Offences and Penalties
The provisions relating to offences and penalties are contained in sections 122 to 138 of the Central Goods and Services Tax Act, 2017. As the provisions applicable to State GST Act of each State are identical, Section or Rules of CGST Act only are mentioned in this write up and wherever the quantum of penalty is mentioned, it should be read as double of the said amount. This means where the CGST Act provides any penalty or fine at ₹ 100/-, that person will also be liable for another ₹ 100/- under the State GST Act.
Penalty applicable to taxable person [Sub-section (1) of Section 122] - A taxable person is liable for penalty if he commits any of the following offences.
i) Supply without issuing invoice or issue of an incorrect or false invoice with regard to any such supply;
ii) Issue any invoice or bill without supply, in violation of provisions of this Act or rules made thereunder;
iii) Failure to pay to the Government any amount collected as tax beyond a period of three months from the due date of such payment;
iv) Collects tax in contravention of the provisions of the Act and failure to pay the same to the Government within three months from the due date for such payment;
v) Failure to deduct tax at source u/s 51 or short deduction of tax at source or failure to pay the tax so deducted to the Government
vi) Failure to collect tax at source u/s 52 or short collection of tax at source or failure to pay the tax so collected to the Government
vii) Availing or utilising ITC without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of the Act or rules made thereunder;
viii) Fraudulently obtaining a refund of tax under the Act;
ix) Availing or distributing ITC in contravention of provisions relating to manner of distribution of credit by ISD;
x) Falsifying or substituting financial records or production of fake accounts or documents or furnishing any false information or return with an intention to evade payment of tax due;
xi) Failure to obtain registration under the Act though liable.
xii) Furnishing of any false information with regard to registration particulars, either at the time of applying for registration or subsequently.
xiii) Obstructing or preventing any officer in discharge of his duties;
xiv) Transporting taxable goods without the cover of specified documents;
xv) Suppressing turnover leading to evasion of tax;
xvi) Failure to keep, maintain or retain books of account and other documents in accordance with the provisions of the Act or rules made thereunder;
xvii) Failure to furnish information or documents called for by an officer, or furnishing false information or documents during any proceedings;
xviii) Supply, transportation or storage of any goods by a taxable person, which he has reason to believe are liable for confiscation;
xix) Issue of any invoice or document by using the registration number of another registered person;
xx) Tampering with, or destruction of any material evidence or document;
xxi) Disposing off or tampering with any goods which have been detained, seized, or attached under the Act.
Quantum of Penalty: ₹ 10,000 or equivalent to tax evaded or not deducted u/s 51 or short deducted but not paid to the Government, or tax not collected u/s 52 or short collected or collected but not paid to the Government or ITC availed of or passed on or distributed irregularly, or the refund claimed fraudulently whichever is higher.
Vide Section 126 of Finance Act No. 12 of 2020 dated 27.03.2020, after sub-section (1) of Section 122, sub-section (1A) is inserted as follows. However it was not brought into force till this referencer was sent for printing:
"(1A) Any person who retains the benefit of transactions 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 tax evaded or input tax credit availed of or passed on."
Penalty applicable to registered persons [sub-section (2) of section 122]: Any registered person who makes a supply on which any tax is not paid or short-paid or erroneously refunded, or where ITC is wrongly availed or utilised, is liable to penalty as shown below:-
| Section |
Nature of offence |
Penalty prescribed |
| 122(2)(a) |
Not due to fraud or any wilful misstatement or suppression of facts to evade tax |
₹ 10,000 or 10% of tax whichever is higher |
| 122(2)(b) |
Due to fraud or any wilful misstatement or suppression of facts with a view to evade tax |
₹ 10,000 or 100% of tax whichever is higher |
Penalty applicable to any person [sub-section (3) of section 122]: Any person who is guilty of the following, is liable to a penalty upto ₹ 25,000:
a) Aids or abets any of the offences specified in clauses (i) to (xxi) of Section 122;
b) Acquiring possession of goods or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying or purchasing or in any manner deals with any goods which he knows or reason to believe are liable to confiscation under this Act;
c) Receiving any supply of services which a person has reasons to believe are in contravention of any provisions;
d) Failure to appear before the officer in response to a summon for appearance;
e) Failure to issue or account for an invoice in accordance with provisions of the Act.
