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GST Penalties


  • 1. Introduction
  • 2. Sector wise reading of GST penalty
  • 3. Is there a procedure available for adjudicating the imposition of GST penalties ?

1. Introduction

For effective implementation of any tax-law and to do justice to tax abiding society, certain penal provisions to take strict action against offenders are required. The penal provisions in many cases act as a deterrent while some provisions attract the wrath of the penal provisions even for a breach, although such an infraction of law could be a minor offence and not a venial breach of law.

It is for this reason that the law maker in his wisdom has laid down general disciplines relating to penalty so as to enable the person vested with such powers to not trigger those powers that are inherently vested in him.

2. Sector wise reading of GST penalty

Sector 1
  • 21 types of offences,
  • Any one of which, if committed, can attract GST penalty.
  • And such GST penalty charges could be ten thousand rupees or equal to the amount of tax involved, whichever is higher
Sector 2 This sector deals with two situations :
Situation Type of offence GST Penalty
Situation 1 Offence not due to either fraud or wilful misstatement or suppression of facts GST Penalty in this case gets reduced to 10% of tax involved, subject to a minimum of ten thousand rupees.
Situation 2 Offence due to either fraud or any wilful misstatement or suppression of facts GST Penalty in this case is equal to tax involved subject to a minimum of ten thousand rupees.
Sector 3
  • This part of the section deals with offences where the person is not directly involved in any evasion
    • But may aid or abet or may be a party to evasion or
    • if he does not attend summons or produce documents.
  • Penalty in such a cases would be up to twenty five thousand rupees.

3. Is there a procedure available for adjudicating the imposition of GST penalties ?

There is no express reference regarding the manner in which these GST penalties to be levied. Persons found to have committed the offences listed above are liable to payment of penalty as follows:

  • GST Penalty charges equivalent to tax or Rupees 10,000/- whichever is higher in cases where
    1. tax is evaded; tax is not deducted; or short deducted or deducted but not paid or
    2. tax is not collected (or short collected) or collected but not paid to the Government or
    3. input tax credit availed of or passed on or distributed irregularly or
    4. fraudulent claim of refund,
List of offences with clarifications to understand the mannerism for imposition of GST penalties :

Offences Clarifications
Invoice related Supplies any goods and / or services:
  • Without issuing tax invoices :
    • Raising of an invoice before or at the time of removal of goods is mandatory under law and
    • For services, the time limit for issue of invoice is one month.
  • furnishes an incorrect / false invoice in respect of such supply :
    • Incorrect invoice would take into its sweep and ambit any misclassification of goods which on the face of it is incorrect.

      For Ex : Invoice issued for supply of “automobile spare” as a supply of “machinery spare”.

    • A false invoice is one which on the face of it is clearly false.

      For Ex : Supply of unit quantity 100 for Rs.10000/- could be invoiced as unit quantity 10 for Rs.1000/-

    • Issues an invoice (or bill of supply) without supply of goods or services or both in violation of the provisions of the Act/ Rules.

      For Ex : Bogus invoices/Bills

Collects any amount as tax but fails to deposit the same with the Government beyond a period of three months from due date.
  • The GST Law presupposes that tax is deemed to have been passed even in cases where tax has not been collected unless it is proved to the contrary.
  • So Collection of taxes in this context to be understood as passive or active collection of taxes.
Collects any tax in contravention of law but fails to deposit the same with the Government beyond a period of three months from due date.
  • Collection of taxes in contravention of law would also mean where a registered person collects 18% as taxes against the actual tax rate of 12%.
  • In this scenario, the difference of 6% cannot be retained by the registered person.
Fails to
  • Deduct tax/deduct appropriate tax in case of certain specific person (TDS provisions under GST law) at the rate of one per cent out of the payment to the supplier if the value of supply > 2.50 lacs or
  • deposit the tax deducted with the Government
  • Note : Currently, this provision is kept in abeyance and suitable notifications have not been issued in this regard.

Fails to
  • Collect tax/collect appropriate tax in case of certain specific person (TCS provisions under GST law) at the rate of one per cent
  • deposit the tax deducted with the Government
  • Note : Currently, this provision is kept in abeyance and suitable notifications have not been issued in this regard.

Utilizes input tax credit without actual receipt of goods or services either fully or partially in contravention of provisions of Act/ Rules.
  • This section covers the cases where the goods or services have not been received but the invoice has been received in advance.
  • In such a situation the registered person cannot avail the credit and if he does so then, the GST penalty provisions under this clause will stand attracted.
Fraudulently obtains refund of tax.
  • Refunds can be claimed by a registered person in case of
    • inverted duty structure or
    • exports or
    • supplies to SEZ (Zero rated supplies).
    • Any false or incorrect claim will get covered under this section.

Intention to evade payment of tax
  • falsifies or substitutes financial records, or
  • produces fake accounts or documents, or
  • furnishes any false information or return
Fails to obtain registration This cover cases such as : for example
  • a situation where a person is required to register since his turnovers have exceeded the threshold limits but has failed to register; or
  • a casual taxable person who does not obtain registration.
Supplies any false information with regard to registration particulars, either at the time of applying for registration, or subsequently. This covers cases such as : fir example
  • Furnishing false information with regard to address of a business premise or
  • not declaring a warehouse that existed etc.,
Prevent any officer in discharge of his duties. A Government servant cannot be obstructed in the performance of his duties. For instance if a registered person does not allow an Officer to enter a godown.
Make arrangements for movement of any taxable goods without the cover of specified documents . Taxable goods are to be transported under cover of a tax invoice and in certain cases along with an e-way bill / delivery challan etc., Any non compliance will get covered under this section.
Suppresses his turnover leading to evasion of tax. Suppression and evasion are normally used or understood interchangeably. But suppression means “failure to disclose” which essentially leads to evasion of tax.
Documentation related
  • keep, maintain or
  • retain books of account and other documents as specified in law
  • Tampers with or destroys any material evidence or document
  • The above three situations need no further elaboration at all.
 
Fails to
  • furnish information or documents called for by an officer or
  • furnishes false information or documents during any proceedings.
Knowingly
  • Supplies, transports or
  • stores any goods which he has reason to believe are liable to confiscation.
Issues any invoice or document by using the registration number of another taxable person This is a clear case of evasion. Typically it would also cover a case of misrepresentation of registration number of another registered person.
Others Disposes off or tampers with any goods that have been detained, seized, or attached under this Act.
  • GST Penalty at a reduced rate of 10% of the tax involved subject to minimum of Rs.10,000 will be levied in cases where:
    • Any registered person who supplies any goods or services by whom any tax has not been paid or short-paid or erroneously refunded, or
    • The input tax credit has been wrongly availed or utilized for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax.
  • GST penalty up to rupees twenty-five thousand where any person:
    1. aids or abets any of the offences specified in clause A above
    2. acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reason to believe are liable to confiscation;
    3. receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reason to believe are in contravention of any provisions of this Act or the rules made thereunder;
    4. fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an enquiry.
    5. fails to issue invoice in accordance with the provisions of this Act or rules made thereunder, or fails to account for an invoice in his books of account.


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