Offences and Penalties under GST

Offences and Penalties under GST

Offences under GST and respective applicable penalties are enlisted under the CGST Act. The provisions of offences and penalties are dealt with from Section 122 to Section 128 of the CGST Act.

1st February 2021
Union Budget 2021:
Section 129 is delinked from section 130. Accordingly, proceedings relating to detention, seizure and release of goods and conveyances in transit will be separate from the levy of penalty for the confiscation of goods and conveyance.

What is an offence?

An offence is a breach of a law or rule, i.e., an illegal act. Similarly, an offence under GST is a breach of the provisions of the GST Act and Rules.

What are the offences under GST?

When has anyone committed an offence under GST?
There are 21 offences under GST. For easy understanding, these have been grouped into heads as given below:

Fake or wrong invoices:
  1. A taxable person supplies any goods/services without any invoice or issues a false invoice.
  2. He issues any invoice or bill without supply of goods/services in violation of the provisions of GST
  3. He issues invoices using the identification number of another bonafide taxable person

Fraud:
  1. He submits false information while registering under GST
  2. He submits fake financial records/documents or files fake returns to evade tax
  3. Does not provide information/gives false information during proceedings

Tax evasion:
  1. He collects any GST but does not submit it to the government within 3 months
  2. Even if he collects any GST in contravention of provisions, he still has to deposit it to the government within 3 months. Failure to do so will be an offence under GST.
  3. He obtains a refund of any CGST/SGST by fraud.
  4. He takes and/or utilizes input tax credit without actual receipt of goods and/or services
  5. He deliberately suppresses his sales to evade tax
Supply/transport of goods:
  1. He transports goods without proper documents
  2. Supplies/transports goods that he knows will be confiscated
  3. Destroys/tampers goods that have been seized
Others:
  1. He has not registered under GST although he is required to by law
  2. He does not deduct TDS or deducts less amount where applicable.
  3. He does not collect TCS or collects less amount where applicable.
  4. Being an Input Service Distributor, he takes or distributes input tax credit in violation of the rules
  5. He obstructs the proper officer during his duty (for example, he hinders the officer during the audit by tax authorities)
  6. He does not maintain all the books that he required to maintain by law
  7. He destroys any evidence

For the 21 offences above, for fraud cases, penalty will be 100% (minimum Rs. 10,000)
For cases mentioned in 1, 2 under fake invoicing and 4th under both tax evasion and others heads, the penalty is equal to the tax evaded or ITC availed or passed on.
Offences under GST by Companies, LLPs, HUFs and Others

For any offence committed by a company, both the officer in charge (such as director, manager, secretary) as well as the company will be held liable. For LLPs, HUFs, trust, the partner/Karta/managing trustee will be held liable.

What does penalty mean?

The word “penalty” is not specifically defined in GST and so it takes the meaning from various judicial pronouncements and principles of jurisprudence. A penalty is a punishment imposed by law for committing an offence or failing to do something that was the duty of a party to do. A penalty can be both corporal or pecuniary, civil or criminal. Both corporal (jail) and pecuniary (monetary) penalties are applicable under GST.

Common Offences Under GST And Their Penalties


Type of Offence
Amount of Penalty

Penalty for delay in filing GSTR
The late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST. Total will be Rs. 200/day. The maximum is Rs. 5,000. There is no late fee on IGST.

Penalty for not filing GSTR
Penalty 10% of the tax due or Rs. 10,000 – whichever is higher

Penalty for committing a fraud
Penalty 100% of the tax due or Rs. 10,000 – whichever is higher (High-value fraud cases also have jail term)

Penalty for helping a person to commit fraud
Penalty extending up to Rs. 25,000

Penalty for opting for composition scheme even though he is not eligible
Demand & recovery provisions of sections 73 & 74 will apply.
(i) Fraud case- Penalty 100% of the tax due or Rs. 10,000 – whichever is higher
(ii) Non-fraud casePenalty 10% of the tax due or Rs. 10,000 – whichever is higher

Penalty for wrongfully charging GST rate— charging a higher rate
Penalty 100% of the tax due or Rs. 10,000    -whichever is higher (if the additional GST collected is not submitted with the govt)

Penalty for not issuing an invoice
Penalty 100% of the tax due or Rs. 10,000 – whichever is higher

Penalty for not registering under GST
Penalty 100% of the tax due or Rs. 10,000 – whichever is higher

Penalty for incorrect invoicing
A penalty of Rs. 25,000

Situations where there is no penalty (but interest may apply)


Type of Offence

Action

Penalty for incorrect type of GST charged (IGST instead of CGST/SGST)
No penalty. Pay the correct GST and get a refund of the wrong type of GST paid earlier

Penalty for incorrect filing of GST return
No penalty. But interest @18% on shortfall amount

Penalty for delay in payment of invoice.
ITC will be reversed if not paid within 6 months. No penalty as such

Penalty for wrongfully charging GST rate— charging a lower rate
Interest @18% applicable on the shortfall

What are the Penalties under GST

If any of the offences are committed then a penalty will have to be paid under GST. The principles on which these penalties are based are also mentioned by law.

Penalty in cases of fraud

An offender has to pay a penalty amount of tax evaded/short deducted etc., i.e., 100% penalty, subject to a minimum of Rs. 10,000. For the 21 offences above, for fraud cases, the penalty will be 100% (minimum Rs. 10,000).

What is the penalty for helping someone to commit fraud under GST?

Not only the taxable person but any person who does the following will have to pay a penalty extending up to Rs. 25,000
  1. Helps any person to commit fraud under GST
  2. Acquires/receives any goods/services with full knowledge that it is in violation of GST rules
  3. Fails to appear before the tax authority on receiving a summons
  4. Fails to issue an invoice according to GST rules
  5. Fails to account/vouch any invoice appearing in the books

Are there any jail punishments?

Yes, GST has corporal punishments (jail) for high-value fraud cases as follows-

Tax Amount Involved
100-200 Lakhs
200-500 Lakhs
Above 500 Lakhs
Jail Term
Up to 1 year
Up to 3 years
Up to 5 Years
Fine
In all three cases



These punishments are applicable along with monetary penalty.

Penalty for Other Cases (no intention of fraud or tax evasion)

An offender not paying tax or making short-payments has to pay a penalty of 10% of the tax amount due, subject to a minimum of Rs.10,000. 
Therefore, the penalty will be high at 100% of the tax amount when the offender has evaded i.e., where there is a deliberate fraud. For other non-fraud cases, the penalty is 10% of tax.

General Penalty

Any offence under GST for which penalty is not specifically mentioned will be liable to a penalty extending Rs. 25,000.

Minor Breaches under GST
  1. Minor breaches (where tax amount is less than Rs.5000) or errors are easily rectifiable and clearly made without any motive of fraud.
  2. There will not be substantial penalties for minor breaches
  3. The tax authority may issue a warning in such cases.
This will be beneficial to businesses, especially SMEs, who may make genuine mistakes especially in the first few months of GST implementation. Being penalized for genuine errors will be a hard blow to the SMEs who do not have as many resources as the larger organizations to adapt to GST.

General Rules Regarding Penalty
These rules of penalty are generally the same in all laws whether tax laws or contract law or any other law.
  1. Every taxable person, on whom the penalty is imposed, will be served with a show-cause notice first and will have a reasonable opportunity of being heard.
  2. The tax authority will give an explanation regarding the reason for the penalty and the nature of the offence
  3. When any person voluntarily discloses a breach of law, the tax authority may use this fact to reduce the penalty



For more information on this visit TAXAJ


Posted by Aashima
Team TaxaJ


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