Penalty for failure to furnish information returns (Section 123): If a person who is required to furnish an information return u/s 150, fails to do so within the period specified in the notice u/s 150(3), he is liable for a penalty of ₹ 100 for each day of delay which shall not exceed ₹ 5,000
Fine for failure to furnish statistics (Section 124): If any person who is required to furnish any information or returns u/s151, fails to do so without reasonable cause or wilfully furnishes or causes to furnish such information or return which he knows to be false, he is punishable with fine which may extend to ₹ 10,000 and in case of a continuing offence to a further fine which may extend to ₹ 100 for each day of delay, subject to maximum ₹ 25,000
General Penalty (Section 125): Any person who contravenes any provision under this Act or Rules for which no penalty is separately provided, is liable to a penalty upto ₹ 25,000
General disciplines to be followed by the officers while levying any Penalty (Section 126):
Sub-section (1) provides that any penalty cannot be levied for minor breaches of tax regulations or procedural requirements and in particular, any omission, or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.
Explanations to this sub-section provides that, for the purpose of this sub-section -
(a) A breach shall be considered a 'minor breach' if the tax involved is less than ₹ 5,000
(b) An omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the facts of record.
Sub-section (2) provides that the penalty imposed under this Act shall depend on facts and circumstances of each case and shall commensurate with the degree and severity of the breach.
Sub-section (3) provides that no penalty shall be imposed to any person without giving him an opportunity of being heard.
Sub-section (4) provides that while imposing a penalty for a breach of any law, regulation or procedural requirement, the order must specify the nature of breach, applicable law, regulating or procedure under which the amount of penalty is specified.
Sub-section (5) provides that when a person voluntarily discloses the circumstances under which the breach took place, before the officer discovers, the proper officer may consider this fact as a mitigating factor while quantifying a penalty.
Sub-section (6) provides that the above provisions shall not apply, where the quantum of penalty is specified either a fixed sum or a fixed percentage.
Power to impose penalty in certain cases (Section 127): Where the proper officer is of the view that a person is liable to a penalty and the same is not covered under any proceedings under section 62, 63, 64, 73, 74, 129 or 130, he may issue an order levying such penalty after giving a reasonable opportunity of being heard.
Power to waive penalty or fee or both (Section 128): The Government on recommendations of the GST Council, has power to waive in part or full, any penalty under Section 122, 123, 125 or any late fee under Section 47, for such class of taxpayers and under such mitigating circumstances, by issuing a notification specifying such class and circumstances.
Detention, seizure and release of goods and conveyances (vehicle) in transit (Section 129):
Sub-section (1) provides that notwithstanding anything contained in this Act, where any person transports any goods or stores any goods while they are in transit, in contravention of the provisions of this Act or Rules, all such goods and vehicles used for transport and documents are liable for detention or seizure by passing an order. It shall be released, on payment as shown below:-
| |
Taxable goods |
Exempt goods |
| Where the owner of goods comes forward to pay tax and penalty |
On payment of applicable tax and penalty equal to 100% of tax or on furnishing of security in the prescribed manner equivalent to the amount payable |
On payment of an amount equal to 2% of value of such goods or ₹ 25,000, whichever is lessor or on furnishing of security equivalent to the amount payable |
| Where the owner of goods does not come forward to pay tax and penalty |
On payment of applicable tax and penalty equal to 50% of the value of the goods reduced by the amount of tax paid thereon or on furnishing of security equivalent to the amount payable |
On payment of an amount equal to 5% of value of such goods or ₹ 25,000, whichever is less or on furnishing of security equivalent to the amount payable |
Sub-section (2) provides that provisions of Section 67(6) regarding release of goods on provisional basis, on board or security ad payment of tax, interest and penalty shall mutatis mutandis apply for detention and seizure under this section.
Sub-section (3) provides that the proper officer shall issue a notice specifying the tax and penalty payable and shall also issue order for this purpose.
Sub-section (4) provides that no tax, interest or penalty shall be determined without giving the opportunity of being heard.
Sub-section (5) provides that on payment of the said amount, all proceedings in respect of the said notice shall be deemed to be concluded.
Sub-section (6) provides that where the said transporter or owner fails to pay the said tax and penalty within fourteen days of such detention or seizure, further proceedings of confiscation u/s 130 shall be initiated, provided that where the detained or seized goods are perishable or hazardous in nature or likely to depreciate in value with passage of time, the said period of seven days may be reduced by the proper officer.
A plethora of Writ Petitions have been filed in various High Courts against unlawful seizure of goods by the Department or expeditious release of the seized goods. A gist of few of the notable orders has been produced hereunder:
♦ Detention of goods merely for infraction of the procedural rules is without jurisdiction as the movement of goods from warehouse of the Petitioner-Assessee shall not qualify as supply and accordingly, was not liable to tax and any procedural lapse with GST Rules does not amount to taxable supply and, cannot result in detention of goods.
Indus Towers Ltd. vs. Asstt. State Tax Officer [2018] 53 GSTR 103 (Ker.)
