Penalties for Fake Invoices and False Entries – Section 122 (1A) of CGST Act 2017  ( W.E.F 1.04.2020) for certain offences.

The Finance minister in her budget speech has announced certain new provision in GST . According to Clause 124 of the Finance Bill 2020

Extract from the Finance Bill, 2020

124. In section 122 of the Central Goods and Services Tax Act, after sub-section (1), the following sub-section shall be inserted, namely:––

“(1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.”

Penalties

Basically , section 122  of CGST Act 2017, is divided into three sub-sections:

The first sub-section 122(1)  prescribes 21 types of offences, any one of which, if committed, can attract penalty of ten thousand rupees or equal to the amount of tax involved, whichever is higher.

The second sub-section 12 (2)deals with two situations, firstly, where certain offences committed are not due to either fraud or wilful misstatement or suppression of facts. In such a case, penalty will get reduced to 10% of tax involved, subject to a minimum of ten thousand rupees. Secondly, where the offence committed is due to either fraud or any wilful misstatement or suppression of facts to evade tax will result in a penalty equal to tax involved subject to a minimum of ten thousand rupees.

The third sub-section 122(3) deals with offences where the person is not directly involved in any evasion but may aid or abet or may be a party to evasion or if he does not attend summons or produce documents. Penalty in such a cases would be up to twenty five thousand rupees.

Brief Analysis:

Section 122 of the CGST Act is being amended by inserting a new sub-section 122(1A) to make the beneficiary of the transactions of passing on or availing fraudulent Input Tax Credit liable for penalty similar to the penalty leviable on the person who commits such specified offences.

These changes have been made effective from April 01, 2020

Analysis of Section 122 (1A)

with respect to clause (i), (ii), (vii) or clause (ix) of sub-section (1) of Sec 122

SITUATION Section 122(1A) of GST Act’2017.
(i)Supplies any goods or services or both without issue of any invoice The person can be held as beneficiary of a transaction covered under Clause (i) of Section 122(1) and hence liable for penalty equivalent to the amount of tax evaded u/s 122(1A) 
(ii) Invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply or receipt of such goods or services or both. The person can be held as beneficiaryof a  transaction covered under Clause (ii) of Section 122(1) and hence liable for  penalty equivalent to the amount of tax evaded u/s 122(1A)
(iii)Takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made there under; The person can be held as beneficiary of a transaction covered under Clause (vii) of Section 122(1) and hence liable for penalty equivalent to the amount of ITC availed u/s 122(1A).
(iv) Forged or falsified documents such as a false invoice or, in general, a false piece of documentary evidence The person can be held as beneficiary of a transaction covered under Clause (i) of Section 122(1) and hence liable for penalty equivalent to the amount of tax evaded u/s 122(1A)

The objective of this amendment is to penalise the beneficiary and the wrongdoer of the transactions specified in clause (i),(ii),(vii) or clause (ix) of sec 122(1) liable for penalty.

Conclusion : GST knowledge and accounting knowledge is very important to the accountants of the organisation.. Proper reconciliation of books with GSTR-2A , GSTR1 and GSTR3B is very essential, to avoid any disputes in future. Any mistake or negligence on the part of the assessee can expose him to penalties under Section 122 of  GST. The wordings used in the section 122(IA) are very subjective, and it is very difficult to defend against the interpretation of the revenue on this type of subjective issues. 

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