CGST Section 122 — Penalty for certain offences

CGST Act · Penalty for certain offences

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Quick Answer

Section 122 of the CGST Act, 2017 governs Penalty for certain offences. It provides the core statutory basis, outlining the essential legal principles, rights, and liabilities under Indian indirect tax law. Section 122 GST: Penalty for certain offences — eligibility, conditions, case laws and compliance impact under Indian tax law.

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Plain-English Explanation

Plain English Summary

Section 122 of the CGST Act, 2017, outlines the penalties applicable for various offenses committed under the GST regime. It serves as a deterrent against non-compliance and aims to ensure that taxable persons adhere to the provisions of the Act.

This section primarily applies to taxable persons, meaning individuals or entities registered or required to be registered under the GST Act. It also extends to other individuals who aid or abet in committing these offenses. Penalties are triggered when a taxable person engages in specific actions that violate the GST law.

Here's a breakdown of the key offenses and conditions under Section 122:

Supply without Invoice or Incorrect Invoice: Supplying goods or services without issuing an invoice or issuing a false or incorrect invoice.
- Example: A retailer sells goods worth ₹50,000 but doesn't issue any invoice to avoid paying GST.
Invoice without Supply: Issuing an invoice or bill without actually supplying the goods or services.
- Example: A company issues an invoice for ₹1,00,000 worth of services that were never provided, to help another business claim fraudulent input tax credit.
Failure to Pay Collected Tax: Collecting tax from customers but failing to deposit it with the government within three months of the due date.
- Example: A restaurant collects GST from its customers but doesn't remit the amount to the government within the stipulated time.
Wrongful Input Tax Credit (ITC): Taking or utilizing ITC without actual receipt of goods or services, or taking or distributing ITC in violation of Section 20.
- Example: A manufacturer claims ITC on raw materials that were never delivered to their factory.
Fraudulent Refund: Obtaining a refund of tax through fraudulent means.
- Example: An exporter submits fake documents to claim a higher GST refund than they are actually entitled to.
Falsifying Records: Falsifying financial records, producing fake accounts or documents, or providing false information with the intention to evade tax.
- Example: A business owner manipulates sales figures in their books to show a lower turnover and pay less GST.
Failure to Register: Being liable to register under GST but failing to do so.
- Example: A service provider whose annual turnover exceeds the threshold limit doesn't obtain GST registration.
Obstruction of Officers: Obstructing or preventing GST officers from performing their duties.
- Example: A business owner refuses to allow GST officers to inspect their premises during a raid.
Transporting Goods without Documents: Transporting taxable goods without proper documentation as prescribed under GST rules.
- Example: A transporter carries goods across state borders without a valid e-way bill.
Suppression of Turnover: Suppressing sales figures to evade tax.
- Example: A wholesaler underreports their sales to reduce their GST liability.
Failure to Maintain Books: Failing to keep or maintain proper books of accounts and other required documents.
- Example: A company doesn't maintain proper records of its purchases and sales, making it difficult to verify its GST liability.
Dealing with Confiscated Goods: Supplying, transporting, or storing goods knowing they are liable to confiscation under GST.

The penalty for these offenses is typically ₹10,000 or an amount equivalent to the tax evaded/involved (including wrongfully availed ITC, fraudulently claimed refund etc.), whichever is higher. The section also addresses scenarios where a person retains the benefit of transactions covered under specific clauses and imposes a penalty equivalent to the tax evaded or ITC availed.

Amendment impacting E-commerce Operators:

Finance Act 2023 introduced sub-section (1B) with effect from 1st October 2023, which specifically deals with penalties for e-commerce operators (ECOs) who are liable to collect tax at source (TCS) under Section 52. In case of an ECO allowing supply by unregistered persons (other than those exempted), or inter-state supply by ineligible persons or furnishing incorrect details of outward supplies made by exempted persons, the ECO is liable to a penalty of ₹10,000 or the amount of tax involved, whichever is higher.

Sub-section (2) differentiates penalties based on intent. If tax evasion, short-payment or erroneous refund or wrongful ITC availment is not due to fraud, willful misstatement or suppression of facts, the penalty is ₹10,000 or 10% of the tax due, whichever is higher. If it is due to fraud, willful misstatement or suppression of facts, the penalty is ₹10,000 or the tax due, whichever is higher.

Finally, Sub-section (3) extends the penalty net to those who aid or abet in the commission of the offenses listed in sub-section (1), or deal with goods that they know or have reason to believe are liable to confiscation.

Understanding Section 122 is crucial for businesses to avoid penalties and maintain compliance with GST regulations. It encourages ethical practices and transparency in business operations.

* Section122.Penalty for certain offences.-

(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) ofsection 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)ofsection 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) ofsection 52;

(vii)takes or utilises 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 ofsection 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 reasons 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 undersection 51or short deducted or deducted but not paid to the Government or tax not collected undersection 52or 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.

(1A)Any person who retains the benefit of a transaction covered under clauses (i), (ii),

(vii)or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.

