A discussion about various penal provisions under GST
Under GST Act most of the penal provisions are contained in Section 122 to 138 given in Chapter XIX pertaining to Offences and Penalties.
There are penal provisions u/ss. 10, 52, 73 & 74 also.
All the penalties under GST are governed by provisions of the Act, as in GST Rules there seems to be nothing much relevant about levy of penalty.
Let us first discuss the provisions of Sec. 122 to 138.
1. The offences specified u/s 122(1), include, inter alia, the following offences, where a taxable person,-
– supplies any goods or services without issue of any invoice; or
– issues an incorrect or false invoice with regard to any supply;
– issues any invoice or bill without supply of goods or services in violation of provisions of the Act;
– fails to pay the tax collected beyond 3 months from its due date of payment;
– fails to deduct tax as per Sec. 51(1) or deducts less tax or fails to pay the tax deducted;
– fails to collect tax as per Sec. 52(1) or collect less tax or fails to pay the tax collected;
– fraudulently obtains refund of tax – clause (viii);
– takes or distributes ITC in contravention of Sec. 20, or the rules made therefor;
– 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 – clause (x); or
– suppresses his turnover leading to evasion of tax under this Act – clause (xv).
2. Sec. 122(1) provides that the person committing any of the listed offence shall be liable to pay a penalty of ₹ 10,000/- or an amount equivalent to the tax evaded or the amount of tax not deducted or short deducted u/s. 51 or deducted but not paid, or tax not collected or short collected u/s. 52 or collected but not paid, or ITC irregularly availed or passed on or distributed, or refund claimed fraudulently, whichever is higher.
3. It is to be noted that except in clause (x) & (xv) of Sec. 122(1), there is no reference of tax evasion. But, the penalty is linked with the amount of tax evaded. Therefore, penalty u/s. 122(1) for offences other than offence in clause (x) & (xv) should be ₹ 10,000/- only, unless tax evasion is established, except in case of offence pertaining to tax deduction or tax collection or input tax credit, where penalty is not based on the amount of tax evaded.
For offence in clause (x) & (xv), even the penalty of ₹ 10,000/- should not be leviable unless the intention to evade the tax is established.
4. Offence in clause (viii) of Sec. 122(1) shall be deemed to have been committed only when a person fraudulently obtains refund of tax. Such offence is covered by Sec. 122(2) also.
However, the offence of claiming an incorrect refund without any fraudulent intention should be covered by Sec. 122(2).
5. Offences u/s. 122(2)
If a registered person has not paid or has short-paid the tax payable by him or has claimed refund of tax erroneously, or has wrongly availed or utilized the ITC, then he is liable for penalty u/s. 122(2).
If an offence specified u/s. 122(2) is committed for any reason (other than the reason of fraud or wilful misstatement or suppression of facts to evade the tax), then it is liable for penalty of ₹ 10,000/- or 10% of the tax due, whichever is higher.
However, if such offence is committed by fraud or wilful misstatement or suppression of facts to evade the tax, then it is liable for penalty of ₹ 10,000/- or 100% of the tax due, whichever is higher.
The offence of fraudulently claiming any refund is covered by clause (viii) of Sec. 122(1) also.
6. If a person,-
(a) aids or abets any of the offences specified in Sec. 122(1), or
(b) in any manner deals with any goods which he knows or has reason to believe that they are liable for confiscation, or
(c) receives or in any manner deals with the supply of services which he knows that it is in contravention of any provisions of GST Act or rules, or
(d) fails to appear before Central tax Officer, when issued a summon for this purpose; or
(e) fails to issue invoice as per provisions of GST Act or rules, or fails to account for an invoice, he is liable for a penalty which may extend up to ₹ 25,000/-.
7. Sec. 123 provides for penalty up to ₹ 5,000/- for failure to submit information return u/s 150.
8. Sec. 124 provides for fine up to ₹ 10,000/- and further fine up to ₹ 100/- per day subject to maximum of ₹ 25,000/- in case of failure to furnish information or return u/s. 151 without reasonable cause, or for wilfull furnishing of false information or return u/s. 151.
9. Sec. 126 provides that no penalty shall be levied for minor breaches of tax regulations or procedural requirements like any omission or mistake in documentation which is easily rectifiable, provided there is no fraudulent intention or gross negligence.
It also provides that the amount of penalty shall depend on the facts and circumstances of each case, and shall be commensurate with the degree and severity of the offence. However, provisions of Sec. 126 are not applicable where the penalty specified in other Sections is a fixed sum or is expressed as a fixed percentage.
10. Sec. 127 empowers the proper officer to levy penalty on any person for any offence which is not covered under any proceedings u/s. 62, 63, 64, 73, 74, 129 or 130.
The provisions of Sec. 127 are more or less similar to Sec. 125, except that in Sec. 127 no outer limit of penalty is prescribed.
