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  7. GST Penalties: Offenses, Late Fees & Interest

GST Penalties: Offenses, Late Fees & Interest

Updated on: 14 Oct, 2024 06:02 PM

The Goods and Services Tax, GST, was launched in the year 2017 which eliminated almost all the forms of indirect taxation. Instead, a uniform tax, called GST, became applicable on all goods and services. Every type of business which is producing goods or services is required to follow the rules and regulations specified in the GST Act. If the business does not abide by the rules prescribed under the GST Act, it would be held responsible for a breach of law for which it would attract penalties.

A breach can be said to happen in different instances. Thus, the GST Act has identified 21 possible scenarios of offences which can be done by businesses. Moreover, for the identified offences, there are relevant penalties too. But before we discuss the penalties which are applicable under GST, let’s first understand the 21 instances which result in a breach or an offence of the GST law.

Contents

Offences in GST

The offences under the GST Act are categorised under different subdivisions to understand the nature of the offence. These sub-divisions and their respective offences are as follows –

Offences with regards to invoicing and documentation

Offences Examples
Issuing a false or a wrong invoice or not issuing any invoice at all for any type of goods or services being supplied
  • M/S ABC Ltd. sold goods worth INR 50,000 to M/S XYZ Limited. However, they prepared an invoice of INR 40,000 only
  • M/S ABC Ltd. did not sell any goods to M/S XYZ Ltd. but issued an invoice of INR 50,000
  • M/S ABC Ltd. sold goods worth INR 50,000 to M/S XYZ Limited but did not issue an invoice for the sale
Issuing the GST invoice without actually supplying the corresponding goods and services M/S ABC Ltd. created a GST invoice for INR 10,000 for the month of July 2019 but they did not actually supply any goods or services in that month
Issuing an invoice or a document which contains the GSTIN (Goods and Services Tax Identification Number) of another individual or entity registered under GST M/S ABC Ltd. supply goods worth INR 50,000 and the GSTIN quoted by them on their bills is the GSTIN of M/S XYZ Ltd.
Transportation of goods on which GST would be applicable without providing the required documents or by providing wrong documents
  • M/S ABC Ltd. transported their goods to another warehouse without the proper paperwork
  • M/S ABC Ltd. transported their goods to another location with limited paperwork.
Non-maintenance of the required documents or records required under the GST Act M/S ABC Ltd. failed to maintain a record of all the invoices of the goods that they sold in a financial year

Offences with an intention to defraud

Offences Examples
Submitting incorrect information when registering for GST or at any other time M/S ABC Ltd. provided the wrong address of their registered office when registering for GST
Availing GST refund by furnishing fraudulent information M/S ABC Ltd. claim for GST refund on transactions which have not been done by them
Falsifying documents or records to furnish incorrect information to evade tax M/S ABC Ltd. make false Profit and Loss Accounts to underreport their turnover so that they can save on GST payments
Not registering for GST M/S ABC Ltd. should have a GST registration for their business but they do not register
Tampering with goods or disposing them off when they have been attached, detained or seized under the provisions of the GST Act M/S ABC Ltd. try and auction off the stock which has been attached under GST Act.
Deliberate supply, transport or storage of goods which would be confiscated under the provisions of GST rules M/S ABC Ltd. transport those goods which can be confiscated knowing about such possible confiscation

Offences with regards to tax evasion

Offences Examples
Underreporting or hiding the correct amount of turnover for the year to evade GST M/S ABC Ltd. had a turnover of INR 25 lakhs in the financial year 2018-19. However, for GST purposes, they showed a turnover of INR 15 lakhs
Non-payment of GST to the Government within 3 months of collecting the same from the buyer of goods and services M/S ABC Ltd. sold goods on 1st May 2019 and collected GST on the same. However, the collected GST was not deposited within 31st July 2019
Non-payment of GST to the Government within 3 months of collecting the same from the buyer of goods and services when GST has been collected in contravention of the provisions of the GST Act M/S ABC Ltd. sold goods on 1st April 2019 and collected GST on the same in contravention of the GST Act. However, the collected GST was not deposited within 30th June 2019
Availing Input Tax Credit or utilising it without actually supplying the relevant goods and services M/S ABC Ltd. availed an Input Tax Credit of INR 10,000 but they did not sell any goods which qualified for availing the corresponding amount of Input Tax Credit
Failing to abide by the provisions of tax liability under Section 52 (2) of the GST Act. This section specifies the tax amount to be deducted or the tax amount payable to the Government for supplying goods and services M/S ABC Ltd. was supposed to deduct tax @10% under Section 52 (2) of the GST Act on the goods and services that it supplied. However, it did not deduct the required tax.
Failing to abide by the provisions of tax liability under Section 52 (3) of the GST Act. This section specifies the tax amount to be deducted or the tax amount payable to the Government for supplying goods and services M/S ABC Ltd. was supposed to deduct tax @10% under Section 52 (3) of the GST Act on the goods and services that it supplied. However, it did not deduct the required tax.
Availing Input Tax Credit which is in breach of Section 20 of the GST Act M/S ABC Ltd. availed Input Tax Credit against the rules contained under Section 20 of the GST Act.

