Understanding Offences and Penalties under GST: Key Provisions, Enforcement Powers and Judicial View

The Goods and Services Tax framework contains extensive provisions to deal with non-compliance, tax evasion and fraudulent practices. The GST authorities can resort to a range of measures, from monetary fines to prosecution and imprisonment in serious cases involving fraud, to ensure compliance. These provisions are contained in Sections 122 to 138, Chapter XIX of the Central Goods and Services Tax Act, 2017.

The CGST Act does not define the term ‘offence.’ But, it refers to any act or omission that violates the provisions of the Act or the rules made thereunder.

Key Enforcement Sections

The table below summarises the penal provisions under the CGST Act:

Common Offences Recognised under GST

Some of the common offences recognised under CGST Act are: • Issuing invoices without supply of goods or services • Availing or utilising input tax credit without receipt of goods or services • Suppression or under-reporting of turnover • Obstruction of tax officers during inspection, search or inquiry

These offences are primarily dealt with under Section 122 of the CGST Act.

Penalties under Section 122

Section 122 lays down that - • Where tax has not been paid or ITC has been wrongly availed without fraud, the penalty is ₹10,000 or 10% of tax due, whichever is higher • Where fraud, wilful misstatement or suppression of facts is established, the penalty may extend to 100% of the tax due

Section 122(3) extends the penalty to persons who aid or abet GST offences, and not just the main taxpayer. This includes agents, brokers and other intermediaries too.

General Penalty and Statutory Safeguards

Section 125 covers scenarios which don’t find place in Section 122. It provides for a general penalty of up to ₹25,000 where no specific penalty is prescribed elsewhere in the Act.

Section 126 lays down safeguards to prevent harsh penal action on minor lapses. It provides that: • No substantial penalty should be imposed for minor breaches • Procedural lapses without fraudulent intent should not attract severe penalties • Errors that can easily be corrected deserve lenient treatment

Courts have repeatedly relied on Section 126 to set aside penalties imposed mechanically without examining intent or proportionality.

Detention and Confiscation of Goods and Conveyances

GST authorities are empowered to take enforcement action against goods and vehicles involved in violations. Section 129 deals with detention or seizure of goods and conveyances during transit in case of statutory requirements such as invoices or e-way bills not being met.

Additionally, Section 130 applies to more serious situations highlighting the intent to evade tax. Under this provision: • Goods and conveyances may be confiscated • Penalty may be imposed along with confiscation • The owner has the option to pay fine in lieu of confiscation

Courts have consistently held that confiscation is a drastic measure and cannot be invoked merely because goods were detained. A clear intent to evade tax needs to be established.

Prosecution for Serious GST Offences

Certain grave offences like collection of tax without remittance and falsification of records attract criminal prosecution under Section 132 of the CGST Act.

Key features of this section are - • Punishment depends on the quantum of tax involved • Imprisonment may extend up to five years along with fine • Only serious offences above certain thresholds are cognizable and non-bailable • Prosecution requires prior sanction of a competent authority

Offences by Companies and Liability of Directors

Where GST offences are committed by companies, firms or other entities, the persons in charge of and responsible for the conduct of business are to be held liable. However, such liability depends on certain factors.

Courts have clarified that directors or officers can be held liable only when: • They were responsible for day-to-day operations • There is evidence of consent, connivance or neglect

Mere designation as a director or partner is not sufficient to attract penal liability.

Key Judicial Precedents on GST Penalties

• In Patanjali Ayurved Ltd. v. Unionof India, penalty proceedings under Section 122 were ruled to be independent of tax demand proceedings. It was observed that fake invoicing and circular trading justify penal action even if tax proceedings fail. • In Agarwal Steels v. AdditionalCommissioner, the Court ruled that detention and penalty cannot be imposed mechanically for technical lapses. Absence of intent to evade tax is crucial, and minor documentation errors or system glitches cannot justify penal action. • In Bhupender Kumar v. AdditionalCommissioner, the Delhi HC upheld penalty against GST consultant in Rs. 285 cr fake ITC scam. It was held that GST consultants and intermediaries can be penalised if they knowingly facilitate tax evasion.

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