11. Sec. 128 empowers the Govt. to waive, in part or full, any penalty leviable u/ss. 122, 123 or 125 or any late fee in Sec. 47 on the recommendations of the Council for any class of taxpayers under mitigating circumstances.
12. Sec. 129 provides for detention, seizure and levy of penalty in case of contravention of any provision of the Act while transporting or storing the goods in transit.
Before levy of penalty u/s. 129 a notice must be issued and an opportunity of hearing must be given to the concerned person.
Proviso to Sec. 129(1) specifically provides that any goods or conveyance shall not be detained or seized without serving an order of detention or seizure on the person transporting the goods – Sec. 129(1).
Where the owner of goods comes forward, then applicable tax and penalty equal to 100% of tax will be leviable.
If owner of the goods does not come forward, then applicable tax and penalty equal to 50% of value of goods reduced by tax amount paid can be levied.
In case of exempted goods, penalty is 2% of value of goods or ₹ 25,000/- whichever is less, if owner comes forward; and 5% of value of goods or ₹ 25,000/- whichever is less, if owner does not come forward.
If penalty levied u/s. 129 is not paid within 7 days of detention or seizure, than further proceedings shall be initiated u/s. 130 for confiscation of goods and conveyance. This period of 7 days can be reduced by proper officer if the goods are of perishable or hazardous nature.
13. As per Sec. 129(2) provisions of Sec. 67(6) shall, mutatis mutandis, apply for detention and seizure of goods u/s. 129.
Sec. 67(6) provides that the goods seized shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.
Rule 140 of CGST Rules provides for submission of such bond and security.
14. Interpretation of the expression “person transporting the goods”
The proviso to Sec. 129(1) provides that no goods or conveyance shall be detained or seized without serving an order of detention or seizure on the “person transporting the goods”.
Similarly, Sec. 129(6) provides that if the person transporting the goods, or the owner of the goods fails to pay the tax and penalty levied within 7 days of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of Section 130.
A question may arise what is correct interpretation of the expression “person transporting the goods”. Whether it is driver of the vehicle, or the owner of the vehicle, or the person who issued the related MTR, if any, and is answerable to the consignor/consignee for transportation of the goods.
In my opinion the person who issued the MTR, if any, and is answerable to the consignor / consignee for transportation of the goods, should be treated as “person transporting the goods”, and if no such person comes forward, then only the owner of the vehicle should be treated as the “person transporting the goods” and if the owner of the vehicle also does not come forward, then the driver of the vehicle can be treated as the “person transporting the goods”
The above interpretation seems to be logical also, considering the requirement of payment of tax and penalty by the person transporting the goods, and the necessity of filing the appeal against the levy of penalty, etc., which may not be possible by the driver of the vehicle or the owner of the vehicle who may not be in a position to deposit the amount of tax and penalty, and may also not be willing to get involved in the lengthy process of filing of 1st appeal, second appeal, or appeal to High Court, if required.
Moreover, even if the owner of the vehicle or the driver of the vehicle is ready to get involved in the lengthy process of appeals, etc. then also when the appeal is favourably decided by the higher forum say after 2-3 years, then at that time it may be extremely difficult to get back the amount refunded in the name of the driver or the owner of the vehicle.
15. Sec. 130 provides for confiscation of goods or conveyances and levy of penalty, if a person –
(i) supplies or receives any goods against the provisions of the GST Act or Rules with intent to evade payment of tax; or
(ii) does not account for any goods on which he is liable to pay tax; or
(iii) supplies any goods liable to tax without getting registration; or
(iv) contravenes the provisions of the GST Act or Rules to evade payment of tax; or
(v) uses any conveyance for transportation of goods in contravention of provisions of the GST Act or Rules. However, in such cases the penalty shall be leviable u/s. 122 – Sec. 130(1).
For clauses (i) & (iv) intention to evade the tax must be there, without that no penalty should be leviable in these clauses.
16. Sec. 130(2) provides that in lieu of confiscation of any goods or conveyance, the proper officer shall give to the owner of the goods an option to pay, in lieu of confiscation, such fine as the said officer thinks fit, which shall not exceed market value of the goods confiscated, less the tax chargeable thereon.
However, the aggregate of the fine and penalty leviable shall not be less than the amount of penalty leviable u/s. 129(1).
In case of conveyance used for carriage of goods or passengers for hire, in lieu of confiscation of the conveyance, the owner of the conveyance shall have an option to pay a fine equal to the tax payable on the goods being transported thereon.
17. Sec. 130(3) provides that owner of the goods and the vehicle liable for confiscation shall be liable to pay tax, penalty and charges payable in respect of such goods and conveyance, irrespective of option to pay fine u/s. 130(2) in lieu of confiscation.