(1B) ¹Any electronic commerce operator, who is liable to collect tax at source under section 52,²—¹

(i)allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration by a notification issued under this Act to make such supply;]

(ii) allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or¹

(iii)fails to furnish the correct details in the statement to be furnished under sub-section (4) of section 52 of any outward supply of goods effected through it by a person exempted from obtaining registration under this Act, shall be liable to pay a penalty of ten thousand rupees, or an amount equivalent to the amount of tax involved had such supply been made by a registered person other than a person paying tax under section 10, whichever is higher]Any electronic commerce operator, who is liable to collect tax at source under section 52,²—

(i)allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration by a notification issued under this Act to make such supply;

(ii)allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or

(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 subsection (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 reasons 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.

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Frequently Asked Questions

What is the general penalty under CGST Section 122 for committing certain offences?

Under CGST Section 122, the penalty for offences such as supplying goods/services without invoice, issuing incorrect invoices, not paying tax collected, or claiming fraudulent refunds is generally INR 10,000 or an amount equivalent to the tax evaded/short-paid/wrongly availed input tax credit, whichever is higher. Specific offences have defined penalties outlined in the section.

What constitutes an 'offence' under CGST Section 122 that triggers a penalty?

CGST Section 122 lists various offences, including but not limited to: supplying goods or services without issuing an invoice; issuing an invoice without actual supply of goods or services; claiming input tax credit (ITC) without actual receipt of goods or services; obtaining refunds fraudulently; and failing to pay tax collected beyond three months from the due date.

How is the 'amount equivalent to the tax evaded/short-paid/wrongly availed input tax credit' calculated for the purpose of penalty under CGST Section 122?

The amount is calculated based on the actual tax loss to the government due to the offense committed. This involves determining the difference between the tax that should have been paid and the tax actually paid (evaded/short-paid), or the value of the input tax credit wrongly claimed. Proper documentation and adherence to GST regulations are crucial to avoid disputes in this calculation.

Are there any specific offences under CGST Section 122 that carry a higher penalty than the general rule?

Yes, CGST Section 122 contains provisions for more serious offences where the penalty can be significantly higher. For example, habitual offenders or those involved in organized tax evasion schemes may face penalties that include imprisonment along with monetary fines. These are generally linked to attempts to defraud the government or commit large-scale tax fraud.

Can penalties under CGST Section 122 be waived or reduced? If so, under what circumstances?

While the penalty amounts are defined in the law, the adjudicating authority (GST officer) has some discretionary powers to reduce or waive penalties under certain circumstances, such as genuine mistakes, lack of intent to evade tax, or cooperation during investigations. However, the Commissioner has the ultimate authority, and a strong justification is needed for any waiver or reduction. This often involves demonstrating reasonable cause and good faith.

What is the process for appealing a penalty imposed under CGST Section 122?

If a taxpayer disagrees with a penalty imposed under CGST Section 122, they can file an appeal with the appropriate appellate authority as per the GST Act. The appeal must be filed within the prescribed time limit (usually three months from the date of communication of the order) along with the required fees. The appellant must present their case and evidence to support their claim that the penalty was wrongly imposed or excessive.

How does CGST Section 122 interact with other sections of the CGST Act regarding penalties and offences?

CGST Section 122 provides specific penalties for the offences it lists. However, the CGST Act contains other sections that address different types of offences and penalties. Section 125, for instance, covers general penalties not specifically covered elsewhere. It's important to understand which section applies based on the nature of the offence committed. Furthermore, actions under Section 122 can sometimes lead to additional consequences under other sections, such as assessment proceedings, prosecution (Section 132) or recovery proceedings.

Key Conditions & Requirements

Condition	Details
Supply without invoice or incorrect invoice	Supplies goods/services/both without issuing an invoice or issues an incorrect/false invoice.
Invoice without supply	Issues any invoice/bill without the actual supply of goods/services/both in violation of the CGST Act or rules.
Tax collected not remitted	Collects any amount as tax but fails to pay it to the Government beyond three months from the due date.
Wrongful availment/distribution of ITC	Takes/utilizes input tax credit without actual receipt of goods/services/both, or takes/distributes ITC in contravention of Section 20 or related rules.
Evasion through records manipulation	Falsifies/substitutes financial records, produces fake accounts/documents, or furnishes false information/return with intent to evade tax.
Failure to register	Liable to be registered under the CGST Act but fails to obtain registration.
Transportation without documents	Transports any taxable goods without the required documents.
Failure to deduct/collect tax	Fails to deduct or collect tax as required under Sections 51 or 52, or fails to pay the deducted/collected amount to the Government.

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Amendment History

Enforced w.e.f. 1st July, 2017 . Inserted (vide Notification No 92/2020- C.T , dated 22-12-2020 by s.126 of The Finance Act, 2020 (No. 12 of 2020) - Brought into force w.e.f. 01st January, 2021.

12Superscript numbers in the text mark amended passages — click them to jump here. Click "↑ view in text" to jump back.

2023↑ view in text

Inserted ( w.e.f. 1st October, 2023 vide Notification No. 28/2023 - CT dated 31st july, 2023. ) by s. 155 of The Finance Act 2023 (No. 8 of 2023).