Section 122 of GST – Penalty for certain offences

Section 122 of GST – Penalty for certain offences. In this GST Section you may find all details for Penalty for certain offences as per GST Act 2017Detailed Analysis of GST Section 122 of GST Act 2017.

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Section 122 of GST – Penalty for certain offences

Statutory Provision

(1) Where a taxable person who-

  • (i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
  • (ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;
  • (iii) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
  • (iv) collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;
  • (v) fails to deduct the tax in accordance with the provisions of sub-section (1) of section 51, or deducts an amount which is less than the amount required to be deducted under the said sub-section, or where he fails to pay to the Government under sub-section (2) thereof, the amount deducted as tax;
  • (vi) fails to collect tax in accordance with the provisions of sub-section (1) of section 52, or collects an amount which is less than the amount required to be collected under the said sub-section or where he fails to pay to the Government the amount collected as tax under sub-section (3) of section 52;
  • (vii) takes or utilizes input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;
  • (viii) fraudulently obtains refund of tax under this Act;
  • (ix) takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;
  • (x) falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act;
  • (xi) is liable to be registered under this Act but fails to obtain registration;
  • (xii) furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequently;
  • (xiii) obstructs or prevents any officer in discharge of his duties under this Act;
  • (xiv) transports any taxable goods without the cover of documents as may be specified in this behalf;
  • (xv) suppresses his turnover leading to evasion of tax under this Act;
  • (xvi) fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;
  • (xvii) fails to furnish information or documents called for by an officer in accordance with the provisions of this Act or the rules made thereunder or furnishes false information or documents during any proceedings under this Act;
  • (xviii) supplies, transports or stores any goods which he has reason to believe are liable to confiscation under this Act;
  • (xix) issues any invoice or document by using the registration number of another registered person;
  • (xx) tampers with, or destroys any material evidence or document;
  • (xxi) disposes off or tampers with any goods that have been detained, seized, or attached under this Act;

he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher.

(2) Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised-

  • (a) for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher;
  • (b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher.

(3) Any person who-

  • (a) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);
  • (b) 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 reasons to believe are liable to confiscation under this Act or the rules made thereunder;
  • (c) 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;
  • (d) 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 inquiry;
  • (e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account,

shall be liable to a penalty which may extend to twenty-five thousand rupees.

Related provisions of the Statute:

Related provisions of the Statute:

Section or Rule Description
Section 2(107) Definition of taxable person
Section 31 Tax invoice
Section 35 Accounts and records
Section 51 Tax deducted at source (TDS)
Section 52 Collection of tax at source (TCS)
Sections 16 to 21, 41 and 42 Input tax credit, claim of ITC and provisional acceptance thereof & matching, reversal and reclaim of input tax credit
Section 22 to 30 Registration
Section 54 to 58 Refunds

Analysis and Updates

Introduction

For effective implementation of any tax-law and to do justice to tax abiding society, certain 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 does not overshoot those powers that are inherently vested in him. While Courts have consistently laid down several guiding principles for the purpose of levy of penalties, it has been observed that the statutes are so drafted that several punitive penalties have now become mandatory. The discussion in the following paragraphs deal with the punitive provisions of GST law.

Analysis

At the outset, the section declares the offences that attract penalty as a consequence, apart from the requirement to pay the tax and applicable interest. Some of the offences listed under this section may also attract prosecution under section 132 but that depends on the gravity of the offence defined in that section.
The section is divided into three sub-sections:

Some aspects to consider before discussing this section are:

· Admitting liability to pay tax does not amount to admission of wrongdoing that can attract penalty in all cases. That is, proceedings are independent of tax demand. It is possible that proceedings may be jointly initiated such that the non-payment of tax may prove the circumstances to impose penalty. But accepting to pay tax cannot ipso facto result in penalty. For eg. RCM liability may be accepted (SCN issued but not under section 74) since continuing to dispute this liability may be revenue neutral. Accepting to pay RCM does not satisfy the ingredients to impose penalty. The benefit of resisting RCM liability may be academic when credit is available and output is also taxable. Refer various authorities in under section 276 of Income-tax Act for guidance on jurisprudence applicable in the context of penalty;

