Understanding GST Violations and Associated Penalties in India

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

Recent Regulatory Adjustments to GST Offenses and Penalties

Significant changes were proposed in the Union Budget 2024, effective retrospectively from October 1, 2023. An amendment to Sub-section (1B) of Section 122 of the CGST Act now limits its application to e-commerce operators responsible for collecting tax at source under Section 52. Additionally, Section 127 of the CGST Act, 2017, is being updated to include references to Section 74A or its relevant sub-sections, as Section 74A is intended to supersede Sections 73 and 74 of the original Act. These modifications will become active upon notification by the CBIC.

Offences Under GST

What is an offence?

An offense refers to any violation of a law or regulation. Under GST, an offense specifically denotes a failure to comply with the stipulations of the GST Act and its accompanying rules.

What are the offences under GST?

The GST framework identifies 21 distinct offenses, categorized below for clarity.

Incorrect or Forged Invoicing:

1. Providing goods or services without a proper invoice, or issuing a fraudulent invoice.
2. Issuing invoices or bills for goods or services that were not actually supplied, contravening GST regulations.
3. Using another legitimate taxpayer's identification number to issue invoices.

Deceptive Practices:

1. Submitting falsified financial records, documents, or inaccurate returns to avoid tax obligations.
2. Withholding required information or providing untrue details during legal proceedings.

Tax Avoidance:

1. Collecting GST from customers but failing to remit it to the government within three months.
2. Failing to deposit GST collected, even if collected in violation of provisions, to the government within the stipulated three-month period.
3. Illegally claiming refunds for CGST/SGST through fraudulent means.
4. Claiming or utilizing input tax credit without physically receiving the corresponding goods or services.
5. Intentionally understating sales figures to evade tax.

Movement of Goods Violations:

1. Transporting goods without the necessary documentation.
2. Supplying or moving goods known to be subject to confiscation.
3. Damaging or altering seized goods.

Miscellaneous Non-Compliance:

1. Operating without GST registration when legally mandated.
2. Failing to deduct the correct amount of Tax Deducted at Source (TDS) or deducting a lesser amount.
3. Failing to collect the correct amount of Tax Collected at Source (TCS) or collecting a lesser amount.
4. An Input Service Distributor violating rules related to claiming or distributing input tax credit.
5. Failing to keep all legally required books and records.

For fraud-related offenses among the listed violations, a penalty equivalent to 100% of the tax due (with a minimum of INR 10,000) is imposed. Specifically, for fake invoicing offenses (points 1 and 2), and for the fourth point under both tax evasion and miscellaneous categories, the penalty matches the amount of tax evaded, input tax credit wrongly claimed, or improperly passed on.

Offences under GST by Companies, LLPs, HUFs and others

When a company commits an offense, both the entity itself and the responsible officers (e.g., directors, managers, or secretaries) are held accountable. In the case of LLPs, HUFs, or trusts, the partners, Karta, or managing trustees bear the liability. Further details on this liability can be found in our article: Liability for Unpaid GST Dues in Specific Circumstances.

Penalties under GST

What does penalty mean?

While the term “penalty” is not explicitly defined within GST legislation, its meaning is derived from legal precedents and jurisprudential principles. A penalty serves as a legal punishment for committing a transgression or failing to fulfill a statutory duty. Penalties can be corporal (involving physical restraint, like jail) or pecuniary (monetary), and categorized as either civil or criminal. Under GST, both monetary and custodial penalties are applicable.

