FACULTY OF LAW

TAX LAW- II
ASSIGNMENT ON
OFFENCES AND PENALTIES UNDER GST ACT

Submitted to:
PROFESSOR EKRAMUDDIN MALIK

Submitted by:
NIDA KHAN
B.A.LL.B.(Hons.)-Regular
Roll no. 39

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 TABLE OF CONTENTS

 Introduction
 Offences under GST
• Types of offences
 Penalty provisions under GST
• General disciplines related to penalty
 Provisions related to prosecution
• Confiscation or detention of goods
 Necessity of mens-rea for penalty and prosecution
• Intricacies related to prosecution
 Compounding of offences
 Appeals

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 INTRODUCTION

Goods and Services Tax (GST) is an indirect tax (or consumption tax) imposed in India on the
supply of goods and services. It is a comprehensive multistage, destination based tax:
comprehensive because it has subsumed almost all the indirect taxes except few; multi-staged as
it is imposed at every step in the production process, but is meant to be refunded to all parties in
the various stages of production other than the final consumer and as a destination based tax, as
it is collected from point of consumption and not point of origin like previous taxes.

Goods and services are divided into five different tax slabs for collection of tax - 0%, 5%, 12%,
18% and 28%. However, petroleum products, alcoholic drinks, and electricity are not taxed
under GST and instead are taxed separately by the individual state governments, as per the
previous tax regime. There is a special rate of 0.25% on rough precious and semi-precious stones
and 3% on gold. In addition, a cess of 22% or other rates on top of 28% GST applies on few
items like aerated drinks, luxury cars and tobacco products.
The tax rates, rules and regulations are governed by the GST Council which consists of the
finance ministers of centre and all the states. GST is meant to replace a slew of indirect taxes
with a federated tax and is therefore expected to reshape the country's 2.4trillion dollar economy,
but not without criticism.

One full year has been passed after implementation of GST. But for effective compliance and
implementation of any law, it is necessary to provide for consequences of non-compliance of that
Act.
Provisions related to penalties and prosecutions under GST Act are covered for deterrence so that
deliberate tax evasion can be avoided and due tax revenue can be obtained to compensate the
Government from loss due to noncompliance. To be proactive in preventing fraudulent activities
and to avoid serious pecuniary liability for non-observance of law, it is necessary to understand
such provisions.

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OFFENCES UNDER GST ACT:

Provisions related to offences and penalties are covered in Chapter XIX (section 122 to section
138) under CGST Act. Section 132 of the CGST Act provides for certain offences. These
offences are liable for penalty and some offences are liable for prosecution.
List of offences specified under CGST Act are as under:

Offences related to Nature of offence

Registration  Failure to register despite being liable to pay tax.
 Furnishing false information regarding registration
particulars either at the time of applying for registration or
subsequently.
Invoice  Making a supply without invoice or with false/ incorrect
invoice.
 Issuing an invoice without making supply.
 Issuing invoice or document using GSTIN of another person.

Tax payment  Not paying tax collected for a period exceeding three
months;
 Not paying tax collected in contravention of the
CGST/SGST Act for a period exceeding 3 months;
 Non-deduction or lower deduction of tax deducted at
source or not depositing tax deducted at source under
section 51;
 Non-collection or lower collection of or non -payment of
tax collectible at source under section 52.
 Suppressing turnover leading to tax evasion.
Input Tax Credit  Availing/utilizing input tax credit without actual receipt of
goods and/or services;
 Availing/distributing of input tax credit in contravention of
provisions of the Act.
Refund  Fraudulently obtaining any refund.
Accounts documents and  Furnishing false information or falsification of financial

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 records or furnishing of fake accounts/ documents with
intent to evade payment of tax.
 Failure to maintain accounts/documents in the manner
specified in the Act or failure to retain accounts/documents
for the period specified in the Act.
 Failure to furnish information/documents required by an
officer in terms of the Act/Rules or furnishing false
information/documents during the course of any
proceeding.
 Transporting goods without prescribed documents.
Other matters  Obstructing or preventing any official in discharge of his
duty;
 Supplying/transporting/storing any goods liable to
confiscation.
 Tampering/destroying any material evidence.
 Disposing-off/tampering with goods detained/
seized/attached under the Act.

