With its implementation in 2017, the Central Goods and Services Tax (CGST) Act, marked a significant stride in the Indian taxation system. While the intent was to create a more transparent and efficient tax system, at the same time aiming to eradicate indirect taxes and corruption, the reality is that no system is entirely immune to breaches. Recognizing this, the CGST Act explicitly outlines various offences and their corresponding punishments. These penalties deter businesses from participating in fraudulent activities.
Section 122 to Section 128 of the Central Goods and Services (CGST) Act, 2017, provide the details of the various types of GST frauds and also prescribe the applicable penalties.
Offences under GST and respective applicable penalties are enlisted under the CGST Act. The provisions of offences and penalties are dealt with from Section 122 to Section 128 of the CGST Act.
The consequences for GST offences can vary widely, including monetary fines and, in severe cases, imprisonment. In fact, certain offences may lead to imprisonment for up to five years!
Offences under GST
What is an offence?
An offence is a breach of a law or rule, i.e., an illegal act. Similarly an offence under the Central Goods and Services Tax Act 2017 is a violation of any of the provisions of the Act or the rules made there under. The penalty for committing an offence under GST can vary depending on the nature of the offence and the amount of tax involved.
What are the offences under GST?
The list below lists the offences under GST. For easy understanding, these have been grouped into heads as given below:
Fake or wrong invoices:
- A taxable person supplies any goods/services without any invoice or issues a false invoice.
- He issues any invoice or bill without supply of goods/services in violation of the provisions of GST
- He issues invoices using the identification number of another bonafide taxable person
Fraud:
- He submits fake financial records/documents or files fake returns to evade tax
- Does not provide information/gives false information during proceedings
Tax evasion:
- He collects any GST but does not submit it to the government within 3 months
- Even if he collects any GST in contravention of provisions, he still has to deposit it to the government within 3 months. Failure to do so will be an offence under GST.
- He obtains a refund of any CGST/SGST by fraud.
- He takes and/or utilizes input tax credit without actual receipt of goods and/or services
- He deliberately suppresses his sales to evade tax
Supply/transport of goods:
- He transports goods without proper documents
- Supplies/transports goods that he knows will be confiscated
- Destroys/tampers goods that have been seized
Others:
- He has not registered under GST although he is required to by law
- He does not deduct TDS or deducts less amount where applicable.
- He does not collect TCS or collects less amount where applicable.
- Being an Input Service Distributor, he takes or distributes input tax credit in violation of the rules
- He does not maintain all the books that he required to maintain by law
Offences under GST by Companies, LLPs, HUFs and others
For any offence committed by a company, both the officer in charge (such as director, manager, secretary) as well as the company will be held liable. For LLPs, HUFs, trust, the partner/Karta/managing trustee will be held liable.
Penalties under GST
What does penalty mean?
The word “penalty” is not specifically defined in GST and so it takes the meaning from various judicial pronouncements and principles of jurisprudence. A penalty is a punishment imposed by law for committing an offence or failing to do something that was the duty of a party to do. A penalty can be corporal or pecuniary, civil or criminal. Both corporal (jail) and pecuniary (monetary) penalties are applicable under GST.
Common Offences Under GST And Their Penalties
| Type of offence | Amount of penalty |
| Penalty for delay in filing GSTR | The late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST. Total will be Rs. 200/day. The maximum is Rs. 5,000. There is no late fee on IGST. |
| Penalty for not filing GSTR | Penalty 10% of the tax due or Rs. 10,000 – whichever is higher |
| Penalty for committing a fraud | Penalty 100% of the tax due or Rs. 10,000 – whichever is higher (High-value fraud cases also have jail term) |
| Penalty for helping a person to commit fraud | Penalty extending up to Rs. 25,000 |
| Penalty for opting for composition scheme even though he is not eligible | Demand & recovery provisions of sections 73 & 74 will apply. (i) Fraud case- Penalty 100% of the tax due or Rs. 10,000 – whichever is higher (ii) Non-fraud casePenalty 10% of the tax due or Rs. 10,000 – whichever is higher |
| Penalty for wrongfully charging GST rate— charging a higher rate | Penalty 100% of the tax due or Rs. 10,000 -whichever is higher (if the additional GST collected is not submitted with the govt) |
| Penalty for not issuing an invoice | Penalty 100% of the tax due or Rs. 10,000 – whichever is higher |
| Penalty for not registering under GST | Penalty 100% of the tax due or Rs. 10,000 – whichever is higher |
| Penalty for incorrect invoicing | A penalty of Rs. 25,000 |
Situations where there is no penalty (but interest may apply)
| Type of offence | Action |
| Penalty for incorrect type of GST charged (IGST instead of CGST/SGST) | No penalty. Pay the correct GST and get a refund of the wrong type of GST paid earlier |
| Penalty for incorrect filing of GST return | No penalty. But interest @18% on shortfall amount |
| Penalty for delay in payment of invoice. | ITC will be reversed if not paid within 6 months. No penalty as such |
| Penalty for wrongfully charging GST rate— charging a lower rate | Interest @18% applicable on the shortfall |
What are penalties under GST?
A penalty is levied under the GST Act when an offence is committed.
Penalty for helping someone commit fraud under GST
Not only the taxable person but any person who does the following will have to pay a penalty extending up to Rs. 25,000
- Helps any person to commit fraud under GST
- Acquires/receives any goods/services with full knowledge that it is in violation of GST rules
- Fails to appear before the tax authority on receiving a summons
- Fails to issue an invoice according to GST rules
- Fails to account/vouch any invoice appearing in the books
Penalty on Tax Amount with Jail Term
| Tax amount involved | INR 100-200 lakhs | INR 200-500 lakhs | Above INR 500 lakhs |
| Jail term | Upto 1 year | Upto 3 years | Upto 5 year |
| Fine | In all three cases | ||
GST Appeal
If you are found guilty of committing any of the 21 offences under the GST law by a concerned GST officer, appropriate action will be taken as prescribed in the law. In case you are not satisfied with the decision of the GST officer, the law gives you the right to raise your grievance against the decision taken. In the following section, we will understand the procedure for filing an appeal against a decision taken by a GST officer.
Conclusion:
New, as well as seasoned taxpayers, must remember that the GST Act, shows little mercy even for first-time offenders. Taxpayers need to be alert as well as updated about their tax compliance. Also, taxpayers must stay away from Ponzi schemes that lure and provoke tax evasions. The days of such practices are over.
As a business owner and a responsible taxpayer, it is always advisable to ensure proper GST compliance. You should ideally take the help of a Chartered Accountant (CA) for filing your GST returns. Furthermore, in case a GST officer passes an unsolicited order against you, the GST law has ample provisions that allow you to raise your grievance.