Common Offences Under GST And Their Penalties

| Type of offence | Amount of penalty | |---| | Penalty for delay in filing GSTR | The late fee is INR 100 per day per Act (INR 100 under CGST & INR 100 under SGST), totaling INR 200/day. The maximum is INR 5,000. No late fee applies to IGST. | | Penalty for not filing GSTR | Penalty is 10% of the tax due or INR 10,000 – whichever is higher. | | Penalty for committing a fraud | Penalty is 100% of the tax due or INR 10,000 – whichever is higher (high-value fraud cases also include jail terms). | | Penalty for helping a person to commit fraud | Penalty extending up to INR 25,000. | | Penalty for opting for composition scheme even though he is not eligible | Demand and recovery provisions of sections 73 & 74 will apply.(i) Fraud case: Penalty 100% of the tax due or INR 10,000 – whichever is higher.(ii) Non-fraud case: Penalty 10% of the tax due or INR 10,000 – whichever is higher. | | Penalty for wrongfully charging GST rate— charging a higher rate | Penalty is 100% of the tax due or INR 10,000 -whichever is higher (if the additional GST collected is not submitted with the government). | | Penalty for not issuing an invoice | Penalty is 100% of the tax due or INR 10,000 – whichever is higher. | | Penalty for not registering under GST | Penalty is 100% of the tax due or INR 10,000 – whichever is higher. | | Penalty for incorrect invoicing | A penalty of INR 25,000. |

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

| Type of offence | Action | |---| | Incorrect type of GST charged (IGST instead of CGST/SGST) | No penalty. Pay the correct GST and seek a refund of the incorrectly paid GST. | | Incorrect filing of GST return | No penalty, but interest at 18% applies to the shortfall amount. | | Delay in payment of invoice | Input Tax Credit (ITC) will be reversed if not paid within 6 months. No penalty specifically. | | Wrongfully charging a lower GST rate | Interest at 18% is applicable on the shortfall amount. |

What are the penalties under GST?

Committing any GST offense necessitates the payment of a penalty, the foundational principles of which are legally stipulated.

Penalty in cases of fraud

In instances of fraud, offenders face a penalty equal to 100% of the tax evaded, short-deducted, or similar amounts, with a minimum penalty of INR 10,000. This 100% penalty applies to fraud-related situations among the outlined offenses.

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

Beyond the direct taxable person, any individual involved in the following actions may incur a penalty of up to INR 25,000:

1. Assisting any person in committing GST fraud.
2. Acquiring or receiving goods or services with full awareness of their violation of GST rules.
3. Failing to appear before the tax authority after receiving a summons.
4. Failing to issue an invoice in accordance with GST regulations.
5. Failing to account for or verify any invoice recorded in the books.

Are there any jail punishments?

Yes, GST law includes custodial sentences (imprisonment) for high-value fraud cases, structured as follows:

These punishments apply in conjunction with monetary penalties. For more comprehensive information, refer to our article on Prosecution under GST.

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

For offenders who fail to pay tax or make underpayments without fraudulent intent, a penalty of 10% of the outstanding tax amount is levied, with a minimum of INR 10,000. This contrasts with deliberate fraud, which attracts a significantly higher penalty of 100% of the tax amount. Thus, non-fraudulent omissions incur a 10% penalty, while intentional evasion results in a 100% penalty.

General Penalty

For any GST offense where a specific penalty is not prescribed, a general penalty of up to INR 25,000 may be imposed.

Minor Breaches under GST

1. Minor breaches, where the tax amount is less than INR 5,000, or easily rectifiable errors are considered to be made without any fraudulent motive.
2. Substantial penalties will not be imposed for such minor infractions.
3. The tax authority may issue a warning in these cases.

This approach benefits businesses, particularly Small and Medium Enterprises (SMEs), which might commit unintentional errors, especially during the initial phases of GST adoption. Imposing severe penalties for genuine mistakes would disproportionately harm SMEs, which often lack the extensive resources of larger corporations to manage complex GST compliance.

General Rules Regarding Penalty

These general rules for penalties are consistent across various legal frameworks, including tax laws and contract laws:

1. Every taxable person subject to a penalty will first receive a show-cause notice and be given a fair opportunity to present their case.
2. The tax authority must provide a clear explanation for the penalty and the specific nature of the offense committed.
3. If a person voluntarily discloses a legal breach, the tax authority may consider this fact to reduce the applicable penalty.