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TYPES OF OFFENCES, UNDER GST:

Offences under GST are further classified into cognizable and non-bailable offences as well as
non-cognizable and bailable offences. General meaning of these terms are as under:

• Cognizable offences: A case in which specially empowered officer has the authority to
arrest without warrant.
• Non-cognizable offences: A case in which specially empowered officer has no authority to
arrest without warrant.
• Bailable offences: Offences for which bail can be granted.
• Non-bailable Offences: Offences for which accused does not have right to be released on
bail, but the bail can be granted at the discretion of court.

Following offences are cognizable and non-bailable offences under GST, if amount of tax
evaded, amount of input tax credit availed or amount of refund taken is more than Rs.5 Crore:
(1) Supply of goods or services or both without issuance of bill;
(2) Issuance of bill or invoice without supply of goods or services.
(3) Avail wrong input tax credit on bills without supply;
(4) Tax collected but not deposited to the Government.

All other offences are non-cognizable and bailable.

Moreover, as per section 69 of the CGST Act, where the Commissioner has reason to believe
that a person has committed offence specified in clause (a) to (d) of section 132(1) which is
punishable under clause (i) or (ii) of sub-section (1) or (2) of section 132, he may authorize any
officer of central tax to arrest such person.

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PENALTY PROVISIONS UNDER GST:
Penalty proceedings are quasi criminal proceedings. They are based on prevalence of probability.
Section 122 of the CGST Act specifies penalty provisions for offences committed under GST.
Sub-section (1) of section 122 provides that any taxable person who has committed any of the
offences mentioned in section 122 shall be liable to a penalty that shall be higher of:

(1) Amount equivalent to tax evaded, fraudulently obtained as refund, availed as credit or not
deducted or collected or short deducted or short collected; or
(2) Amount of Rs.10000/-.

Reduction and waiver of penalty in some cases:

As per section 73 of the CGST Act, where any tax has not paid, short paid or erroneously
refunded or where input tax credit has been wrongly availed or utilized for any reason other than
reason of fraud or wilful misstatement or suppression of facts to evade tax and a notice has been
issued to such person, if the person has paid tax, interest and penalty within specified time from
issuance of show cause notice, no penalty shall be payable. Similarly, section 74 of the CGST
Act provides for reduction of penalty in case of fraud or willful misstatement. Details of these
provisions are as under:

Date of payment of dues along with Amount of penalty applicable

In case of fraud, wilful In other cases
interest under section 50
misstatement etc.
Before issuance of show cause notice 15% of tax Nil
Within 30 days from issuance of show 25% of tax Nil, except where
cause notice self-assessment tax or
tax collected and not
paid within 30 days
from due date
(rule 73(11)
Within 30 days from communication of 50% of tax Nil
order
After 30 days Higher of Rs.10000/- or Higher of

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 100% of tax due (Sec. Rs.10000/- or 10% of
122(2)(b) tax due. (Sec. 122(2)
(a) and sec.
74(a)

General disciplines related to penalty:

Section 126 of the CGST Act specifies for general disciplines to be followed while imposing
penalty. Such disciples are as under:
(1) No penalty to be imposed without issuance of Show Cause Notice and proper
hearing in the matter, opportunity of being heard to the person proceeded against to rebut
allegations levelled against him.
(2) The penalty is dependent upon totality of facts and circumstances of the case.
(3) The penalty imposed is to be commensurate with the degree and severity of
breach of the provisions of the law or the rules alleged.
(4) The nature of the breach is to be specified clearly in the order imposing the
penalty.
(5) The provision of the law under which the penalty has been imposed is to be
specified.

Moreover, no substantial penalty is to be imposed for any minor breach (where amount of tax
involved is less than Rs.5000/-) of tax regulation or procedural requirements and in particular,
any omission or mistake in documentation which is easily rectifiable and made without
fraudulent intent or gross negligence.
Further, as prescribed under section 126(5), where a person voluntarily discloses the
circumstances of breach of the tax law, regulation or procedural requirements to an officer prior
to discovery of the breach, the proper officer may consider the fact as mitigating factor when
qualifying penalty for that person.
The provisions of this section are not applicable in case where penalty is specified as a fixed sum
or as a fixed percentage.

