Offences and Penalties under GST in India

Narendra Kumar

16 Jul, 2019

For effective implementation of GST law, it requires strict action against the tax offenders. The Government has come up with three approaches Penalties under GST registration for the offenders:

• Interest
• Monetary Penalties
• Prosecution

Penalty: Meaning

The word penalty is not defined under the GST Act, so the reference of various judicial pronouncements and principal of jurisprudence needs to be taken. In simple words, we can say that a penalty is a punishment imposed by law for committing an offence or failing to do something which the person is liable to do. The penalty can be divided into two parts i.e. civil or criminal. The Act list out 21 offences under section 122(1) which are subject to a penalty of Rs.10, 000 or the amount of tax involved, whichever is greater.

Some of the offences are listed below:

• Fake/wrong invoices
• Obtaining refund by Fraud
• Tax evasion
• Supply/transport of goods without proper documents
• Not registered under GST Registration, even though required by law
• An ineligible taxpayer opting for composition scheme
• Incorrect information on sales to evade tax

Interest Penalty

• Non-payment or late payment of GST attracts Penalties under GST
• Interest is to be paid by every taxpayer who:
• Pays GST after due date – 18% p.a.
• Claims excess Input Tax Credit – 24%p.a.
• Reduces excess Output Tax liability – 24% p.a.

Monetary Penalty

• Late Filing attracts penalty called late fee: If the person is not able to file the return within the timeline than the Penalties GST in case of normal return is Rs.50/- per day and Rs.20 per day in case of nil return. 

• Composition Scheme: If the person is not eligible for composition scheme and yet registered under the scheme with the intention to commit fraud the penalty shall be 100% of the tax due or Rs.10000/- whichever is higher and in other cases 10% of the tax due or Rs.10000/- whichever is higher.
• Wrongful GST registration Rate: If a person is charging higher GST than the rate applicable and not depositing the tax collected to the Government the Penalties GST shall be 100% of the tax due or Rs.10000/- whichever is higher. 

• Not Issuing Invoice/Wrongful Invoice: If the person fails to issue an invoice for the goods/services, the penalty shall be 100% of the tax due or Rs.10000/- whichever is higher. If the invoice issued contains wrong/misleading details the penalty shall be Rs.25000/-
• Corporal Punishment: In cases where the amount of tax is more than Rs.100 lakhs it attracts penalty and jail time. If the amount of tax is Rs.100-200 lakhs it will be up to 1year, the tax amount is Rs.200-500 Lakhs it will be up to 3 years and if the tax amount is more than Rs.500 lakhs it will be up to 5 years.
• General Penalty: Any case where the penalty is not specific the penalty shall be Rs.25000/-.

Prosecution

• It means conducting legal proceedings against someone in respect of criminal charge. Any person with the deliberate intention of committing fraud is liable to prosecution under GST.
• Some of the examples can be described as issuing any invoice without supplying any goods/services, obtaining any refund by fraud, submitting a wrong financial record, etc.
• If the concerned authority believes a person has committed such offenses as penalty provisions under GST.

Compounding of Offence

• It is one of the methods to avoid litigation. It saves times and money.
• In compounding of offences, the person needs to pay a prescribed amount of the tax.
• This process is less time consuming than the court proceedings. The accused person is not required to be present personally during the hearing.
• On payment of the compounding amount, no further proceedings shall be initiated against the accused person for the same offence and any criminal proceedings, if already initiated, will be abated.

Who is Liable???

In the case of the company the companies’ officers/Directors in charge as well the company will be held liable. In case of HUF/LLP/Trust, the Karta/Partner/managing trustee will be held liable.

General Rules

• Minor breaches or errors by the personae below Rs.5000/- will be allowed to rectify and the authorities shall issue a warning without substantial penalty.
• Tax offender shall be issued with a show cause notice and will be given the opportunity of being heard.
• The tax authority shall provide with an explanation regarding the penalty being charged.
• If the breach is disclosed by the Person the tax authority might reduce the penalty charges

Also, Read

• GST in India: Comparison with other Countries
• What is the E-Way Bill System under GST?
• What are GST Returns and Due Dates?