Penalties for GST Offences: Insights into Section 122 & Rule 142

Comprehensive Guide to Penalties for GST Offences: Insights into Section 122 of the CGST Act, 2017 and Rule 142

 Introduction

Section 122 of the Central Goods and Services Tax (CGST) Act, 2017, prescribes penalties for various offences related to GST compliance. These offences include non-maintenance of records, false declarations, fraudulent input tax credit (ITC) distribution, and actions that obstruct the proper functioning of GST law. These penalties are intended to deter fraudulent practices and ensure that taxpayers comply with the law. The procedural aspects for issuing notices and determining penalties are governed by Rule 142 of the CGST Rules.

Section 122 incorporates stringent provisions  to impose penalties for non-compliance with GST laws. This section covers a broad spectrum of offences, ranging from non-issuance of invoices and fraudulent claims of Input Tax Credit (ITC) to obstruction of GST officers and transport of goods without documentation. These penalties, which are governed procedurally by Rule 142, aim to promote adherence to tax regulations, deter fraudulent activities, and safeguard government revenue. By defining specific offences and corresponding penalties, the law ensures accountability and provides clarity to taxpayers regarding the consequences of violations.

Section 122 of the Central Goods and Services Tax (CGST) Act, 2017, provides for penalties in cases of non-compliance with GST laws. It lists specific offences for which taxpayers and other individuals can be penalized, with the objective of enforcing compliance and discouraging fraudulent practices. Rule 142 of the CGST Rules governs the procedure for demand and recovery of tax, interest, and penalties, including issuing notices and orders for the offences mentioned in Section 122.

Overview of Penalties Under Section 122

1. Applicability

The section applies to:

• Taxable persons.
• Beneficiaries of certain transactions (Section 122(1A)).
• Electronic commerce operators ECO (Section 122(1B)).
• Other persons involved in aiding or abetting GST offences.

2. Key Penalty Provisions

• Minimum Penalty: ₹10,000.
• Maximum Penalty: An amount equivalent to the tax evaded or irregularly availed/utilized ITC, whichever is higher.

Offences and Penalties Under Section 122(1)

The following are offences for which penalties are imposed under Section 122(1):

1 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;.

Supplying Goods or Services Without Issuing an Invoice (Clause i)

• Offence: Failure to issue an invoice or issuance of incorrect or false invoices.
• Penalty: ₹10,000 or the tax evaded, whichever is higher.
• Example:
  • A retailer sells goods worth ₹1,00,000 but does not issue an invoice to avoid GST. The penalty will be either ₹10,000 or the GST on ₹1,00,000, whichever is higher.

2. 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 thereunder;

Issuing Invoices Without Actual Supply (Clause ii)

• Offence: Issuing invoices for non-existent supplies to fraudulently claim ITC.
• Penalty: ₹10,000 or the tax evaded, whichever is higher.
• Example:
  • A taxpayer generates fake invoices to pass ITC worth ₹50,000. The penalty is ₹50,000 or ₹10,000, whichever is higher.

3. 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;

Collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

Collecting Tax but Failing to Pay It (Clauses iii & iv)

• Offence: Collecting tax but failing to remit it to the government within three months.
• Penalty: ₹10,000 or the tax amount not paid, whichever is higher.
• Example:
  • A supplier collects ₹25,000 as GST from customers but does not deposit it. The penalty is ₹25,000 or ₹10,000, whichever is higher.

4. Fails to deduct the tax in accordance with the provisions of sub-section (1) of section 51, or deducts an amount which is less than the amount required to be deducted under the said sub-section, or where he fails to pay to the Government under subsection (2) thereof, the amount deducted as tax;

Fails to collect tax in accordance with the provisions of sub-section (1) of section 52, or collects an amount which is less than the amount required to be collected under the said sub-section or where he fails to pay to the Government the amount collected as tax under sub-section (3) of section 52;

Failure to Deduct or Collect Tax at Source (Clauses v & vi)

• Offence:
  • Failure to deduct tax (Section 51) or collect tax at source (Section 52).
  • Short deduction/collection or failure to remit the deducted/collected tax.
• Penalty: ₹10,000 or the tax amount not deducted/collected, whichever is higher.
• Example:
  • A government department fails to deduct ₹1,00,000 as TDS under GST. The penalty is ₹1,00,000.

5. Takes or utilizes 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 thereunder;

Fraudulent ITC Utilization Without Receipt of Goods or Services (Clause vii)

• Offence: Availing ITC without actual receipt of goods or services.
• Penalty: ₹10,000 or the tax evaded, whichever is higher.
• Example:
  • A taxpayer claims ITC of ₹5,00,000 based on fake purchase invoices. The penalty is ₹5,00,000.

