Understanding Violations and Sanctions Under India's Goods and Services Tax (GST)

The Central Goods and Services Tax (CGST) Act outlines various offenses and the corresponding penalties. Sections 122 to 128 of the CGST Act specifically address these provisions related to violations and their consequences.

Recent Regulatory Adjustments to GST Offenses and Penalties

As of July 23, 2024, the Union Budget 2024 introduced a proposed amendment to Sub-section (1B) of Section 122 of the CGST Act. This change aims to limit its application exclusively to electronic commerce operators mandated to collect tax at source under Section 52. This amendment is slated for retrospective enforcement from October 1, 2023, the original effective date of the sub-section. Additionally, Section 127 of the CGST Act, 2017, will incorporate references to Section 74A or its relevant sub-sections, as Section 74A is intended to supersede Sections 73 and 74 of the Act. These changes will become effective upon official notification by the CBIC.

Defining a GST Offense

A violation, or an offense, is generally understood as an unlawful action or a deviation from established laws and regulations. Within the context of GST, an offense specifically refers to any failure to comply with the stipulations outlined in the GST Act and its accompanying rules.

Categorizing GST Violations

The GST framework identifies 21 distinct offenses. For clearer comprehension, these violations are categorized as follows:

Fake or Wrong Invoices

A taxable person supplies goods/services without an invoice or issues a fraudulent invoice.
An invoice or bill is issued without the actual supply of goods/services, violating GST provisions.
Invoices are issued utilizing the identification number of another legitimate taxable entity.

Fraudulent Activities

Submitting fake financial records or documents, or filing fraudulent returns to evade tax.
Failing to provide information or providing false information during official proceedings.

Tax Evasion

Collecting GST but failing to remit it to the government within three months.
Collecting GST in violation of provisions but failing to deposit it with the government within three months.
Obtaining a refund of CGST/SGST through fraudulent means.
Taking and/or utilizing input tax credit without the actual receipt of goods and/or services.
Deliberately suppressing sales figures to evade tax.

Goods Supply and Transportation Violations

Transporting goods without proper documentation.
Supplying or transporting goods known to be subject to confiscation.
Destroying or tampering with seized goods.

Other Offenses

Operating without GST registration when legally required.
Failing to deduct TDS or deducting an insufficient amount where applicable.
Failing to collect TCS or collecting an insufficient amount where applicable.
An Input Service Distributor taking or distributing input tax credit in violation of rules.
Failing to maintain all legally mandated books of accounts.

For severe fraud cases among these 21 offenses, a penalty equal to 100% of the tax evaded or ITC availed/passed on, with a minimum of Rs. 10,000, is applicable. For specific instances related to fake invoicing and certain tax evasion/other categories, the penalty matches the tax evaded or ITC improperly claimed/passed on.

When a company commits an offense, both the company itself and the responsible officer (e.g., director, manager) are held accountable. For Limited Liability Partnerships (LLPs), Hindu Undivided Families (HUFs), or trusts, the partner, Karta, or managing trustee bears liability. For further details, refer to the article on liability to pay unpaid GST dues in certain cases.

Penalties Under GST

Understanding Penalties

The term “penalty” in GST is interpreted based on judicial precedents and principles. It signifies a punishment imposed by law for committing an offense or failing to fulfill a duty. Penalties can be both corporal (imprisonment) and pecuniary (monetary), encompassing civil or criminal implications. Both types of penalties are applicable under GST.

Common GST Offenses and Their Associated Penalties

Type of Offense	Amount of Penalty
Delay in filing GSTR	Rs. 100 per day per Act (CGST + SGST = Rs. 200/day), capped at Rs. 5,000. No late fee for IGST.
Failure to file GSTR	10% of tax due or Rs. 10,000, whichever is higher.
Committing a fraud	100% of tax due or Rs. 10,000, whichever is higher (high-value fraud may also incur jail time).
Aiding fraud	Penalty up to Rs. 25,000.
Ineligible composition scheme opt-in	Demand & recovery provisions (sections 73 & 74) apply. Fraud cases: 100% of tax due or Rs. 10,000 (higher). Non-fraud cases: 10% of tax due or Rs. 10,000 (higher).
Wrongfully charging higher GST rate	100% of tax due or Rs. 10,000, whichever is higher (if additional GST collected is not remitted).
Failure to issue an invoice	100% of tax due or Rs. 10,000, whichever is higher.
Failure to register under GST	100% of tax due or Rs. 10,000, whichever is higher.
Incorrect invoicing	Penalty of Rs. 25,000.

Scenarios Without Penalties (Interest May Apply)

Type of Offense	Action
Incorrect type of GST charged (e.g., IGST instead of CGST/SGST)	No penalty. Pay correct GST and seek refund of incorrectly paid tax.
Incorrect filing of GST return	No penalty, but 18% interest on shortfall amount.
Delay in payment for invoice	ITC reversed if not paid within 6 months. No direct penalty.
Wrongfully charging lower GST rate	18% interest applicable on the shortfall.

Penalty for Fraud Cases

Offenders involved in tax evasion or short deduction due to fraud are liable to pay a penalty equivalent to 100% of the tax amount, with a minimum of Rs. 10,000. This 100% penalty applies to the aforementioned 21 offenses when fraudulent intent is established.

Consequences of Aiding Fraud Under GST

Beyond the taxable person, any individual who engages in the following actions may face a penalty of up to Rs. 25,000:

Assisting any person in committing GST fraud.
Acquiring or receiving goods/services with full knowledge that they violate GST rules.
Failing to appear before tax authorities upon receiving a summons.
Failing to issue invoices in accordance with GST regulations.
Failing to properly account for or vouch for any invoice recorded in the books.

Custodial Sentences for High-Value Fraud

GST law includes provisions for imprisonment in severe fraud cases, alongside monetary penalties:

Tax Amount Involved	Jail Term	Fine
Rs. 100-200 lakhs	Up to 1 year	Applicable
Rs. 200-500 lakhs	Up to 3 years	Applicable
Above Rs. 500 lakhs	Up to 5 years	Applicable

For further details, consult the article on prosecution under GST.

Penalties for Non-Fraud Cases

For offenders who fail to pay tax or make short-payments without fraudulent intent, a penalty of 10% of the tax due is imposed, subject to a minimum of Rs. 10,000. Thus, a 100% penalty applies only in cases of deliberate fraud or tax evasion, while non-fraudulent instances incur a 10% penalty.

General Penalty Provisions

Any GST offense for which a specific penalty is not outlined will be subject to a general penalty extending up to Rs. 25,000.

Minor Breaches Under GST

Minor breaches, involving tax amounts less than Rs. 5,000, or easily rectifiable errors made without fraudulent intent.
Substantial penalties will not be imposed for minor breaches.
In such instances, tax authorities may issue a warning.

This approach benefits businesses, particularly SMEs, who may make unintentional errors, especially during the initial phases of GST implementation. Penalizing genuine mistakes could significantly impact SMEs, which lack the extensive resources of larger organizations to adapt to new tax regimes.

Universal Principles Governing Penalties

Every taxable person facing a penalty must first receive a show-cause notice and be given a fair opportunity to present their case.
The tax authority is required to provide a clear explanation for the penalty and detail the nature of the offense.
If an individual voluntarily discloses a legal breach, the tax authority may consider this disclosure as a factor in reducing the penalty.