· Government appears to be taking away discretion in imposing penalty but the grounds to impose penalty require some key ingredients, which are discussed in the later part of this chapter. Removing discretion is important but mechanical application of penalty provisions is not welcome. Especially in the first few years of GST, bona fide view on non-taxability is good ground to waive penalty particularly when demand for tax is accepted along with interest. Bona fide view means a case where two (adjudicating, appellate or AAR) authorities have taken contradictory views. Taxpayer cannot be expected to adopt the most farsighted interpretation that eventually prevails in a decision by a higher Court;

· Provisions in section 73(5) and 74(5) as well as section 73(9) and 74(8) indicate the general tendency to reduce penalty prescribed under section 122 if mitigating circumstances are brought out during the course of adjudication or appeal. Study of section 126 provides must needed insight into the considerations relevant for imposing penalty under section 122. Penalty is expected to be an area where the law will develop significantly to encourage voluntary compliance.

The section is divided into four sub-sections:

  • The first sub-section prescribes 21 types of offences, any one of which, if committed, can attract penalty of ten thousand rupees or equal to the amount of tax involved, whichever is higher.
  • Sub-section 1A prescribes that penalty can levied in case of specified offences, on such persons satisfying both the following conditions: a. the said person is the instance for conduct of a transaction and b. and also retains the benefit from occurrence of the said transaction.
  • The second sub-section deals with two situations, firstly, where certain offences committed are not due to either fraud or wilful misstatement or suppression of facts. In such a case, penalty will get reduced to 10% of tax involved, subject to a minimum of ten thousand rupees. Secondly, where the offence committed is due to either fraud or any wilful misstatement or suppression of facts to evade tax will result in a penalty equal to tax involved subject to a minimum of ten thousand rupees.
  • The third sub-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.
  • While this section describes the offence and prescribes the penalty applicable, the procedure for adjudicating the imposition of this penalty is under section 73 and section 74 in which there is no express reference to this section. Persons found to have committed the offences listed in this section are liable to payment of penalty as follows:

A.  Penalty equivalent to tax or Rupees 10,000/- whichever is higher in cases where – tax is evaded; tax is not deducted; or short deducted or deducted but not paid to the Government; or tax is not collected (or short collected) or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly or fraudulent claim of refund, in the following cases:

1. Supplies any goods and/ or services:

(a) Without issue of any invoice, or

(b) Issues an incorrect/ false invoice in respect of such supply

Comment:

Raising of an invoice before or at the time of removal of goods is mandatory under law whereas the time limit for issue of services is one month. However, there can be a situation that a supplier could have supplied either goods or services or both, without issuing an invoice for any reason or for reasons that may be bona fide. All such cases would constitute an offence attracting the penal provisions. For instance, a supplier could have supplied the goods against a contract without an invoice accompanying the goods (since the price for such supply may not have been agreed upon) even such cases would attract the penal provisions stipulated by this section.

Incorrect invoice would take into its sweep and ambit any misclassification of goods which on the face of it is incorrect. For instance, an incorrect invoice could be a case where an invoice is issued for supply of “automobile spare” as a supply of “machinery spare”.

A false invoice is one which on the face of it is patently false. False in the normal course means “untrue” but in this instance the word false means something more than “untrue”. For instance, supply of unit quantity 100 for ` 10,000/- could be invoiced as unit quantity 10 for ` 1,000/-.

If the transaction is ‘inferred’ to be a supply, that is not a case of supplying goods without issuing an invoice although the result of such ‘inference’ is that goods have been supplied unmindful of the definition of supply and therefore invoice is not issued. For eg. delay in tracking goods sent on-approval is a case where after the time limit in section 31(7) is ‘deemed’ to be a supply which is the result of such delay. But that does not necessarily attract imposition of penalty under this clause (i).

In each of clauses to section 122(1), such ingredients must be inquired to sustain or defend demand for penalty.

