What is Offence and Penalty Under GST
The Goods and Services Tax (GST) in India, governed by the Central Goods and Services Tax (CGST) Act, 2017, outlines strict compliance requirements to ensure transparent tax collection and prevent evasion. Non-compliance results in penalties, prosecutions, and appeals processes as detailed in Sections 122 to 138 of the CGST Act. Below is a comprehensive overview of offences, penalties, and appeals under GST, based on the latest available information.
Offences under GST
The CGST Act lists 21 specific offences under Section
122(1), which are categorized for clarity. These offences cover violations
related to invoicing, tax evasion, input tax credit (ITC), and compliance
failures. Key offences include:
1. Invoicing
Violations:
- Supplying
goods/services without issuing an invoice or issuing an incorrect/false
invoice.
- Issuing an
invoice without actual supply of goods/services, leading to wrongful ITC or
refund claims.
- Using another
taxable person’s GSTIN to issue invoices.
2. Tax Evasion and
Fraud:
- Collecting GST
but failing to deposit it to the government within 3 months.
- Obtaining
fraudulent refunds of CGST/SGST.
- Submitting fake
financial records, documents, or false returns to evade tax.
- Deliberately
suppressing sales or transactions to avoid tax liability.
3. Input Tax Credit
(ITC) Violations:
- Availing or
utilizing ITC without actual receipt of goods/services.
- Distributing ITC
in violation of rules as an Input Service Distributor (ISD).
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4. Compliance
Failures:
- Failing to
register under GST despite being liable.
- Not deducting or
collecting Tax Deducted at Source (TDS) or Tax Collected at Source (TCS), or
deducting/collecting less than required.
- Failing to
maintain required books of accounts or records.
- Providing false
information during registration or proceedings.
5. Obstruction and
Tampering:
- Obstructing GST
officers during audits or inspections (decriminalized in Budget 2023, pending
CBIC notification).
- Tampering with or
destroying material evidence or confiscated goods (decriminalized in Budget
2023, pending notification).
- Transporting
taxable goods without proper documentation, such as e-way bills.
6. Other Offences:
- Aiding or
abetting GST fraud.
- Failing to
furnish required information or furnishing false information.
- Knowingly dealing
with goods liable for confiscation.
Additionally, Section 122B (introduced recently) imposes
penalties for violations of the Track and Trace Mechanism under Section 148A,
targeting non-compliance with tracking provisions for goods.
Note: Budget 2023 proposed decriminalizing certain offences (e.g., obstructing officers, tampering with evidence), but these changes await CBIC notification.
Penalties under GST
Penalties vary based on the nature of the offence, intent
(fraudulent or non-fraudulent), and the tax amount involved. They are detailed
under Sections 122 to 128 of the CGST Act. Below are the key penalty
provisions:
1. General Penalties
(Section 122):
- Non-Fraudulent
Offences: For offences like short payment or erroneous refunds without
fraudulent intent, the penalty is 10% of the tax due or ₹10,000, whichever is
higher.
- Fraudulent
Offences: For offences involving deliberate fraud (e.g., fake invoicing, tax
evasion), the penalty is 100% of the tax evaded or ITC wrongly availed, subject
to a minimum of ₹10,000
2. Late Filing of GST
Returns:
- Late Fee: ₹50 per
day (₹25 each under CGST and SGST) for delayed filing, capped at ₹5,000. For
nil returns, the fee is ₹20 per day (₹10 each under CGST and SGST
- Interest: 18% per
annum on outstanding tax amounts for delayed payments
3. Aiding and
Abetting Fraud:
- Individuals or
entities assisting in GST fraud face a penalty of up to ₹25,000, regardless of
registration status.
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4. Track and Trace Violations:
- Penalties for
non-compliance with the Track and Trace Mechanism (Section 122B) are specific
to the provisions violated, with details pending further CBIC clarification
5. Composition Scheme
Violations:
- Opting for the
composition scheme when ineligible attracts penalties under Sections 73 or 74
(demand and recovery provisions):
- Non-Fraud: 10%
of tax due or ₹10,000, whichever is higher.
- Fraud: 100% of
tax due or ₹10,000, whichever is higher
6. Prosecution and
Imprisonment (Section 132):
- For serious
offences involving fraud (e.g., fake ITC claims, tax evasion), prosecution may
lead to imprisonment:
- Tax > ₹500
lakhs: Up to 5 years (non-bailable).
- Tax ₹200–500
lakhs: Up to 3 years.
- Tax ₹100–200
lakhs: Up to 1 year.
- Repeat offences:
Up to 5 years with a fine
- Cognizable offences (e.g., fake invoicing, tax evasion > ₹500 lakhs) allow arrests without a warrant. Non-cognizable offences require court permission.
7. Compounding of
Offences (Section 138):
- Compounding
allows offenders to settle cases by paying a fee to avoid prosecution. Budget
2023 reduced compounding limits:
- Minimum: 25% of
tax involved (minimum ₹10,000).
- Maximum: 100%
of tax involved (previously 150% or ₹30,000, whichever higher).