PROVISIONS RELATED TO PROSECUTION:

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Section 132(1) of the CGST Act contains provisions related to prosecution for certain offences.
These provisions are as under:

Amount of tax evaded or input tax credit wrongly availed or Imprisonment with fine
utilized or amount of refund wrongly taken
Exceeds Rs.5 Crore 5 years with fine
Exceeds Rs.2 Crore but does not Exceeds Rs.5 Crore 3 years with fine
Exceeds Rs.1 Crore but does not exceeds Rs.2 Crore 1 year with fine
Falsifies financial records or produces fake accounts or prevents 6 months or with fine or both
any officer from discharging his duties or destroys any material
evidence or document
Offence committed again 5 years with fine for second
and every subsequent
offence

Confiscation or Detention of goods:

If any person transports any goods or stores any such goods while in transit without invoice and
a declaration, or supplies or stores any goods that he has not recorded in his books of account,
then such goods shall be liable for detention or seizure along with any vehicle on which they are
being transported. When owner comes forward, such goods shall be released on payment of
applicable tax and 100% penalty or on furnishing 100% security. In case of exempted goods,
penalty is 2% of value of goods or Rs.25000/- whichever is less. When assessee does not come
forward, levy of penalty shall be 50% of value of such goods and in case of exempted goods levy
of penalty shall be 5% of value of such goods.
Section 129 of the CGST Act provides for detention, seizure and release of goods and
conveyance in transit, while section 130 provides for confiscation of goods or conveyances and
imposition of penalty. Section 130 prescribes that the goods are liable for confiscation, if any
person:
 Supplies or receives any goods in contravention of any provisions of the Act does not
account for any goods in the manner required under the Act.
 Supplies goods that are liable to tax under the Act without applying for registration.

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  Uses any conveyance as a means of transport for carriage of goods in contravention of
CGST/SGST Act.
 Contravenes any provisions of the Act/Rules with the intention of evading payment of
tax.

In case of confiscation of the goods, option has been given to the owner to pay fine in lieu of
confiscation. Such fine shall not exceed market price of confiscated goods and it shall be in
addition to tax and other charges payable in respect of such goods.
The confiscated goods shall be released on payment of applicable tax, penalty or fine.

Further, if the vehicle is found to be transporting goods without e-way bill, such vehicle along
with goods can be detained or seized and would be released only on payment of appropriate tax
and penalty. If the owner comes forward to pay the penalty and tax amount, he must pay 100%
of tax payable and if he not comes forward, penalty will be 50% of value of goods.

Here one notable point is that third proviso of notification No. 12/2018 dated 07.03.2018
specifies that “where the goods are transported for a distance of up to 50 kilometres within the
State or Union Territory from the place of business of the consignor to the place of business of
the transporter for further transportation, the supplier or the recipient, or as the case may be,
the transporter may not furnish the details of conveyance in Part B of FORM GST EWB-01. “.
Hence merely non-mentioning of vehicle no. in part-B of e-way bill in such cases cannot be the
ground for seizure of goods. Allahabad High Court in case of VSL Alloys (India) Pvt. Ltd. vs.
State of U.P. and another held that where assessee is not supposed to file part-B of e-way bill and
where all documents are accompanied by the goods, merely non-mentioning of vehicle no. in
part-B of e-way bill cannot be the ground for seizure of goods.

NECESSITY OF MENS-REA FOR PENALTY AND PROSECUTION:

Section 135 of the Act specifies that “in any prosecution for an offence under this Act which
requires culpable mental state on the part of accused, the court shall presume the existence of
such mental state. but it shall be a defense for the accused to prove the fact that he had no such
mental state with respect to the act charged as an offence in that prosecution.” Hence mensrea is

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a necessary ingredient under this Act, the court shall presume its existence and burden of proof
to show its absence is on accused. Culpable state of mind includes intention, motive, knowledge
of fact and belief in or reason to believe the fact. A fact is said to be proved only when the court
believes it to exist beyond reasonable doubt and not merely when its existence is established by a
preponderance of probability. Mens-rea is not essential to attract penalty under this Act. It was
classical view that “no mensrea no crime”. There are some court rulings which direct that
“absence of mensrea can be taken as defense available for any prosecution under the Act.” But
several laws in India and abroad, especially regarding economic crimes and departmental
penalties have created several punishments even where the offences have been defined to
exclude mensrea.