2. Issues an invoice (or bill of supply) without supply of goods or services or both in violation of the provisions of the Act/ Rules. Comment: In business parlance, these are termed as “bogus invoices/ bills”. 3. Collects any amount as tax but fails to deposit the same with the Government beyond a period of three months from due date.

Comment: Collection of taxes could either be passive or active collection. This section covers both such situations. It must be understood that 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 (refer section 49(9)). Composition taxpayers (or even unregistered persons) selling MRP-goods also can come within the mischief of this prohibition. However, please note collection of ‘input tax credit lost’ (liable to be reverse under section 17(2) of CGST Act) due to any exemption of output to a recipient may not amount to ‘collection of tax’. Reference may be had to a decision of Tribunal in the context of Central Excise where section 11D of that Act was analysed in Unison Metals Limited v. CCE, Ahd-I (2006) 204 ELT 323 (LB).

4. 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. Comment: One must ensure that any collection of taxes cannot be retained by the registered person. Collection of taxes in contravention of law would also mean where a registered person collects 18% as taxes but the actual tax rate is 12%. In this scenario, the difference of 6% cannot be retained by the registered person.

5. Fails to –

 (a) Deduct tax/ deduct appropriate tax, as per section 51 (Section 51 is applicable to certain specific persons. The said section requires such specified persons to deduct tax at the rate of one per cent out of the payment to the supplier if the value of supply under a contract exceeds two lakh and fifty thousand rupees) or

(b) deposit the tax deducted with the appropriate Government Comment: The provisions of tax deducted at source under section 51 have come into force with effect from 1-Oct-2018.

6. Fails to –

 (a) collect tax/ collect appropriate tax as per provisions of section 52 (Section 52 is applicable to electronic commerce operator to collect tax from the supplier of goods at the time of payment to such supplier at the rate of one per cent (CGST+SGST))

(b) deposit the tax collected with the appropriate Government Comment: The provisions of collection of tax at source under section 52 have come into force with effect from 1-Oct-2018.

7. Takes or utilizes input tax credit without actual receipt of goods or services either fully or partially in contravention of provisions of Act/ Rules. Comment: This situation covers a case 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 in terms of section 16 of the CGST Act. If he does so, the penal provisions under this clause will stand attracted.

8. Fraudulently obtains refund of tax. Comment: In the normal course refunds can be claimed by a registered person in case of inverted duty structure or exports or supplies to SEZ (Zero rated supplies). One must be very careful at the time of claiming such refunds including furnishing of documentation etc. Any false or incorrect claim will get covered under this section.

9. Takes or distributes input tax credit in contravention of section 20, or the rules made thereunder (Section 20 prescribes manner of distribution of credit by input service distributor). Comment: This clause covers cases relating to ISD who either avails or distributes the available credits contravening the provisions of section 20.

10. With an intention to evade payment of tax- (a) falsifies or substitutes financial records, or (b) produces fake accounts or documents, or (c) furnishes any false information or return Comment: The above three situations need no further elaboration. It covers all cases of misrepresentation.

 11. Fails to obtain registration. Comment: This clause would typically cover – 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 person who is required to take compulsory registration as per section 24 but fails to obtain registration.

12. Furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequently. Comment: For example, furnishing false information with regard to address of a business premise or not declaring a warehouse that existed etc.

13. Obstructs or prevents any officer in discharge of his duties. Comment: A Government servant cannot be obstructed in the performance of his duties. For instance, a registered person does not allow an Officer to enter a godown.

14. Transports any taxable goods without the cover of specified documents. Comment: For example, 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.

 15. Suppresses his turnover leading to evasion of tax. Comment: Suppression and evasion are normally used or understood interchangeably. But suppression means “failure to disclose” which essentially leads to evasion of tax.

16. Fails to keep, maintain or retain books of account and other documents as specified in law.

17. Fails to furnish information or documents called for by an officer or furnishes false information or documents during any proceedings.