- Compounding is
allowed only after paying all tax, interest, and penalties. Certain offences
(e.g., fake ITC claims, obstructing officers) are ineligible for compounding
post-Budget 2023.
- Compounding can
now be availed multiple times for supplies worth > ₹1 crore.
8. Minor Breaches:
- No substantial
penalties apply for minor breaches (tax < ₹5,000) or rectifiable errors
without fraudulent intent. Warnings may be issued instead.
- Technical errors
(e.g., incorrect address in e-way bills) may not attract penalties if no intent
to evade tax is proven
9. Show-Cause Notice:
- Before imposing penalties, a show-cause notice is issued, and the taxpayer is given a reasonable opportunity to be heard. Voluntary disclosure of breaches may reduce penalties.
- A business evades ₹3 lakh in tax through fake invoicing
(fraudulent intent). Penalty = ₹3 lakh (100% of tax evaded). If the evasion
exceeds ₹500 lakhs, imprisonment up to 5 years may apply.
- A business delays GSTR-3B filing by 30 days. Late fee =
₹1,500 (₹50/day × 30). If tax due is ₹1 lakh, interest = ₹1,500 (18% p.a. for
30 days)
- Union Budget 2024: Amended Section 122(1B) to limit
penalties for e-commerce operators failing to collect TCS under Section 52,
effective retrospectively from October 1, 2023
- New GST Guidance No. 01/2025: Clarifies arrest and bail
procedures for offences under the CGST Act
Appeals under GST
Taxpayers dissatisfied with GST orders or penalties can
appeal through a structured process under Sections 107 to 112 of the CGST Act.
The appeal hierarchy is as follows:
1. First Appellate Authority (Section 107):
- Appeal against an
adjudicating authority’s order must be filed within 3 months from the communication
of the order.
- Pre-Deposit: 10%
of the disputed tax amount (or penalty for penalty-only cases) is required. For
detained/seized goods, 25% of the penalty is needed
- The authority
must resolve the appeal within 1 year.
2. Appellate Tribunal (Section 112):
- If dissatisfied
with the First Appellate Authority’s decision, an appeal can be filed with the National
Appellate Tribunal within 3 months.
- Pre-Deposit: An
additional 20% of the disputed amount (total 30% including first appeal).
- A fee of ₹10,000
per lakh of tax in dispute is charged
- The Tribunal’s
age limit for members was raised to 70 years for extended service.
3. High Court:
- Appeals against
the Tribunal’s orders can be filed in the High Court if a substantial question
of law is involved.
- Example: In
*Ridhi Sidhi Granite and Tiles vs. State of U.P. (2024)*, the Allahabad High
Court ruled that mere technical errors (e.g., wrong address in e-way bill) do
not justify penalties without intent to evade tax
- The final appeal
lies with the Supreme Court, whose judgments are binding
- Example: The
Supreme Court has upheld reductions in penalties for technical errors in cases
like “Hindustan Steel and Cement vs. Assistant State Tax Officer”
- Timely filing is critical, as delays beyond 3 months are
generally not condoned unless justified.
Safeguarding Against Penalties
To avoid offences and penalties:
1. Ensure Compliance:
- Register under
GST if liable.
- Issue correct
invoices and maintain proper records.
- File GST returns
on time and deposit taxes within deadlines.
- Use e-way bills
and comply with Track and Trace provisions.
- Use GST-compliant
software for accurate return filing and reconciliation
- Tools like WeP
GST or Clear GST can help avoid mismatches
- Engage Chartered
Accountants or tax professionals for GST filing and audits
- Consult experts
for advance rulings or appeal strategies.
- Disclose minor
breaches voluntarily to reduce penalties
- Monitor CBIC
notifications and Budget amendments (e.g., Budget 2023/2024 changes to
compounding and penalties
Critical Observations
- Compliance Burden: GST’s strict rules, including 21
offences and high penalties (e.g., ₹40,000 penalty on ₹3 tax demand),
disproportionately affect MSMEs.
- Judicial Relief: Courts often reduce penalties for
technical errors, emphasizing the need for “mens rea” (intent to evade) for
harsh penalties
- Decriminalization: Budget 2023’s move to decriminalize
certain offences reflects efforts to ease compliance, but delays in CBIC
notifications create uncertainty
- Disparity in Enforcement: While the government aims to
curb evasion, minor errors attract disproportionate penalties, highlighting the
need for balanced enforcement.
Conclusion
The GST framework enforces compliance through a robust
system of 21 offences, monetary penalties, prosecutions, and a multi-tiered
appeal process. Penalties range from ₹10,000 to 100% of tax evaded, with
imprisonment for serious fraud. Appeals provide recourse but require
pre-deposits and timely action. Businesses must prioritize accurate
record-keeping, timely filings, and professional guidance to avoid penalties.
Recent amendments (e.g., Budget 2023/2024) aim to streamline compliance, but
taxpayers should stay vigilant for CBIC updates. For further details, consult
the CGST Act or resources like