6. Fraudulently obtains refund of tax under this Act;

Fraudulent Refund Claims (Clause viii)

• Offence: Claiming a GST refund without proper entitlement.
• Penalty: ₹10,000 or the refund fraudulently claimed, whichever is higher.
• Example:
  • A taxpayer claims a refund of ₹1,00,000 based on manipulated export invoices. The penalty is ₹1,00,000.

7. Takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;

Taking or Distributing ITC in Contravention of Section 20 or Rules (Clause ix)

• Offence:
  • A registered person distributes ITC incorrectly, such as distributing ITC exceeding the total tax available or distributing it among branches not entitled to receive it.
• Penalty:
  • ₹10,000 or an amount equivalent to the irregular ITC distributed or availed, whichever is higher.
• Example:
  • A head office in Delhi distributes ₹50,000 of ITC to its branches, but the total ITC available is ₹30,000. The penalty would be ₹20,000 (excess ITC distributed) or ₹10,000, whichever is higher.

8. 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;

Falsifying Records or Producing Fake Accounts (Clause x)

• Offence: Submitting false records or documents to evade tax.
• Penalty: ₹10,000 or the tax evaded, whichever is higher.

9. Is liable to be registered under this Act but fails to obtain registration;

furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequently;

Non-Registration or False Registration (Clauses xi & xii)

• Offence:
  • Failure to obtain registration when liable under GST.
  • Providing false registration details.
• Penalty: ₹10,000 or tax evaded, whichever is higher.

10. Obstructs or prevents any officer in discharge of his duties under this Act;

Preventing Officers from Discharging Duties (Clause xiii)

• Offence: Obstructing GST officers during inspections, audits, or investigations.
• Penalty: ₹10,000.

11. Transports any taxable goods without the cover of documents as may be specified in this behalf;

Transporting or Storing Taxable Goods Without Documents (Clause xiv)

• Offence: Moving goods without appropriate documentation (e.g., e-way bill).
• Penalty: ₹10,000 or the tax amount involved, whichever is higher.

12. Suppresses his turnover leading to evasion of tax under this Act;

Suppression of Turnover Leading to Tax Evasion (Clause xv)

• Offence:
  • Failure to declare taxable turnover in GST returns, resulting in evasion of tax.
• Penalty:
  • ₹10,000 or an amount equivalent to the tax evaded, whichever is higher.
• Example:
  • A taxpayer underreports sales worth ₹10,00,000, evading tax of ₹1,80,000 (18% GST). The penalty would be ₹1,80,000.

13. Fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;

Failure to Maintain Books of Account or Documents (Clause xvi)

• Offence:
  • Not maintaining proper records or failing to retain them as prescribed under GST law.
• Penalty:
  • ₹10,000 or the tax amount involved, whichever is higher.
• Example:
  • A supplier fails to maintain stock records and ITC invoices for the financial year, leading to an inability to verify transactions worth ₹2,00,000. The penalty would be ₹10,000 or the GST on ₹2,00,000, whichever is higher.

14. Fails to furnish information or documents called for by an officer in accordance with the provisions of this Act or the rules made thereunder or furnishes false

information or documents during any proceedings under this Act;

Failure to Furnish Information or Furnishing False Information (Clause xvii)

• Offence:
  • Not providing information requested by a GST officer or furnishing false information/documents during proceedings.
• Penalty:
  • ₹10,000 or the tax involved in the offence, whichever is higher.
• Example:
  • During an audit, a taxpayer provides fabricated invoices to claim ITC of ₹50,000. The penalty would be ₹50,000.

15. Supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act;

 Supplying, Transporting, or Storing Goods Liable to Confiscation (Clause xviii)

• Offence:
  • Involvement with goods known to be liable for confiscation under GST.
• Penalty:
  • ₹10,000 or the tax amount involved, whichever is higher.
• Example:
  • A transporter moves goods without an e-way bill, valued at ₹1,00,000 and taxable at 18%. The penalty would be ₹18,000 or ₹10,000, whichever is higher.

16. Issues any invoice or document by using the registration number of

• another registered person;

 Issuing Invoices Using Another Person’s GSTIN (Clause xix)

• Offence:
  • Generating invoices using someone else’s GST registration number to pass on ITC fraudulently.
• Penalty:
  • ₹10,000 or the tax evaded, whichever is higher.
• Example:
  • A taxpayer uses a defunct company’s GSTIN to issue invoices worth ₹5,00,000 to claim ITC. The penalty would be ₹90,000 (18% of ₹5,00,000) or ₹10,000, whichever is higher.

17. Tampers with, or destroys any material evidence or document;

Tampering with or Destroying Evidence (Clause xx)

• Offence:
  • Manipulating or destroying evidence or documents relevant to GST compliance or investigations.
• Penalty:
  • ₹10,000 or the tax amount involved, whichever is higher.
• Example:
  • A taxpayer deletes digital records of transactions worth ₹3,00,000 to avoid tax scrutiny. The penalty would be ₹54,000 (18% of ₹3,00,000) or ₹10,000, whichever is higher.

