This article has been written by Deepak Saxena pursuing a Certificate Course in Advanced Criminal Litigation & Trial Advocacy from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction 

On July 1, 2017, the Central Goods and Services Tax Act was introduced, with the primary object of ‘one nation, one tax’. This tax, paid by the consumer to the government, is imposed on the supply of products and services for domestic consumption. “The GST Act” is based on taxes levied on value additions and includes provisions related to levies and the collection of taxes on the inter-state supply of goods and services. It’s crucial for business owners, tax professionals, and individuals involved in the supply of goods and services to understand this act, as it also imposes fines, imprisonment, and penalties.

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The terms of offence and penalty are not defined in the GST Act of 2017.

Generally, offence means any act that is prohibited by the law or any illegal act that is punishable by the law.

Penalty generally means a punishment for breaking and violating the law or for an illegal act.

Some major offences mentioned in the GST Act

GST offences related to documentation 

  • Tampering with financial records and tax documents.
  • Supplying goods and services without issuing an invoice or issuing an invoice or bill without a corresponding supply leads to discrepancies. 
  • Failing to maintain documents or transporting taxable goods without proper documentation
  • Using incorrect GST registration Numbers on documents or invoices.
  • Issuing correct GST invoices without an actual supply of goods/services.
  • Failing to maintain required documents as per the GST Act.

GST offences related to tax evasion

  • Evading tax
  • Fraudulently claiming a tax refund.
  • Underpaying taxes due to the government
  • Wrongly availing or utilising Input Tax Credit (ITC) as per the CGST Act.
  • Failing to remit taxes to the government within the deadline of three months.

Penalty for GST fraud-aiding and abetting

  •  Violating the GST Act and rules.
  • Failing to maintain an account for any invoice that appears on the company books.
  • Committing offences against the tax authorities.
  • Failing to appear before the authority for a GST hearing.
  • Issuing invoices that do not comply with the GST rules or are against the Act.

Penalties for offences without direct GST penalties

In certain cases, there are no GST penalties applicable, but these GST offences can incur interest at a specified rate (18% annually) on the amount of tax under consideration. The following are some key instances where no penalty under GST is applicable:

  • The wrong GST rate is not punishable under the GST Act.
  • The wrong GST return is not punishable under the GST Act.
  • The wrong filing of GST amounts is not punishable under the GST Act.

Penalties related to the GST Act 2017

According- to Section 122 of the GST Act-Penalties for certain offences. There are some important provisions of the GST Act regarding offences, penalties, and punishments.

  • Issuing an incorrect invoice or failing to issue an invoice concerning the supply of goods and services 
  • Violating provisions and rules made under the Act.
  • Fail to remit taxes to the government beyond the period of 3 months from the due date.
  • Failing to deduct taxes as required under Section 51 (1) and Section 52 (1)
  • Falsely obtaining a tax return.
  • Incorrectly maintaining financial records or documents, tampering with or destroying evidence and materials.

Fail to pay tax to the government

If a person does not pay taxes or legally shorts on payment and commits an illegal act, they must pay a penalty of 10% of the unpaid tax amount or a minimum of Rs 10000/-, as specified in Section 122.

Section 122(2) states that if a person who supplies goods and services fails to pay the due tax, they will be liable to pay a penalty equal to Rs. 10,000 or tax, whichever is higher.

Section 122(3) of the Central Goods and Services Tax Act, 2017 addresses the consequences faced by individuals who aid and abet offences outlined in Section 122. According to this provision, if a person knowingly and intentionally assists, helps, or encourages another individual or entity to commit an offence specified in Section 122, they will be held legally liable for their actions.

The penalty imposed on such individuals is significant. They will be required to pay a substantial fine, which will be determined based on specific factors. The penalty amount will either be equal to Rs. 10,000 or an amount equivalent to the tax amount due from the person who committed the offence, whichever is higher. This approach ensures that the penalty serves as a deterrent and reflects the severity of the aiding and abetting.

It is important to note that aiding and abetting an offence under Section 122 involves actively participating in or facilitating the commission of the offence. This can include providing resources, advice, or assistance that directly contributes to the unlawful act. In such cases, the aider and abettor are held accountable for their involvement, even if they did not directly commit the offence themselves.

The purpose of this provision is to discourage individuals from becoming involved in acts that support or facilitate offences under Section 122. By imposing strict penalties on aiders and abettors, the law aims to create a strong disincentive for such behaviour. This provision serves to uphold the integrity of the tax system and ensures that those who knowingly assist in tax-related offences face appropriate legal consequences.

