GST Penalties — Sections 122, 125 & 126 of the CGST Act
Authoritative guide — legal provisions, leading case laws, and expert FAQs, all in one place.
What is GST Penalties under Sections 122, 125 & 126?
GST penalties are prescribed under Sections 122–128 of the CGST Act. Section 122 imposes penalties for specific offences (₹10,000 or tax due, whichever is higher). Section 125 is a residual general penalty up to ₹25,000. Section 126 mandates waiver of penalty where the taxable person demonstrates a reasonable cause for the contravention.
What is GST Penalties under Sections 122, 125 & 126?
GST penalty provisions operate on two tracks: Section 122, which prescribes specific penalties for defined offences (tax not paid, fake invoices, failure to register, etc.), and Section 125, a residual general penalty provision for contraventions not covered elsewhere. Section 126 then lays down the general disciplines that govern how penalties are to be imposed — including the principles of proportionality, bona-fide belief, and voluntary disclosure.
The penalty under Section 122 for most offences is the higher of ₹10,000 or the tax evaded/not paid. For specific aggravated offences listed in Section 122(1), the penalty can be up to 100% of the tax. The Section 125 general penalty is capped at ₹25,000. Section 126 provides a significant relief: no penalty shall be imposed where a minor breach has been regularised, or where the contravention is due to a reasonable cause, or where the taxpayer has a reasonable bona-fide belief in the correctness of their interpretation.
A critical principle from Section 126(2) is that penalty cannot be imposed without an opportunity of being heard — and from Section 126(3), penalty proceedings must be conducted separately from tax assessment proceedings where they are distinct. Courts have also emphasised that penalty is not automatic upon a finding of tax evasion — mens rea (intention to evade) remains relevant even in fiscal statutes.
Key Legal Provisions
- Section 122(1) — 21 specific offences attracting penalty of higher of ₹10,000 or 100% of tax: supply without invoice, invoice without supply, ITC fraud, failure to register, non-payment of collected tax, falsification of records, etc.
- Section 122(2) — Persons who retain benefit of, or at whose instance, Section 122(1) offences are committed — same penalties.
- Section 122(3) — Ancillary offences (contravention of rules not covered above): penalty up to ₹25,000.
- Section 125 — General penalty: any contravention not elsewhere specifically penalised attracts penalty up to ₹25,000. No mens rea required — it is a strict liability provision.
- Section 126(1) — Penalty waiver conditions: minor breach; breach due to reasonable cause; breach where default has been remedied voluntarily before detection.
- Section 126(2)(a) — Bona-fide belief: penalty not imposable if the person acted under a genuine belief that the act was lawful based on a reasonable interpretation of the law.
- Section 126(5) — Opportunity of hearing mandatory before imposing any penalty under the CGST Act.
Relevant Sections & Rules
Frequently Asked Questions All FAQs →
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Under Section 122(1)(iv) of the CGST Act, collecting GST from a customer and failing to deposit it with the government attracts a penalty equal to 100% of the tax collected but not paid. This is one of the most severe penalties in the GST law — it treats the non-deposit of collected tax as equivalent to outright fraud. Additionally, Section 76 provides a separate mechanism for recovery of tax collected but not deposited, with interest at 18% per annum from the date of collection.
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No. Section 126(5) of the CGST Act mandates that no penalty shall be imposed without giving the person an opportunity of being heard. This is a mandatory procedural requirement — courts have consistently set aside penalty orders passed without issuing a proper notice specifying the proposed penalty and the grounds, and without providing an opportunity to respond. The opportunity of hearing must be genuine and effective, not a perfunctory formality.
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Section 126(1) provides that no penalty shall be imposed for minor breaches of technical rules with no significant revenue implications, or where the breach is due to a reasonable cause. Section 126(2)(a) additionally provides immunity where the person proves that they acted under a genuine bona-fide belief based on a reasonable interpretation of the law (even if that interpretation is wrong). Voluntary disclosure before detection is also a relevant mitigating factor.
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Section 122 lists specific enumerated offences — for each of which the penalty is the higher of ₹10,000 or the tax evaded (up to 100% of tax for aggravated offences). Section 125 is a residual provision for any contravention of the CGST Act or Rules that is not specifically penalised elsewhere — the maximum penalty is ₹25,000. The department must first attempt to bring the contravention within Section 122 before resorting to the general penalty under Section 125.
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It depends on the section. Section 122(1) offences generally require proof of the underlying act (supply without invoice, ITC fraud, etc.) but not necessarily a specific intent to evade — they are largely strict liability. However, Section 126(2)(a) provides a bona-fide belief defence, which in substance imports a mental element. Courts have held that where the allegation is of fraud under Section 74, the department must establish the constituent elements of fraud including intention. For technical contraventions under Section 125, no mens rea is required.
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Practical Implications
- Reasonable cause defence — Section 126 requires the officer to consider whether there was reasonable cause for the failure; always plead this in penalty replies.
- Amnesty schemes — Monitor GST Council announcements for amnesty on late fee and penalty for prior periods (e.g., GSTR-9/9C amnesty for FY 17-18 to 21-22).
- Penalty vs prosecution — Section 122 penalties are civil; Section 132 prosecution is criminal and applies only above specified monetary thresholds.
- Proportionality — Courts have held that penalty must be proportionate to the offence; argue against disproportionate penalties in appeal.