Intricacies related to penalty provisions-

Where goods are supplied without payment of tax, the penalty cannot be leviable when assessee
has immediately paid the tax with interest. In case of M/s. Xerox India Ltd. vs. State of
Karnataka, where dealer disputed tax liability on the basis of judgment of apex court, but after
receiving clarification from apex court, assessee has immediately paid the tax with interest. The
Karnataka High Court held that penalty cannot be leviable merely because it is lawful to do so.
Hence penalty is not justifiable in such cases.
Moreover, if the applicant has committed mistake while filing GST registration, penalty cannot
be imposed for non-filing of GST return, and non-depositing the tax, if the applicant deposits the
tax and files GST return within two weeks of issuance of correct registration certificate. In case
of Modern Pipe Industries vs. State of U.P. and Ors., (2017) 84 taxmann.com 254 (Allahabad),
it was held that at the time of migration to GST, assessee has by mistake obtained registration as
sole proprietor instead of partnership firm. The Allahabad High Court directed the department to
issue necessary login id/password in the name of partnership firm within a period of two weeks
and the corrected registration certificate within a week after and also directed not to levy penalty
if the applicant deposits the tax and files GST return within two weeks of issuance of correct
registration certificate.

One notable point is that section 129 does not indicate manner of payment of penalty. as per
section 49(1), every deposit made towards tax, interest, penalty, fee or any other amount by a

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person by internet banking, RTGS, NEFT, or by using credit or debit cards or any other
prescribed mode shall be credited to electronic cash ledger of such person. Hence penalty can
also be paid on GST portal maintained by the Government. The Department cannot insist to pay
the penalty only in cash or by demand draft. But Input Tax credit cannot be utilized for payment
of penalty.

COMPOUNDING OF OFFENCES
Commissioner has been granted the power under GST to compound the offence.
Section 138 of the CGST Act specifies that compounding can be done either at the time or before
the prosecution on payment of compounding amount. The compounding of offence is allowed
only after payment of tax, interest and penalty involved. The lower limit for amount of
compounding is Rs.10000/- or 50% of tax whichever is higher and upper limit is Rs.30000/- or
150% of tax whichever is higher. On payment of compounding amount, no further proceedings
under the Act to be initiated and criminal proceeds shall stand abated. In following cases,
compounding under GST cannot be allowed:

(1) Second time compounding is not allowed in respect of offences described in clause (a) to
(f) and (i) and offence described in clause (g), (j) and (k) of section 132(1).
(2) Second time compounding is not allowed in respect of other clauses of section 132(1) if
value of supply exceeds Rs.1 Crore.
(3) Compounding is not allowed if impugned offence under GST is also an offence under
any other law.
(4) A person who has convicted under GST Act by court.

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 APPEAL PROCESS UNDER GST ACT
In case a GST registered person/entity is unhappy with any GST penalties related order/decision
passed by a tax authority/official acting as an adjudicating authority under the GST Act, there is
an appeals process that has been specified. The appeals process under GST Act operates in the
same manner irrespective of the type of offence or the GST penalties (monetary or otherwise)
that is applicable in case of the specific offence. The following are the different levels of appeal
available:

First Appellate Authority

The first appellate authority is the first court of appeal available to those seeking redress against
an order passed by the adjudicating authority.

Appellate Tribunal
The GST appellate tribunal is a quasi-judicial body that was formed in order to mediate disputes
and to hear appeals against orders of the first appellate authority.

Appeal to High Court

State level high courts are the next court of appeal for those contesting a verdict announced by
the appellate tribunal.

Appeal to Supreme Court

India’s apex court, the Supreme Court is the final court of appeal for contesting any GST
penalties or other tax order. The judgement passed by the Supreme Court on any GST penalties,
jail sentences or fines is final under existing GST rules.

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 BIBLIOGRAPHY

 V.S. Datey: GST Ready Recknoner, Taxmann Publications, New Delhi

 Vikas Mundra: Tax Laws and Practices, Law Point Publications, Kolkata.
 Dr. V.K. Singhania: Students’ Guide to GST & Customs Law, Taxmann Publications
Pvt. Ltd., New Delhi
 www.cleartax.com
 Legalservicesonline.com

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