Section 123 of the Central Goods and Services Tax Act, 2017 (CGST Act) states that:

If a person fails to furnish an information return as required under the CGST Act, they shall be liable to pay a penalty of Rs. 1000 for each day of default, subject to a maximum penalty of Rs. 5000. This penalty is intended to encourage timely filing of information returns and ensure compliance with the provisions of the CGST Act.

The information return is a document that contains details of various transactions and activities related to the supply of goods and services. It is required to be filed by businesses and individuals who are registered under the CGST Act. The information return provides valuable data to the tax authorities, enabling them to monitor compliance and identify potential tax evasion.

The penalty for failing to furnish an information return is significant and serves as a deterrent to non-compliance. By imposing this penalty, the government aims to ensure that businesses and individuals fulfil their legal obligations and contribute to the effective implementation of the GST regime.

It is essential for taxpayers to be aware of their responsibilities under the CGST Act and to comply with the filing requirements. Failure to do so can result in penalties and other legal consequences. To avoid any penalties or complications, taxpayers should ensure that they file their information returns on time and in accordance with the prescribed format.

Section 124 of the Central Goods and Services Tax Act, 2017 (CGST Act) deals with the penalty for failure to furnish information or return. This section aims to deter individuals or entities from intentionally or negligently failing to comply with their tax obligations.

According to Section 124, if a person fails to furnish information or return as required under the CGST Act or the rules made thereunder, they shall be liable to a penalty of Rs. 1000 for each day during which the default continues. This penalty is applicable from the day immediately following the due date for furnishing the information or return. It is important to note that the penalty is levied for each day of default, and it continues to accumulate until the default is rectified or the maximum penalty is reached.

The maximum penalty for failure to furnish information or return under Section 124 is Rs. 25000. This means that even if the default continues for a prolonged period, the penalty cannot exceed Rs. 25000. The purpose of this limitation is to ensure that the penalty remains proportionate to the offence and does not become unduly burdensome for the defaulter.

It is crucial for taxpayers to understand and comply with the provisions of Section 124. Failure to furnish information or return can lead to significant financial penalties, which can have a detrimental impact on businesses and individuals. Therefore, taxpayers should make every effort to fulfil their tax obligations timely and accurately to avoid the imposition of penalties under Section 124 and maintain good standing with the tax authorities.

General penalties

According to Section 125 of the CGST Act, if a person violates any rule or law made under this act, he/she shall be liable to a penalty that may extend to Rs. 25000

General discipline related to penalties

  • Penalty will not be imposed on a minor breach of tax.
  • Minor breaches are defined as cases where the tax involved is less than Rs 5,000.
  • No penalty shall be imposed on any person without giving him the opportunity to be heard.
  • The penalty should be commensurate and proportionate to the degree of breach.

Note – Section 126 does not apply to fixed sums or fixed percentages.

Achievements related to the GST

The net GST revenue for April 2024 stands at ₹1.92 lakh crore, reflecting an impressive 17.1% growth compared to the same period in the previous year, 2023.

  • We have also seen a positive impact on tax compliance
  • Achievements of GST:  Simplification of – the tax structure by replacing a complex web of indirect taxes, including excise duty, service tax, and various state-level taxes, with a unified tax structure.
  • Eliminated the cascading effect of taxes and reduced manufacturing costs.
  • Stabilise the technology platform by E-way Bill and E-Invoice- 

E-Invoice is a method in which B2B invoices are authenticated electronically by GSTN for further use on the common GST. It helps you with data reconciliation and accuracy during manual data entry.

E-Way Bill is a digital document- An e-way bill is a digital document that is important for the transportation of goods in excess of 50,000 Rupees under the Goods and Services Tax Act (GST)

  • The e-invoicing system helped reduce fake invoicing. 
  • GST also helped to significantly reduce transaction costs. 
  • GST also helped to improve the removal of hidden and embedded taxes. This makes compliance easier for businesses. 

Punishment

As per Section 132 of the CGST Act, if you have wrongly availed ITC, evaded tax, or wrongly claimed a tax refund, you will be subject to punishment. The punishment depends on the amount involved and is as follows:

If the amount is more than Rs. 100 lakh but less than Rs. 200 lakh, the punishment is 1 year imprisonment with a fine.

If the amount is more than 200 lakh but less than 500 lakh, the punishment is 3 years imprisonment with a fine.

If the amount is more than Rs. 200 lakh, the punishment is 5 years imprisonment with a fine.

In case of offences related to failure to furnish information, destruction of documents and materials, or obstruction of officers, the punishment liable is imprisonment for 6 months with a fine, or both. 