♦ Detention of goods not sustainable when goods transported for job work are not accompanied by an e-way bill in as much as the authenticity of the delivery challan is not suspected.
AGE Industries P. Ltd. vs. Asstt. State Tax Officer [2018] 53 GSTR 113 (Ker.)
♦ A Writ Petition filed against the insistence of the Revenue to pay the security deposit demanded in the detention notice as a condition for release of goods and vehicle. The Kerala High Court directed that the Department shall release the goods upon furnishing of bank guarantee by the assessee for the amount demanded.
Mariyam Steel vs. State Tax Officer (Intelligence Inspector) [2018] (3) TMI 969 (Ker.)
♦ Penalty and seizure is not sustainable for movement of goods without Transit Declaration Form (TDF) prescribed under Rule 138 of the UPGST Rules, 2017 unless there exists mala fide intention to evade taxes.
Ramdev Trading Co. vs. State of U.P. [2018] 48 GSTR 31 (All.)
Confiscation of goods or conveyances (vehicles) and levy of penalty (Section 130)
Sub-section (1) provides that notwithstanding anything contained in this Act, if any person -
(i) supplies or receives any goods in contravention of the provisions of the Act or the rules, with an intention of evading tax; or
(ii) does not account for any goods which he is liable to pay tax or
(iii) supplies taxable goods without applying for registration or
(iv) contravenes any of the provisions of the Act or the rules, with an intention of evading tax or
(v) uses of any conveyance to transport goods in contravention of the provisions of this Act or Rules, unless the owner of the conveyance proves that it was used without knowledge or connivance or owner himself, his agent and the person in charge of the conveyance, then, all such goods or conveyance is liable for confiscation and penalty u/s 122.
Sub-Section (2) provides that the concerned officer will give an option to the owner of the goods to pay fine in lieu of confiscation. The amount of fine shall not to exceed the market value of the confiscated goods, less the tax chargeable thereon. It is further provided that aggregate of such fine and penalty shall not to be less than the amount of penalty leviable u/s. 129(1).It is also provided that where such conveyance is used for carriage of goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of confiscation, a fine equal to tax payable on the goods transported thereon.
Sub-section (3) provides that where any fine in lieu of said confiscation is imposed under sub-section (2), the owner of such goods or conveyance or the person referred to in sub-section (1) shall in addition, be liable to any tax, penalty and charges payable in respect of such goods or conveyance.
Sub-section (4) provides that no order for the said confiscation or penalty shall be issued without giving the opportunity of hearing.
Sub-section (5) provides that where any goods or conveyance are confiscated under this Act, the title thereon vest in the Government.
Sub-section (6) provides that the proper officer adjudging confiscation shall take and hold possession of the things confiscated, and upon requisition of such officer, every officer of police shall assist him to do so.
Sub-section (7) provides that if the fine imposed us not paid, the proper officer after giving reasonable time upto three months and after satisfying himself that the confiscated goods or conveyance are not required in any other proceedings, may dispose of such goods or conveyance and deposit the sale proceeds with the Government.
Confiscation or penalty not to interfere with other punishments (Section 131): Without prejudice to the provisions contained in Code of Criminal Procedure, no confiscation, penalty or fine imposed under thus Act shall prevent the infliction of any other punishment to such person if he is so liable under any other provisions of this Act or under any other law for the time being in force.
Punishment for certain offences (Section 132):Vide Section 127 of Finance Act No.12 of 2020 dated 27.03.2020, sub-section (1) and clauses (c) and (e) thereof have been amended. However said amendments were not brought into force till this referencer was sent for printing. Comments made hereinafter are as per amended sub-section (1).
"Sub-section (1) provides that whoever commits, or causes to commit and retain the benefits arising out of, any of the following offences is liable for punishment specified after clause (l) of this sub-section.
a) Supply without invoice with an intention to evade tax;
b) Issue of invoice or bill without supply leading to wrongful availment or utilisation of ITC or refund of tax;
c) Avails Input Tax Credit using the invoice or bill referred to in clause (b) or fraudulently avails input tax credit without any invoice or bill;
d) Collects but Fails to pay tax to the Government within three months of the due date;
e) Evasion of tax or obtaining refund, where such offence is not covered under clauses (a) to (d);
f) Falsifying or substituting financial records or producing fake accounts or documents or furnishing any false information with an intention to evade payment of tax;
g) Obstructing or preventing any officer in the discharge of his duties;
h) Acquires possession of, or in any way concerns in transporting, removing, depositing etc of goods which he knows or has reason to believe, that are liable for confiscation;
i) Receives or in any way concerns with supply which he knows or has reason to believe are in contravention of any provisions of this Act;
j) Tampering or destroys any material evidence or documents;
k) Failure to supply any information required under the Act or knowingly supplying false information;
l) Attempting to commit, or abetting the commission of any of the offences mentioned in clauses above.
