Penalties under Goods and Services Tax-Offences and penalty

 

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 both 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	Late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST. Total will be Rs. 200/day. Maximum is Rs. 5,000. There is no late fee on IGST.
Penalty for not filing GSTR	Penalty 10% of tax due or Rs. 10,000 -whichever is higher

Penalty for committing a fraud	Penalty 100% of 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 upto Rs. 25,000
Penalty for opting for composition scheme even though he is not eligible	Demand & recovery provisions of sections 73 & 74 will apply. ·         Fraud case Penalty 100% of tax due or Rs. 10,000 -whichever is higher ·         Non-fraud case Penalty 10% of tax due or Rs. 10,000 -whichever is higher
Penalty for wrongfully charging GST rate— charging higher rate	Penalty 100% of tax due or Rs. 10,000 -whichever is higher (if the additional GST collected is not submitted with the govt)
Penalty for not issuing invoice	Penalty 100% of tax due or Rs. 10,000 -whichever is higher

Penalty for not registering under GST	Penalty 100% of tax due or Rs. 10,000 -whichever is higher
Penalty for incorrect invoicing	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 refund of the wrong type of GST paid earlier
Penalty for incorrect filing of GSTR	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 lower rate	Interest @18% applicable on the shortfall

 

What are the penalties under GST?

If any of the offences are committed then a penalty will have to be paid under GST. The principles on which

these penalties are based are also mentioned by law.

Penalty in cases of fraud

An offender has to pay a penalty amount of tax evaded/short deducted etc., i.e., 100% penalty, subject to a minimum of Rs. 10,000.

For the 21 offences above, for fraud cases, penalty will be 100% (minimum Rs. 10,000).

What is the penalty for helping someone to commit fraud under GST?

Not only the taxable person but any person who does the following will have to pay a penalty extending upto 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

Are there any jail punishments?

Yes, GST has corporal punishments (jail) for high value fraud cases as follows-

 

Tax amount involved

100-200 lakhs

200-500 lakhs

Above 500 lakhs

Jail term	Upto 1 year	Upto 3 years	Upto 5 year
Fine	In all three cases

 

 

These punishments are applicable along with monetary penalty.

For more details please read our article on prosecution.

 

 

 

Penalty for Other Cases (no intention of fraud or tax evasion)

An offender not paying tax or making short-payments has to pay a penalty of 10% of the tax amount due, subject to a minimum of Rs.10,000.

Therefore, the penalty will be high at 100% of the tax amount when the offender has evaded i.e., where there is a deliberate fraud.

For other non-fraud cases, the penalty is 10% of tax.

General Penalty

Any offence under GST for which penalty is not specifically mentioned will be liable to a penalty extending Rs. 25,000.

 

 

Minor Breaches under GST

·         Minor breaches (where tax amount is less than Rs.5000) or errors are easily rectifiable and clearly made without any motive of fraud.

·         There will not be substantial penalties for minor breaches

·         The tax authority may issue a warning in such cases.

This will be beneficial to businesses, especially SMEs, who may make genuine mistakes especially in the first few months of GST implementation. Being penalized for genuine errors will be a hard blow to the SMEs who do not have as many resources as the larger organizations to adapt to GST.

General Rules Regarding Penalty

These rules of penalty are generally the same in all laws whether tax laws or contract law or any other law.

·         Every taxable person, on whom the penalty is imposed, will be served with a show cause notice first and will have a reasonable opportunity of being heard.

·         The tax authority will give an explanation regarding the reason for penalty and the nature of offence

·         When any person who voluntarily discloses a breach of law, the tax authority may use this fact to reduce the penalty.

Procedure of GST Appeals to First Appellate Authority Appeal to First Appellate Authority

 

Who can appeal to First Appellate Authority?

A person unhappy with the order passed by an adjudicating can appeal within 3 months (extendable up to 1 month) from the date of the order in FORM GST APL-01.

 

Can the Commissioner appeal to the First Appellate Authority?

Yes. He can appeal within 6 months from the date of order

The officer will examine the record of the order for its legality or propriety based on the appellant’s motion or on a request from the Commissioner. The Commissioner can then direct his subordinate officer to apply to the First Appellate Authority within six months from the date of the order.

If the authorized officer makes an application to the First Appellate Authority then such application will be treated as an appeal made against the order.

Appellate Authority will issue a final acknowledgement, along with appeal number in FORM GST APL-02.

Is adjournment allowed?

The First Appellate Authority may adjourn the hearing of the appeal if there is sufficient cause. The reasons will be recorded in writing,

Adjournment will be allowed only three times.

Will any additional grounds be allowed?

The First Appellate Authority can allow an appellant to go into any ground of appeal which was not earlier specified in the appeal only if he feels the omission was not willful.

Decision of the First Appellate Authority

Negative impact of the order

Any order increasing any fee/penalty/fine or confiscating higher value goods or decreasing the refund or input tax credit will be passed only after a reasonable opportunity of showing cause.

Any order for payment of unpaid/short-paid tax or wrong refunds or input tax credit wrongly availed will be passed only after the appellant is given show cause notice

Time limit for the decision

The order must be passed within 1 year from the date of filing the appeal.

If the order is stayed by an order of a Court or Tribunal, the period of such stay shall be excluded in from the one year period.

Communication of the decision

The First Appellate Authority shall communicate the order passed to the appellant and to the adjudicating authority.

A copy of the order will also be sent to the jurisdictional Commissioners of CGST and SGST.

Revisional Authority

The Revisional Authority can, on his own, or on request from the Commissioner of SGST/CGST, examine the records of any proceeding. He will examine the records if he considers that any decision by any subordinate officer is-

·         Prejudicial to the interest of the revenue

·         Illegal or

·         Improper or

·         Not taking into account certain (whether or not available at the time of issuance of the order) or

·         An observation was made by the C&AG

If he thinks it is necessary, he can stay the order for a time period as he deems fit. The person concerned will be given an opportunity of being heard.

 

When is revision not allowed?

The Chief Commissioner or Commissioner will not revise the order if-

·         The order was already under appeal

·         6 months have not passed from the date of order (i.e., there is time left for appeal)

·         More than three years have passed after the date of order

·         The order has already been taken for revision

The Chief Commissioner or Commissioner can pass an order on any point which has not been raised in any appeal. Such order must be passed before one year from the date of the appeal order or before three years.

If the order is stayed by the order of a Court or Tribunal, the period of the stay will be excluded.

If the aggrieved person is not happy with the decision of the First Appellate Authority, he can appeal to the National Appellate Tribunal and then to High Court and finally Supreme Court.

 

 

 

 

 

 

 

 

Steps of Appeals under GS