Understanding Penalties and Appeal Procedures Under India's GST Law

The Goods and Services Tax (GST) framework in India includes stringent regulations concerning various infractions, such as penalties, prosecution, and arrests. These provisions aim to deter tax evasion and corruption. The GST law meticulously defines offenses and the associated penalties for each scenario. This information is crucial for all businesses and tax professionals, as unintentional errors can lead to serious repercussions. This article explores offenses, penalties, inspection, search, seizure, compounding of offenses, arrest, and the appeal mechanisms under GST.

Recent Legislative Updates

• Union Budget 2025 - February 1, 2025:
• Mandatory Pre-Deposit: Proposed amendments to Sections 107 and 112 of the CGST Act, 2017, now mandate a 10% pre-deposit for appeals related solely to penalties.
• Track and Trace Penalties: A new CGST Section 122B is being introduced to establish penalties for violating provisions linked to the Track and Trace Mechanism, as outlined in Section 148A of the CGST Act.

Offences and Penalties under GST

Definition of Offences

The GST law specifies 21 types of offenses, as per CGST Section 122(1). Some primary offenses under GST include:

• Failing to register for GST when legally required. (For mandatory registration criteria, refer to the article on taxable persons under GST).
• Supplying goods or services without a proper invoice or issuing a fraudulent invoice.
• Issuing an invoice without the actual supply of goods or services.
• Collecting GST from a buyer but failing to deposit the tax with the government within three months from the invoice due date, regardless of whether it contravenes GST law.
• Failing to deduct or collect TDS or TCS, or short-deducting/collecting it, or deducting/collecting but not depositing with the government.
• Claiming or utilizing Input Tax Credit (ITC) without actually receiving the goods or services.
• A taxable person issuing invoices by incorrectly using another legitimate taxpayer's GSTIN.
• Submitting false information during GST registration.
• Presenting fake financial records or documents, or filing fraudulent returns to avoid tax.
• Obtaining refunds through deceptive means.
• Intentionally concealing sales or turnover figures to evade tax.
• Opting for the composition scheme despite being ineligible.
• Obstructing any officer from performing their official duties.
• Transporting goods without the necessary documentation.
• Engaging with goods known to be subject to confiscation.
• Tampering with or destroying material evidence or documents, or disposing of or altering goods that have been detained, seized, or attached under GST law.

Imposition of Penalties

Committing any of the specified offenses under GST will result in penalties. The legal framework also outlines the principles governing these penalties.

Penalties for Late Filing of GST Returns

Late filing incurs a late fee of Rs. 100 per day per Act (i.e., Rs. 25 under CGST and Rs. 25 under SGST), totaling Rs. 50 per day for delayed GSTR-3B filing. No late fee applies to IGST for delayed filing. Additionally, interest is charged at 18% per annum. Taxpayers must calculate this interest from the day following the due date of filing until the actual payment date. Note: These fees are subject to changes announced via Notifications.

Penalties for Not Filing GST Returns

A late fee of Rs. 20 per day per Act applies for non-filing (i.e., Rs. 10 under CGST and Rs. 10 under SGST), amounting to Rs. 20 per day for delayed GSTR-3B filing. Furthermore, failure to file any GST return prevents the filing of subsequent returns. For example, if GSTR-3B for April and May 2025 is not filed, GSTR-1 for June 2025 will be blocked. Quarterly filers who fail to submit GSTR-3B for the preceding tax period will be barred from filing GSTR-1 for subsequent quarters. Consequently, late filing has a cumulative negative effect, leading to substantial fines and penalties.

Penalties for Offences Without Fraudulent Intent

For the 21 specified offenses committed without the intent to defraud or evade tax, an offender who fails to pay tax or makes short payments must pay a penalty equivalent to 10% of the tax amount due, with a minimum penalty of Rs. 10,000. This means if tax is unpaid or underpaid, a minimum penalty of Rs. 10,000 is applicable, with the maximum penalty capped at 10% of the unpaid tax.

Penalties for Offences with Fraudulent Intent

If any of the 21 offenses are committed with the intention of fraud or tax evasion, the offender faces a penalty of 100% of the tax evaded or short-deducted, subject to a minimum of Rs. 10,000. Such cases also involve additional penalties, including prosecution and potential arrest. The jail terms are structured as follows:

Inspection under GST

A Joint Commissioner of SGST/CGST (or a higher-ranking officer) may, based on sufficient reason to believe that a person has suppressed transactions or claimed excessive input tax credit to evade tax, authorize another CGST/SGST officer (in writing) to inspect the business premises of the suspected individual.

Search and Seizure under GST

The Joint Commissioner of SGST/CGST holds the authority to order a search. This order is typically issued based on inspection outcomes or other pertinent reasons, specifically when there is reason to believe that:

• Goods liable for confiscation are present.
• Documents, books, or other items relevant to proceedings are concealed.

Such incriminating goods and documents can then be seized.

Goods in Transit

The person responsible for a vehicle transporting goods valued over Rs. 50,000 must carry the following essential documents:

• Invoice, bill of supply, or delivery challan.
• A copy of the e-way bill (either hard copy or via RFID).
• The e-invoice, where applicable.

A proper officer has the authority to intercept vehicles in transit and inspect both the goods and their accompanying documents. If the goods are found to be in violation of the GST Act, they, along with related documents and the transporting vehicle, will be seized. The goods will only be released upon the payment of due tax and penalties. Before proceeding with confiscation, the tax officer is obligated to offer an option to pay a fine in lieu of confiscation.

Compounding of Offences under GST

Compounding offenses offer an alternative to lengthy litigation. In cases of prosecution for a criminal charge in court, the accused typically needs to appear at every hearing through an advocate, which can be costly and time-consuming. Through compounding, the accused is not required to appear personally and can be discharged by paying a compounding fee. This fee cannot exceed the maximum fine applicable under GST. Compounding saves both time and money. However, this option is not available for offenses where the value involved surpasses Rs. 1 crore.

Prosecution under GST

Prosecution refers to the initiation of legal proceedings against an individual for a criminal offense. A person who commits an offense with the deliberate intent to defraud becomes subject to prosecution under GST, implying they will face criminal charges. Examples of such offenses include:

1. Issuing an invoice without supplying goods or services, thereby fraudulently claiming input credit or a refund.
2. Obtaining a refund of any CGST/SGST through fraudulent means.
3. Submitting fake financial records, documents, or returns to evade tax.
4. Assisting another person in committing GST fraud.

Arrest under GST

If the Commissioner of CGST/SGST believes that an individual has committed a specific offense, that person can be arrested under GST by an authorized CGST/SGST officer. The arrested individual must be informed of the grounds for their arrest and must be presented before a magistrate within 24 hours if the offense is cognizable. Cognizable offenses are serious crimes, such as murder, robbery, or counterfeiting, where police can make an arrest without a warrant.

Appeals under GST

Any person dissatisfied with a decision or order issued against them under GST has the right to appeal. The initial appeal against an an adjudicating authority's order is directed to the First Appellate Authority. Should the taxpayer remain unsatisfied with the First Appellate Authority's decision, they can escalate their appeal to the National Appellate Tribunal, then to the High Court, and finally to the Supreme Court. To avoid the extensive appeal and litigation process, a taxpayer can request an advance ruling under GST. This involves seeking clarification from GST authorities on the GST treatment of a proposed activity before it commences. The tax authority then provides a written decision, known as an advance ruling, to the applicant.