GST Penalties FAQs — Sections 122, 125 & 126 Explained
7 expert answers on GST Penalties under Sections 122, 125 & 126 under GST — eligibility, restrictions, reversals, and recent legal positions.
These questions are drawn from real GST compliance scenarios, litigation, and common queries from practitioners. Answers reflect the law as amended up to Finance Act 2024.
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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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Yes. Section 128 of the CGST Act empowers the Government, on the recommendation of the GST Council, to waive in whole or in part any penalty referred to in Section 122 or 123 or 125 or under Section 19 of the IGST Act for a class of taxpayers. This power has been exercised through the GST Amnesty Schemes (e.g., the Section 128A amnesty announced in 2024 for FY 2017-20 demands) that allow settlement of pending demands with reduced or nil penalties.
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Under Section 122(1)(xi), a person who makes any supply of taxable goods or services without being registered (where registration is mandatory under Section 22 or 24) is liable to a penalty equal to the higher of 10,000 rupees or the amount of tax evaded. Where the unregistered supply is discovered during a search or inspection under Section 67, the penalty can be imposed simultaneously with the tax demand. Registration obligation arises once turnover crosses the threshold — aggregate turnover above ₹40 lakh (goods) or ₹20 lakh (services).