Offences with regards to obstruction

Offences Examples
Obstructing or not allowing an officer from doing his/her duties as specified under the GST Act M/S ABC Ltd. did not allow an officer of the Government to investigate their financial statements to find out GST related discrepancies
Tampering with or destroying documents which serve as an evidence M/S ABC Ltd. destroyed the original invoices which prove that the company evaded the applicable GST by under reporting their turnover
Providing incorrect documents or not providing the required documents to the officer authorised to act under the GST Act
  • M/S ABC Ltd. furnish fabricated invoices to the GST officer so that their GST evasion cannot be detected
  • M/S ABC Ltd. do not provide the GST officer with the required invoices to estimate the extent of tax evasion done by them

These are the 21 cases of offences which businesses can be found guilty of with regards to following the rules prescribed under the GST Act. These breaches can be minor or major. Depending on the type of breach, penalty would be applicable. The penalty applicable in each of the above 21 cases is

  • (i) Rs 10,000
  • (ii) Tax evaded/tax not deducted/tax not collected/input tax credit availed wrongly/refund claimed fraudulently

whichever is higher.
Let’s understand these two types of breaches –

  • Minor breach – a minor breach is said to be that offence where the tax payable is below INR 5000. Moreover, a minor breach is one which includes documentation errors or omissions which can be easily corrected. In case of a minor breach, the GST Act does not impose heavy penalties. In such cases, the tax authorities usually issue a warning and do not charge a monetary penalty.
  • Major breach – if, on the other hand, the involved GST amount is more than INR 5000, it is termed as a major breach. In such cases, monetary penalties and imprisonment might happen depending on the tax amount involved.
  • No penalty shall be charged in case of minor breaches, which have been defined above.
  • The penalty to be charged should be commensurate with the nature or severity of the breach.
  • No penalty should be imposed without giving the person guilty an opportunity of being heard.
  • Nature of breach and applicable provisions should be referred while imposing penalty.
  • Lower penalty would be charged if breach is voluntarily disclosed.
  • If penalty in Section 73 and 74 is paid, no other penalty shall be charged.

Who faces the penalties?

  • In case of companies which commit any of the afore-mentioned offences, penalties are imposed on the officers in charge as well as on the company as a whole. Officers in charge of the company include the company’s directors, secretaries, managers, etc.
  • For Limited Liability Partnerships (LLPs), the partners are held accountable
  • For a Hindu Undivided Family, the Karta faces penalties
  • In case of a trust, the managing trustee would be deemed responsible for the offence and penalised

GST penalties

Penalty is a punishment which is levied if the entity or an individual commits a punishable offence. A penalty can involve jail or payment of fines and can be civil or criminal in nature. For any type of GST penalty, the following rules would apply –

  • The taxpayer on whom the penalty is applicable would be given a show cause notice which would allow him ample time to present his side of the case
  • The tax authority applying the penalty would have to state the reason of penalty and the type of offence done by the taxpayer
  • If the taxpayer voluntary admits a breach of law or an offence, the disclosure can be used to reduce the penalty applicable.

There are different types of GST penalties levied on different types of offences. These offences and their respective penalties include the following –

Detention of Goods and Conveyances and Penalty Thereof

If any goods are transported in contravention of any provisions, all such goods and the conveyance carrying such goods along with the related documents shall be detented or seized.
It shall be released on payment of tax and penalty. The penalty shall be equal to the tax payable where the owner is ready to pay. The penalty shall be equal to half of the tax payable where the owner is not ready to pay.

Confiscation of Goods and Conveyances and Penalty Thereof

If any goods are supplied under evasion of taxes, or are not correctly accounted for or registration has not been done or any other provision has been contravened in relation to such goods,

Then such goods and conveyances could be confiscated.
In addition the person can be penalised under section 122, discussed in the above topics.

Monetary penalties

Offence Applicable penalty
Delay in filing GST returns A late filing fee of INR 100 per day for each Act of CGST and SGST. Total daily penalty is INR 200 subject to a maximum of INR 10000. Late penalty would not be applicable on IGST
Not filing GST returns Higher of 10% of the GST payable or INR 10,000
Committing a fraudulent offence Higher of 100% of GST payable or INR 10,000
Helping an individual to commit a fraudulent offence Up to INR 25,000
Opting for composition scheme when the taxpayer is not eligible for the scheme Demand and recovery provisions under Section 73 and Section 74 would apply. For fraud case penalty would be higher of 100% of GST payable or INR 10,000. For non-fraud case it would be higher of 10% of the GST payable or INR 10,000
Charging higher GST rate Higher of 100% of GST payable or INR 10,000
Not issuing the invoice Higher of 100% of GST payable or INR 10,000
Not registering under GST Higher of 100% of GST payable or INR 10,000
Creating a wrong invoice INR 25,000
Frauds 100% of the GST payable subject to a minimum of INR 10,000

Non-monetary penalties

Offences Applicable penalties
Charging wrong GST, i.e. charging IGST instead of CGST or SGST None. The taxpayer would have to pay the correct GST amount and get a refund of the GST paid
Wrong filing of GST returns None. Interest on the deficit GST @ 18%
Delay in paying invoice Input Tax Credit is reversed if invoice is not paid in 6 months
Charging lower GST rate 18% interest on the deficit GST

Corporal penalties

For high value tax cases, imprisonment is also applicable as penalty. The term of imprisonment would depend on the value of the case and it would also involve fines. The jail terms are as follows –

Amount of tax Jail term
INR 100 lakhs to INR 200 lakhs Up to 1 year
INR 200 lakhs to INR 500 lakhs Up to 3 years
More than INR 500 lakhs Up to 5 years
Aids or abets in commission of any offence Up to 6 months

Businesses should, therefore, understand the penalties involved in non-compliance of GST rules so that they can avoid them.

Frequently Asked Questions (FAQs)

Q- What would be the penalty for an offence which is not particularly mentioned in the GST Act?

For any offence which is not mentioned individually, the penalty would extend up to INR 25,000

Q- What are the benefits of minor breaches?

SMEs and small scale industries can make minor mistakes when they start business operations. Since minor breaches do not impose monetary penalties, it would be beneficial for such budding businesses.

Q- Is there a penalty for aiding and abetting a GST offender?

Yes, any individual who aids and abets a GST related fraud would also incur penalties.

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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.