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Offences and Penalties under GST

By:- Puneet Agrawal B. Com (H), CA, LLB

Partner Athena Law Associates

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CONTENTS

This presentation covers-

Offences and penalties under GST Prosecution of offences under GST Compounding of offences under GST

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OFFENCES AND PENALTIES UNDER GST

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Offences and Penalties (Section 66)

• Offences have been prescribed under GST Law on which penalties may be imposed by departmental authorities in terms of Section 66(1) of the Model GST Law. The lists consists of 21 offences. The said offences are as follows:-1) Making a supply without invoice or with false/ incorrect invoice;2) Issuing an invoice without making supply;3) Not paying tax collected for a period exceeding three months;4) Not paying tax collected in contravention of the MGL to the credit of the Govt. for a period exceeding 3 months from the due date;5) Non deduction or lower deduction of tax deducted at source or not depositing tax deducted at source under section 37;6) Non collection or lower collection of or nonpayment of tax collectible at source under section 43C;7) Availing/utilizing input tax credit without actual receipt of goods and/or services;8) Fraudulently obtaining any refund;9) Availing/distributing input tax credit by an Input Service Distributor in violation of Section 17 or relevant rules;

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Contd.10) Furnishing false information or falsification of financial records or furnishing of fake

accounts/ documents with intent to evade payment of tax;11) Failure to register despite being liable to be registered;12) Furnishing false information regarding mandatory fields for registration;13) Obstructing or preventing any official in discharge of his duty;14) Transporting goods without prescribed documents;15) Suppressing turnover leading to tax evasion;16) Failure to maintain accounts/documents in the manner specified in the Act or failure to retain

accounts/documents for the period specified in the Act;17) Failure to furnish information/documents required by an officer in terms of the Act/Rules or

furnishing false information/documents during the course of any proceeding;18) Supplying/transporting/storing any goods which he has reason to believe are liable to

confiscation;19) Issuing invoice or document using GSTIN of another person;20) Tampering/destroying any material evidence;21) Disposing of /tampering with goods detained/ seized/attached under the Act.

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Offence of aid and abatement

• Further a penalty of rupees twenty five thousand has been prescribed for any person who:– aids or abates any of the 21 offences as mentioned in clause 1 of Section 66;– 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 reason to believe are liable to confiscation under this Act or the rules made thereunder;

– 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 reason to believe are in contravention of any provisions of this Act or the rules made thereunder;

– fails to appear before the CGST/SGST officer, when issued with a summon for appearance to give evidence or produce a document in an enquiry;

– fails to issue invoice in accordance with the provisions of this Act or rules made thereunder, or fails to account for an invoice in his books of account

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Athena Comments

• The provisions clearly indicate that non only the dealers but ‘any person’ who is engaged in such contravening activities shall be liable to penalty.

• The provisions also clarifies that a penalty may be imposed in case a non-dealer fails to appear on summons issued to him for recoding of evidences.

• Such provisions of imposition of penalty on persons who are engaged in offensive activities or aid in in offensive activities shall certainly help achieving higher compliance.

• The penalty amount however is not substantial to discourage all.

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General i.e. Residual Penalty

• Section 67 of GST Model Law.• Any person

– who contravenes any of the provisions of this Act – or any rules made thereunder – for which no penalty is separately provided for in this Act, – shall be liable to a penalty which may extend to rupees twenty five

thousand

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General disciplines related to penalty

• Section 68 of The Model GST Law prescribes general disciplines of imposing penalty:– No penalty for minor breaches –

• Imposition of substantial penalties for minor breaches of tax regulations or procedural requirements has been restricted, i.e., a breach where amount of tax involved is less than Rs. 5,000.

• No penalty in respect of any omission or mistake in documentation which is easily rectifiable and obviously made without fraudulent intent or gross negligence, i.e., errors apparent on record

– Penalty to be commensurate with severity of breach• penalty imposed shall depend on the facts and circumstances of the case • Penalty shall be commensurate with the degree and severity of the breach

– No penalty without notice and hearing• No penalty without giving a notice to show cause and • reasonable opportunity of being heard

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Contd.

– Reason to be given for imposing penalty• The tax authority shall ensure provision of an explanation to the persons upon whom

the penalty is imposed• nature of breach and the laws, regulations or procedural requirements to be informed• applicable law, regulation or procedure under which the amount or range of penalty

for the breach has been prescribed– Lower penalty if breach voluntarily disclosed 

• On voluntary disclosure to tax authority the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the tax authority,

• the tax authority may consider this fact as a potential mitigating factor when establishing a penalty for that person

– Provisions not applicable when law specifies fixed penalty

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Athena Comments

• The provisions bring into two intentions of the legislator:1. To abide by the principals of natural justice2. To ensure and aid in ease in voluntary disclosures3. To ensure and aid in the government’s plea of ease of

doing business in India

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Penalty for repeatedly making short payments

• Any registered taxable person who repeatedly makes short payment of tax shall be liable to a penalty of rupees ten thousand or ten percent of the tax short paid, whichever is higher – Section 66(2) of GST Model Law.