Furthermore, if a person commits a subsequent offence, the punishment is a five-year sentence with a fine.

Case laws

In the case of Sita Pandey vs. State of Bihar– February 2022, the Assistant Commissioner of the Patliputra Circle of the Commercial Taxes Department issued an assessment order to an assessee for Rs. 52 crores. The assessee paid a 20% deposit, but then the department issued another notice for Rs. 42 crore. The assessee then approached the Patna High Court, which imposed a fine of Rs. 5,000 on a GST officer for “forcible and illegal recovery” amid a non-functional GST tribunal. The court directed the department to reimburse the entire collected tax to the assessee.

In the case of V. Mohanraj vs. Deputy State Tax Officer, the court has directed the concerned authority to proceed with the adjudication of the question regarding the levy of GST on royalty. The authority must do so on merit and in accordance with the law. The petitioners should be given a reasonable opportunity to be heard during the process.

In the case of Ridhi Sidhi Granite and Tiles vs. State of U.P. (2024), it was found that the imposition of tax occurred due to a technical error in the address of the consignee that was wrongly written in the E-Way Bill. The Court held that the presence of mens rea for evasion of tax is a sine qua non for the imposition of penalty, and mere technical error would not lead to the imposition of penalty.

In the landmark case of Hindustan Steel and Cement vs. Assistant State Tax Officer, the Kerala High Court ruled on the issue of whether an assessee has the right to appeal after voluntarily paying a penalty under the Central Goods and Services Tax (CGST) Act. The court held that if the assessee has wrongly paid the penalty, they do have the right to appeal.

The case involved a company that had been assessed for GST and had paid the tax and penalty due. However, the company later realised that the penalty had been wrongly imposed. The company filed an appeal with the Appellate Authority, but the Authority dismissed the appeal on the grounds that the company had voluntarily paid the penalty and therefore had no right to appeal.

The company then approached the Kerala High Court, which held that the Appellate Authority’s decision was incorrect. The court noted that the CGST Act provides for a right of appeal against any decision of the tax authorities, including decisions on penalties. The court also noted that the voluntary payment of a penalty does not waive the assessee’s right to appeal.

The court’s decision is significant because it clarifies the rights of taxpayers under the CGST Act. It confirms that taxpayers have the right to appeal against any decision of the tax authorities, even if they have voluntarily paid the penalty. This decision provides taxpayers with an important safeguard against arbitrary or incorrect decisions by the tax authorities.

Furthermore, the court’s decision highlights the importance of due process in tax matters. It ensures that taxpayers have the opportunity to challenge any decisions of the tax authorities that they believe are incorrect. This is essential for maintaining fairness and equity in the tax system.

In Shree Govind Alloys Pvt, Ltd vs. State Of Gujarat,- the Gujarat High Court ruled that the expiry of the e-way bill should not be taken as evidence of an assessee’s intention to evade GST. The court also made it clear that they would not impose a penalty on the assessee if the E-way bill expired because generating the E-way bill would not have been necessary if the assessee did not have to pay tax.

Similarly, in the case of Shyam Sel And Power Ltd. vs. State Of U.P,– the High Court held that the intent to evade payment of tax is mandatory for invoking the proceeding of detention, seizure and release of goods and conveyances under Sections 129(3) and 130 (Confiscation of Goods or Conveyance and Levy of Penalty).

In Drs. Wood Product vs. State Of U.P.– the tax officer cancelled the GST registration. However, the Allahabad High Court stated that no officer should cancel the GST registration of any person without sufficient reason. The court also imposed a cost of Rs. 50,000 on the department, stating that the arbitrary action of cancelling GST registration affects the ease of doing business.

Daya Sankae Singh vs. State of Madhya Pradesh, In the case, the Madhya Pradesh High Court held that a penalty should not be imposed on the delay of a few hours in the expiry of the tenure of an E Way Bill if it was not intended to evade tax.

Finally, the High Court of Karnataka held in the case of VRL Logistics Ltd. vs. The Assistant Commissioner Of Commercial Taxes– that Section 29 of the Goods and Service Act permits the detention and seizure of goods only if there is prima facie evidence of a contravention of the provisions of the Goods and Service Tax Act.

Conclusion

The goods and services tax is meant to improve the tax structure. The CGST Act also reduces taxes, promotes economic and financial integration, and replaces multiple indirect taxes. This Act also implements fines, penalties, and punishments for people who fraudulently take tax refunds and wrongly temper their taxes. This act is very useful in saving taxes from fraudulent consumers.

References 

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