of accounts.
  • Fails to provide information and required documents.
  • Takes or distributes credit in violation
  • Obstructs or prevents a officer in discharge of duty
  • Suppresses turnover
  • Tampers or destroys evidence
  • Disposes or tampers goods detailed or seized etc
  • Non payment or short payment of tax or erroneous refund or wrong availment or utilisation of input tax credit by a registered person(a) for reason other than fraud or any willful misstatement or suppression of facts (b) for reason of  fraud or any willful misstatement or suppression of facts

Furthermore, there is also a fine of Rs. 25,000 under section 122(3) of the CGST Act to (1) any person who aids or abets any of the offenses specified in clauses (i) to (xxi) of sub-section 85(1); or (2) if he acquires possession of, or deals with any goods which he knows / has reason to believe are liable to confiscation; (3) Receives any supply of services in contravention; (4) Fails to appear before GST officer to honor the summons; (5) Fails to issue invoice or record it. Additionally, if a person who is required to furnish any information under section 150 fails to do so within the specified period in the notice, then the proper office may direct that such a person is to pay penalty of Rs. 100 per day to a maximum of Rs. 5,000.

If a person who is required to furnish any information under section 151 (a) without a reasonable cause fails to furnish such information or return as may be required under that section, or (b) willfully furnishes or causes to furnish any information or return which he knows to be false, then he is to be punished with a fine which may extend up to Rs. 10,000. However, in case of a continuing offense to a further fine which may extend to Rs. 100 per day after the first day during which the offense continues subject to a maximum limit of Rs. 25,000. Also, any person who contravenes any provisions of this Act or any rules  for which no penalty is separately provided for in the CGST Act shall be liable to pay a penalty which may extend unto Rs. 25,000.

The Compounding of offenses is a shortcut method to avoid litigation. For instance in the case of prosecution for an offenses in a criminal court, the accused has to appear before the Magistrate at every hearing through an advocate. Whereas, in compounding, the accused is not required to appear personally and can be discharged on payment of compounding fee which cannot be more than the maximum fine leviable under the relevant provisions. The compounding of cases is permitted under the section 138 of the CGST Act.

This benefit of compounding the offenses will not be available for (a) Anyone who has already committed any of the offenses mentioned under prosecution above, i.e., second-time offenders will not be allowed to compound. (b) A person who had committed an offense before under GST involving supplies above Rs. 1 crore and has been allowed to compound before. Thus, it stands, any person previously enjoying compounding for goods/services over Rs. 1 crore will not enjoy compounding a second time. (c) Any person who is also being tried under other acts such as.  FEMA etc. (d) Any person convicted by a court under GST (e) Any person giving false information during proceedings, or preventing the officer from his duty or destroying evidence The Compounding will be allowed only after payment of all tax, interest and penalty dues.

The amount payable for compounding of offenses shall be 50% of the tax involved subject to a minimum Rs. 10,000. Maximum amount for compounding is 150% of the tax (OR) Rs. 30,000 whichever amount is higher. Also, it is important to note that, if the person pays off the compounding amount, then no further proceedings shall be initiated against the accused person for the same offense and any criminal proceedings, if already initiated, will be abated. Furthermore, there is also a penalty of imprisonment for 6 months imposed along with a fine of Rs. 25,000 or both.

It can be noted that the offenses committed against GST may also result in criminal charges. The CGST Act also provides for the prosecution in conducting legal proceedings against someone in respect of a criminal charge. A person committing an offense with the deliberate intention of fraud, becomes liable to Prosecution under section of the CGST Act, i.e., face criminal charges. However the question remains as to what must be the guiding principle while deciding these prosecution charges. One such guiding principle in the presence of mens rea whilst committing an offense punishable under the Act, however, this is not the case. It has been continually held by Indian Courts and tribunals that mens rea to not be an essential deciding factor for imposing a penalty in a civil obligation for  unless the statute explicitly prescribes it to be. (Ref: R.S. Joshi v. Ajit Mills Ltd. (1977) and CCE v. Pepsi Foods Ltd. (2010))

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May 2021