Understanding GST Offences and Penalties

The Goods and Services Tax (GST) framework in India includes specific provisions for offences and their corresponding penalties, as detailed in Sections 122 to 128 of the CGST Act.

Recent Legislative Updates on Offences and Penalties

July 23, 2024

During the Union Budget 2024, an amendment was proposed for Sub-section (1B) of section 122 of the CGST Act. This amendment aims to limit the application of this sub-section specifically to electronic commerce operators who are required to collect tax at source under section 52. This change is intended to be effective retrospectively from October 1, 2023, when the original sub-section came into force.

Furthermore, new references to section 74A or its relevant sub-sections are being introduced into section 127 of the CGST Act, 2017. This is proposed as section 74A is set to replace sections 73 and 74 of the CGST Act, 2017.

These changes will become effective upon notification by the CBIC.

Defining Offences Under GST

An offence refers to any violation of a law or rule, essentially an unlawful act. Within the GST framework, an offence signifies a breach of the provisions outlined in the GST Act and its associated rules.

Categories of GST Offences

Individuals commit an offence under GST by engaging in any of the 21 specified violations. These offences are categorized for clarity as follows:

Fake or Incorrect Invoices

1. Supplying goods or services without a proper invoice or by issuing a fraudulent one.
2. Issuing an invoice or bill without the actual supply of goods or services, contrary to GST provisions.
3. Generating invoices using the GST identification number of another legitimate taxable entity.

Fraudulent Activities

1. Submitting falsified financial records or documents, or filing deceptive returns to avoid tax obligations.
2. Withholding information or providing incorrect details during official proceedings.

Tax Evasion Methods

1. Collecting GST but failing to remit it to the government within a three-month period.
2. Collecting GST in violation of legal provisions but still failing to deposit it with the government within three months. This failure constitutes an offence.
3. Obtaining a refund of CGST/SGST through fraudulent means.
4. Claiming or utilizing input tax credit without the actual receipt of goods and/or services.
5. Intentionally underreporting sales to evade tax.

Misconduct in Goods Supply and Transport

1. Transporting goods without the necessary documentation.
2. Supplying or transporting goods known to be subject to confiscation.
3. Destroying or tampering with goods that have been officially seized.

Other Violations

1. Failing to register under GST when legally required.
2. Not deducting the applicable Tax Deducted at Source (TDS) or deducting an insufficient amount.
3. Not collecting the applicable Tax Collected at Source (TCS) or collecting an insufficient amount.
4. As an Input Service Distributor, improperly claiming or distributing input tax credit in violation of rules.
5. Not maintaining all legally mandated books and records.

Please note: In Budget 2023, certain offences, including the failure to supply required information, obstruction of officers, and tampering with evidence, were proposed for removal or decriminalization from the CGST Act. These proposals will take effect upon notification by the CBIC.

For fraud cases concerning the 21 specified offences, a penalty of 100% of the tax (with a minimum of Rs. 10,000) is applicable. For violations related to fake invoicing (items 1 and 2 under 'Fake or Incorrect Invoices') and specific instances of tax evasion and other offences, the penalty amount equals the tax evaded, or the Input Tax Credit (ITC) wrongly availed or passed on.

Company, LLP, and HUF Liability for GST Offences

When a company commits an offence, both the responsible officer (e.g., director, manager, secretary) and the company itself are held accountable. For LLPs, HUFs, or trusts, the partner, Karta, or managing trustee will be held liable, respectively.

GST Penalties Explained

Understanding the Term "Penalty"

While not explicitly defined within GST law, "penalty" generally refers to a punishment imposed by law for committing an offence or failing to fulfill a duty. Penalties can be either corporal (such as imprisonment) or pecuniary (monetary fines), and can be civil or criminal. Under GST, both monetary fines and imprisonment are applicable.

Typical GST Offences and Their Penalties

Scenarios Without Penalties (but with Interest)

Penalty for Fraud-Related Cases

Offenders involved in tax evasion or short deduction must pay a penalty equivalent to 100% of the tax amount, with a minimum of Rs. 10,000. This 100% penalty applies to fraud-related instances among the 21 specified offences.

Penalty for Assisting in GST Fraud

Any individual, not just the taxable person, who undertakes the following actions is subject to a penalty of up to Rs. 25,000:

1. Aiding another person in committing GST fraud.
2. Acquiring or receiving goods/services with full knowledge of their violation of GST rules.
3. Failing to appear before tax authorities after receiving a summons.
4. Failing to issue an invoice as per GST regulations.
5. Failing to properly account for or vouch any invoice recorded in their books.

Imprisonment for High-Value Fraud Cases

GST law includes provisions for corporal punishment (jail time) for significant fraud cases, alongside monetary penalties:

For more detailed information, one may refer to articles on prosecution under GST.

Penalties for Non-Fraud Cases

An offender who fails to pay tax or makes short-payments, but without an intention of fraud or tax evasion, is liable for a penalty of 10% of the tax due, subject to a minimum of Rs. 10,000. Consequently, the penalty is significantly higher (100% of tax) in cases of deliberate fraud, while non-fraudulent cases incur a 10% penalty.

General Penalty Provisions

Any GST offence for which a specific penalty is not explicitly stated is subject to a general penalty extending up to Rs. 25,000.

Minor Breaches Under GST

1. Minor violations, where the tax amount is less than Rs. 5,000 or errors that are easily rectifiable and clearly unintentional (without fraudulent intent), are treated leniently.
2. Such minor breaches will not incur substantial penalties.
3. In these instances, tax authorities may opt to issue a warning instead of a penalty.

This approach benefits businesses, especially Small and Medium Enterprises (SMEs), which might make genuine errors, particularly during the initial phases of GST implementation. Penalizing authentic mistakes could severely impact SMEs, given their limited resources compared to larger organizations in adapting to GST.

Standard Rules for Imposing Penalties

The following general rules apply to the imposition of penalties across various laws, including tax and contract law:

1. Before any penalty is imposed, every taxable person will receive a show-cause notice and be given a reasonable opportunity to present their case.
2. The tax authority must provide a clear explanation for the penalty and detail the nature of the offence committed.
3. If an individual voluntarily discloses a breach of law, the tax authority may consider this disclosure to reduce the penalty.