18. Supplies, transports or stores any goods which he has reason to believe are liable to confiscation.

19. Issues any invoice or document by using the registration number of another taxable person. Comment: This is a clear case of evasion. Typically, it would also cover a case of misrepresentation of registration number of another registered person.

20. Tampers with or destroys any material evidence or document.

21. Disposes off or tampers with any goods that have been detained, seized, or attached under this Act. B. Penalty equivalent to amount of tax evaded or ITC availed or passed on will be levied on a person committing any of the following offences. This provision will apply if such person is a beneficiary and happening of such a transaction is on his request,

· Goods / services / both are supplied without issue of invoices / issue of incorrect or false invoice

· Issue of invoice / bill without supply of goods / services / both

· Takes / utilises input tax credit without actual receipt of goods / services

· Takes / distributes Input tax credit in contravention to provisions of Section 20 of CGST Act, 2017.

C. Registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised, for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ` 10,000/- or 10% of the tax due from such person, whichever is higher. Registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised, for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ` 10,000/- or tax due from such person, whichever is higher.

D. Penalty up to ` 25,000/- where any person:

1. aids or abets any of the offences specified in clause A above; Comment: Aiding or abetting normally means collusion with another person or to encourage or assist another person to commit an offence. It may be noted that almost all offences committed under clause A would require assistance/ collusion/ connivance.

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 inquiry. Comment: Before levy of penalty under this section the question of malafide intent or resistance would also need to be considered.

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.

Comparative review

Penalty provisions are more or less in line with the following provisions of subsumed Central laws in addition to the provisions of VAT laws of various States:

Section/Rule Act/Rule Provision
Section 9 Central Excise Act, 1944 Offences and penalties
Chapter XVI Customs Act, 1962 Offences & Prosecutions
Rule 8(3A) Central Excise Rules, 2002 Failure to pay duty declared in return
Rules 25 & 26 Central Excise Rules, 2002 — Confiscation & Penalty — Penalty for Certain Offences
Section 76 Finance Act, 1994 Penalty for failure to pay Service tax
Section 77 Finance Act, 1994 General penalty for residual offences
Section 78 Finance Act, 1994 Penalty for failure to pay service tax for reasons of fraud
Section 89 Finance Act, 1994 Offences and Penalties
Rules 15 Cenvat Credit Rules, 2004 Penalty for defaults in relation to CENVAT credit
Rules 15A Cenvat Credit Rules, 2004 General penalty

FAQs

Q1. Whether penalty becomes automatically leviable without any adjudication?

Ans. Though not specifically mentioned in section 122 relating to penalties, in the light of section 126 dealing with general disciplines related to penalty and in view of principles of natural justice, penalties cannot be imposed without affording him an adequate opportunity of being heard.

Q2. Can there be any liability even if a person is not a taxable person?

Ans. Yes, penalty under sub-section (3) of Section 122 can be levied on any person even if he is not a taxable person.

MCQs

Q1. If a person has failed to obtain the registration the penalty is equivalent to:
(a) amount of tax
(b) 10% of tax
(c) upto 10,000
(d) the amount of tax or 10,000 whichever is higher

Ans. (d) the amount of tax or 10,000 whichever is higher

Q2. If a person fails to appear before GST officer, the maximum penalty that can be levied is:
(a) amount of tax
(b) 10% of tax
(c) upto 10,000
(d) none of the above

Ans. (d) none of the above

Q3. Penalty of 10% of the tax can be levied if:
(a) a person repeatedly had not appeared before GST officer for 3 times
(b) the taxable person has not filed returns for 6 consecutive months or more
(c) a taxable person has been served with show cause notice for 3 times repeatedly
(d) registered taxable person has not paid under bona fide belief

Ans. (d) registered taxable person has not paid under bona fide belief.

Q4. There is no penalty for not carrying specified documents during transportation of goods
(i) True
(ii) False

Ans. (ii) False

Recommended Articles –

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  • GST Forms
  • GST Rate
  • GST Registration
  • What is GST?
  • GST Invoice Format
  • GST Composition Scheme
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  • GST Login
  • GST Rules
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  • Track GST ARN
  • Time of Supply

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