Chapter 23: Offences and Penalties

The GST law lays down stringent provisions to penalize wilful evasion, fraud, and procedural lapses, ensuring compliance and integrity in the tax system.

Statutory Reference: Sections 122 to 138 of the CGST Act, 2017 deal with offences, penalties, and compounding.

Definition:

An offence under GST refers to any act or omission in contravention of the provisions of the Act or Rules, which attracts penal consequences such as fine, penalty, or imprisonment.

Major Categories of Offences (Section 122(1)):

Other Offences:

Issuing incorrect e-way bills.

Non-payment of TDS/TCS after collection.

Failure to maintain proper books or documents.

Penalty for Each Offence (Sec. 122(1)):

₹10,000 or amount equal to tax evaded, whichever is higher.

(a) For Taxable Persons (Sec. 122(1))

Any registered person committing any of the offences listed above is liable to:

Penalty equal to tax evaded, or ITC wrongly availed, or refund fraudulently obtained, subject to minimum ₹10,000.

(b) For Other Persons (Sec. 122(3))

Any person (not being a registered taxable person) aiding or abetting such offences shall be liable to a penalty up to ₹25,000.

(c) For E-commerce Operators (Sec. 122(1A))

Where an operator:

Allows unregistered suppliers to make taxable supplies through its platform, or

Fails to furnish correct details of supplies, then it shall be liable to penalty equal to tax involved or ₹10,000 (whichever higher).

(d) Penalty for Continuous Defaults

If the same offence is committed again → higher penalty and possible prosecution under Sections 132–135.

(a) Interest (Section 50)

Interest is charged for delayed payment of tax or wrongful availment of ITC.

Key Principle: Interest applies only on net cash liability, not on ITC portion (as clarified vide Notification No. 63/2020–CT dated 25.08.2020).

(b) Late Fees (Section 47)

Amnesty Scheme 2023: Late fees waived for certain returns if filed within specified periods (vide Notification No. 03/2023–CT).

GST recognizes vicarious liability, meaning individuals in control of a business can be held personally liable for offences committed by the entity.

(a) Companies (Section 137)

If a company commits an offence, every person in charge of the company at the time of offence shall be deemed guilty.

However, they can avoid liability if they prove lack of knowledge or due diligence.

Example: If a company issues fake invoices, the Managing Director and Finance Head may be prosecuted unless they prove absence of knowledge or involvement.

(b) Partnership Firms / LLPs

Every partner is jointly and severally liable.

However, liability can be limited under LLP laws unless involvement is proven.

(c) Hindu Undivided Family (HUF)

Karta deemed responsible for offences, unless the offence occurred due to the act of another member without his knowledge.

(d) Government Departments

Where an offence is committed by a Government department, the Head of Department shall be deemed guilty unless he proves due diligence and absence of consent or neglect.

In serious cases of tax evasion, prosecution and arrest may be initiated.

Punishable Offences Include:

Issue of fake invoices and wrongful ITC claims.

Evasion of tax exceeding ₹2 crore.

Obstruction of officers, falsification of records, or destruction of evidence.

Punishment Framework:

Note: All offences under Section 132 are non-cognizable and bailable, except those involving fake invoicing and deliberate frauds over ₹5 crore.