18. Disposes off or tampers with any goods that have been detained, seized, or attached under this Act,

Tampering with Goods Detained, Seized, or Attached (Clause xxi)

• Offence:
  • Disposing of or tampering with goods detained, seized, or attached by the GST department.
• Penalty:
  • ₹10,000 or the tax amount involved, whichever is higher.
• Example:
  • A taxpayer removes goods worth ₹2,00,000 from a warehouse after they were seized by GST officers. The penalty would be ₹36,000 (18% of ₹2,00,000) or ₹10,000, whichever is higher.

Penalties for Beneficiaries of Offences (Section 122(1A)

• Applicability: Persons retaining the benefits of offences under:
  • Issuing invoices without supply (Clause ii).
  • Fraudulent ITC claims (Clause vii).
  • Irregular distribution of ITC (Clause ix).
• Penalty: An amount equivalent to the tax evaded or ITC claimed fraudulently.

Penalties for E-Commerce Operators (Section 122(1B))

• Offences:

1. Allowing supplies by unregistered persons (other than exempt persons).

2. Allowing inter-state supplies by ineligible persons.

3. Incorrectly reporting outward supplies in GSTR-8.

• Penalty: ₹10,000 or the tax involved in the transaction, whichever is higher.

General Penalty Provisions (Section 122(2) and (3))

1. Short Payment Without Fraud (Section 122(2)(a))

• Penalty: ₹10,000 or 10% of the tax due, whichever is higher.
• Example:
  • A taxpayer short-pays GST of ₹1,00,000 due to a clerical error. The penalty is ₹10,000 or ₹10,000 (10% of ₹1,00,000).

2. Short Payment With Fraud (Section 122(2)(b))

• Penalty: ₹10,000 or 100% of the tax due, whichever is higher.

3. Penalty for Aiding or Abetting Offences (Section 122(3))

• Offence:
  • Aiding or abetting GST offences.
  • Transporting goods liable for confiscation.
  • Failing to issue invoices or maintain records.
• Penalty: Up to ₹25,000.

Procedure for Determining Penalty (Rule 142)

1. Issuance of Notice:

• • GST authorities issue a notice in Form DRC-01, specifying the nature of the offence and proposed penalty.

2. Voluntary Payment:

• • The taxpayer can voluntarily pay the tax, interest, and penalty using Form DRC-03 to conclude the matter.

3. Adjudication:

• • If the taxpayer disputes the notice, the adjudicating authority examines the evidence and passes an order in Form DRC-07, determining the penalty.

4. Appeal:

• • Taxpayers can appeal the penalty order to higher authorities as per GST law.

1. • GST authorities issue a demand notice via Form DRC-01 for any offence.

Examples of Practical Scenarios

1. Issuing Fake Invoices:

• • A taxpayer issues fake invoices worth ₹10,00,000 to claim ITC fraudulently. The penalty is ₹10,00,000 under Clause (ii).

2. Non-Compliance with E-Way Bill Requirements:

• • Goods worth ₹5,00,000 are transported without an e-way bill. The penalty is ₹10,000 or the GST on ₹5,00,000, whichever is higher.

3. Failure to Deduct TDS:

• • A government entity fails to deduct ₹50,000 as TDS under Section 51. The penalty is ₹50,000.

Conclusion

Section 122 ensures strict penalties for a wide range of offences under the GST law, promoting compliance and deterring fraudulent practices. Taxpayers and entities must adhere to GST regulations, maintain accurate records, and rectify errors promptly to avoid penalties. Understanding the provisions of Section 122 and compliance with Rule 142 procedures are critical for smooth GST operations and avoiding legal repercussions.

The penalty provisions under Section 122 of the CGST Act serve as a cornerstone of the GST compliance framework, ensuring fairness and transparency in tax administration. By addressing various offences, ranging from inadvertent errors to deliberate fraud, the law seeks to balance enforcement with opportunities for voluntary compliance. Taxpayers must familiarize themselves with these provisions to avoid penalties and ensure lawful operations. Additionally, adhering to the procedures under Rule 142 can help resolve disputes efficiently, contributing to a robust and compliant tax ecosystem

Section 122 of the CGST Act, 2017, provides a comprehensive framework for penalizing offences, ensuring compliance and deterring fraudulent practices. With penalties ranging from ₹10,000 to the tax evaded, these provisions aim to uphold the integrity of the GST system. Taxpayers must maintain proper records, comply with documentation requirements, and act in good faith to avoid penalties. Understanding these provisions and adhering to Rule 142 ensures smooth compliance and mitigates risks under GST law.

Disclaimer : The contents of this document are solely for informational purpose. It does not constitute professional advice or a formal recommendation. The document is made with utmost professional caution but in no manner guarantees the content for use by any person. It is suggested to go through original statute / notification / circular / pronouncements before relying on the matter given. The document is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this document will be accepted by us. Professional advice recommended to be sought before any action or refrainment