Thus, when tax and penalty shall be payable even after availing option of fine, then no one should be willing to avail the option of fine u/s. 130(2), particularly, when there is a specific provision u/s. 129(1)(c) for release of the seized goods and conveyance on furnishing of a bond and security.
18. Offences liable for prosecution
Sec. 132 has specified certain offences which are liable for imprisonment, where the amount of tax evasion or ITC wrongly availed or utilised, or refund wrongly taken, exceeds ₹ one crore, which will include amount of Central and State tax, ITC and Compensation Cess, as the case may be.
Sec. 132(6) provides that a person shall not be prosecuted u/s. 132 for any offence without previous sanction of the Commissioner.
Sec. 138 provides for compounding of certain offence listed u/s. 132.
The amount for compounding of an offence shall be such as may be prescribed, subject to minimum of ₹ 10,000/- or 50% of tax involved, whichever is higher, and maximum ₹ 30,000/- or 150% of tax, whichever is higher – Sec. 138(2).
Application for compounding shall be filed in Form CPD- 01 to the Commissioner, which shall be decided within 90 days after giving an opportunity of hearing to the applicant.
The compounding shall be allowed only after making payment of tax, interest and penalty liable to be paid in respect of said offence.
Any compounding u/s. 138 shall not affect the proceedings instituted under any other law.
19. Sec. 133 to 137 are not very much relevant for the purpose of this Article.
Other penal provisions
20. Composition wrongly availed
If a taxable person has opted for composition u/s. 10 despite not being eligible for the same, then in addition to tax, he shall be liable for penalty.
Provisions of Sec. 73 & 74 shall, mutatis mutandis, apply for determination of such penalty – Sec. 10(5)
21. Failure to furnish information by e-commerce operator
If the e-commerce operator fails to furnish the information required from him within 15 working days from the date of service of notice, he shall be liable for penalty u/s. 52(14) which may extend up to ₹ 25,000/-, without prejudice to any action which may be taken u/s. 122 – Sec. 52(14)
22. Sec. 73 & 74 : Penalty for tax not paid or short paid or tax erroneously refunded or input tax credit wrongly availed or utilised
In case of tax not paid or short paid or tax erroneously refunded or input tax credit wrongly availed or utilised (other than by reason of fraud or wilful mis-statement or suppression of facts to evade tax), a notice is served on such person requiring him to show cause why he should not pay the such amount with interest u/s. 50 and penalty – Sec. 73(1).
Before issue of notice u/s. 73(1) such person may pay the amount of tax with interest payable u/s. 50 at his own, and can inform the proper officer in writing about such payment. In that case no notice shall be issued u/s. 73(1) – Sec. 73(5).
Even if within 30 days of issue of notice u/s. 73(1) the amount of tax is paid by such person with interest payable u/s. 50, no penalty shall be payable and all proceedings in respect of the said notice shall be deemed to be concluded – Sec. 73(8).
But, Sec. 73(11) provides that notwithstanding anything contained in Sec. 73(6) or 73(8), penalty u/s. 73(9) shall be payable if the amount of self-assessed tax or amount collected as tax has not been paid within 30 days from the due date of its payment.
If tax is not paid by such person even after issue of notice, then the proper officer, after considering the representation of such person, shall pass order for tax, interest, and penalty equivalent to 10% of tax or ₹ 10,000/-, whichever is higher, payable by such person – Sec. 73(9).
Order u/s. 73(9) shall be passed within 3 years from the due date for furnishing of annual return for the relevant financial year to which such amount relates – Sec. 73(10).
23. The provisions of Sec. 74 are applicable when tax is not paid or short paid or tax erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts.
The provisions of Sec. 74 are more or less similar to Sec. 73.
Such person at his own may pay tax along with interest payable u/s. 50, and penalty equivalent to 15% of tax, and can inform proper officer in writing about such payment, in that case no notice shall be issued u/s. 74(1).
If amount of tax is paid with interest payable u/s. 50 & penalty equivalent to 25% of tax, within 30 days of issue of notice u/s. 74(1), then all proceedings in respect of said notice shall be deemed to be concluded – Sec. 74(8).
If tax, interest and penalty is not paid as per provisions of Sec. 74(5) or 74(8) even after issue of notice, then the proper officer shall pass order for tax, interest and penalty payable by such person.
In Sec. 74(11) it is mentioned that if amount of tax is paid with interest payable u/s. 50 & penalty equivalent to 50% of tax, within 30 days of receipt of order passed u/s. 74, all proceedings in respect of the said notice shall be deemed to be concluded.
For the purpose of Sec. 73 & 74 ‘all proceedings in respect of the said notice’ shall not include proceedings u/s. 132 – Explanation 1(i) to Sec. 74.
[Source : Article printed in the souvenir of 2 Day National Tax Conference held on 5th & 6th May, 2018 at Indore]