Quantum of punishment
(i) Where the amount of tax evaded, ITC wrongly availed or utilised or wrongly taken refund exceeds ₹ 5 crores, imprisonment up to five years and fine
(ii) Where the amount of tax evaded, ITC wrongly availed or utilised or wrongly taken refund, is between ₹ two to five crores, imprisonment up to three years and fine
(iii) Where the amount of tax evaded, ITC wrongly availed or utilised or wrongly taken refund, is between ₹ one to two crores, imprisonment up to one year and fine
(iv) Where a person commits or abets the commission of an offence, specified in clause (f), (g) or (j), imprisonment up to six month and fine.
Sub-section (2) provides that where any person convicted under this section is again convicted under this section, then he may be punishable for the second and for every subsequent offence, with imprisonment up to five years and fine.
Sub-section (3) provides that the imprisonment referred in clauses (i) to (ii) of sub-section (1) and sub-section (2) shall, in the absence of special and adequate reasons to the contrary, to be recorded in the judgment of the Court, be for a term not less than six months.
Sub-section (4) provides that all offences under this Act, except referred in sub-section (5), shall be non-cognizable and bailable, notwithstanding contained in CRPC.
Sub-section (5) provides that the offences specified in clause (a), (b), (c) or (d) of sub-section (1) and punishable under clause (i) thereof shall be cognizable and non-bailable.
Sub-section (6) provides that a person cannot be prosecuted under this section, unless previous sanction of the Commissioner is obtained.
The Explanation provided after sub-section (6) provided that for the purpose of this Section, the term "tax" includes tax evaded, ITC wrongly availed or utilised or refund wrongly taken under all the GST Acts.
Liability of officers and certain other persons (Section 133)
Sub-section (1) provides that where any person engaged in collection, compilation or computerisation of statistics u/s 151 or any GST officer having access to information specified in Section 150(1) or any person or agent engaged with common portal, wilfully discloses any information except for the purpose of execution of his duties under said sections or for the purposes of prosecution, he is liable for imprisonment up to six months or with fine up to ₹ 25 thousand or both.
Sub-section (2) provides that any person whether a government servant or not cannot be prosecuted for any offence under this section, without the prior sanction of the government or as the case may be of the Commissioner.
Cognizance of Offices (Section 134): The Court inferior to Magistrate of the First Class cannot try any offence unless there is previous sanction granted by the Commissioner.
Presumption of culpable mental state (Section 135): The Court shall presume the existence of culpable mental state for the purpose of prosecution under this Act. Therefore, for defense, the accused will have to prove the fact that he had no such mental state. The Explanation is provided to clarify that the said expression includes the intention, motive and knowledge of the said fact and a fact is said to be proved only when the court believes its existence beyond reasonable doubt and it is established by preponderance of probability.
Relevancy of statements under certain circumstances (Section 136): A statement made and signed by a person on appearance in response to any summons issued u/s. 70 during the course of any inquiry or proceedings shall be relevant for proving the truth of the facts in any prosecution for an offence, when the person making the statement is dead or untraceable or is incapable of giving evidence or is kept out of the way by the adverse party or whose presence cannot be obtained without an amount of delay or expense which the court considers unreasonable.
Offences by companies (Section 137)
Sub-section (1) provides that where an offence committed by a person under this Act is a company, every person who, at the time the offence was in charge of, and was responsible for the conduct of business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.
Sub-section (2) provides that where it is proved that the offence has been committed with the consent or connivance of, or is attributable to any negligence on the part of, any director, manager, secretary or other officer of the company, such person shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Sub-section (3) provides that in the case of a partnership firm or a Limited Liability Partnership or a Hindu Undivided Family or a trust, the partner or karta or managing trustee shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Sub-section (4) provides that lack of knowledge of the offence or exercising due diligence to prevent the commission thereof shall be a valid defence for any such person.
The explanation clarifies that for the purposes of this section, company means a body corporate and includes a firm or other association of individuals.
Compounding of offences (Section 138): The Commissioner is empowered to compound any offence committed either before or after the institution of prosecution subject to the payment of amount as may be prescribed. However, compounding of offence is not permitted by certain persons in certain circumstances specified in the section. On payment of compounding amount as may be determined by the Commissioner, no further proceedings in respect of the same offence shall be initiated; and criminal proceedings, if already initiated, shall stand abated.
❑❑