• A taxable person shall be deemed to have made short payments ‘repeatedly’, if there were short payments in three returns during any six consecutive tax periods – explanation to clause 66(2) of GST Model Law, 2016.

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Detention of goods and conveyances, and levy of penalty (Section 69)

• Where any person –– transports any goods or stores such goods while they are in transit in violation of the

provisions of this Act; or – or stores or keeps in stock goods or supplies goods – which have not been accounted for in the books or records maintained by him – in prescribed manner – all such goods and the conveyance used as a means of transport for carrying the said

goods – shall be liable to detention, – release shall be made only after payment of applicable tax, interest and penalty – or upon furnishing a security, equivalent to the amount of the applicable tax, interest and

penalty

• No tax, interest or penalty shall be determined without giving a notice to show cause and without giving the person a reasonable opportunity of being heard.

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Confiscation of goods and levy of penalty

• If any person –i. supplies any goods in contravention of any of the provisions of this Act or rules

made thereunder leading to evasion of tax; or ii. does not account for any goods on which he is liable to pay tax under this Act; or iii. supplies any goods liable to tax under this Act without having applied for the

registration; or iv. contravenes any of the provisions of this Act or rules made thereunder with intent

to evade payment of tax, then, all such goods shall be liable to confiscation and the person shall be liable to penalty under section 66 – Section 70(1) of the Model GST Law.

• Goods belong to Government after confiscation – Where any goods are confiscated under this Act, the title of such goods shall thereupon vest in the appropriate Government – Section 70(3) of The Model GST Law.

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Contd…

• Confiscation after notice and adjudication order – No order of confiscation of goods and/or imposition of penalty shall be issued without giving a notice to show cause and without giving the person a reasonable opportunity of being heard – Section 70(4) of the Model GST Law.

• Police to assist in taking and holding possession – The proper officer adjudging confiscation shall take and hold possession of the things confiscated and every Officer of Police, on the requisition of such proper officer, shall assist him in taking and holding such possession – Section 70(6) of the Model GST Law.

• Redemption fine in lieu of confiscation – Whenever confiscation of any goods is authorized by this Act, the CGST/SGST officer adjudging it shall give to the owner of the goods or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit. Such fine shall not exceed the market price of the goods confiscated, less the tax chargeable thereon – Section 70(2) of The Model GST Law.

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Confiscation of conveyances

• Any conveyance used as a means of transport for carriage of taxable goods without the cover of documents as may be prescribed in this behalf shall be liable to confiscation, unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance

• Where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon – Section 71 of The Model GST Law.

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Confiscation or penalty not to interfere with other punishments

• No confiscation made or penalty imposed under the provisions of this Act or the rules made thereunder shall prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of this Act or under any other law – Section 72 of The Model GST Law.

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PROSCECUTION OF OFFENCES UNDER GST

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ProsecutionProsecution• Prosecution is the institution or commencement of legal proceeding; the process of exhibiting

formal charges against the offender. Section 198 of the Criminal Procedure Code defines “prosecution” as the institution and carrying on of the legal proceedings against a person.

Offences which warrant prosecutionSection 73 of the MGL codifies the major offences under the Act which warrant institution of criminal proceedings and prosecution. 12 such major offences have been listed as follows:

1) Making a supply without issuing an invoice or upon issuance of a false/incorrect invoice;2) Issuing an invoice without making supply;3) Not paying tax collected for a period exceeding 3 months;4) Not depositing any tax that has been collected in contravention of the Act for a period exceeding 3 months;5) Availing or utilizing credit of input tax without actual receipt of goods and/or services;6) Obtaining any fraudulent refund; 7) Furnishing false information or falsification of financial records or furnishing of fake accounts/ documents with intent to

evade payment of tax;8) Obstructing or preventing any official in the discharge of his duty;9) Dealing with goods liable to confiscation i.e. receipt, supply, storage or transportation of goods liable to confiscation;10) Receiving/dealing with supply of services in contravention of the Act;11) Failing to supply any information required of him under the Act/Rules or supplying false information;12) Attempting to commit or abetting the commission of any of the above 11 offences

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Contd.Punishment prescribed on conviction of any offenceSection 73 (1) prescribes as follows:

Section 73(2) provides that a second or any subsequent conviction for an offence in this section shall be punishable with imprisonment for a term that may extend to 5 years and a fine. However, no imprisonment for any of the offences shall be for a period less than six months.

   

Offence involving-- Punishment (Imprisonmentextending to--)

Tax evaded exceedingRs.250 lakh

5 years and fine

Tax evaded between Rs.50lakh and Rs.250 lakh

3 years and fine

Tax evaded between Rs.25lakh and Rs.50 lakh

1 years and fine

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Cognizance of offences• Section 74 of MGL provides that no person shall be

prosecuted for any offence without the prior sanction of the designated authority and no court inferior to that of a Magistrate of the First Class shall try any such offence.

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Presumption of Mens Rea

• While committing an act, a “culpable mental state” is a state of mind wherein-− the act is intentional;− the act and its implications are understood and controllable;− the person committing the act was not coerced and even overcomes hurdles to the

act committed;− the person believes or has reasons to believe that the act is contrary to law.• Section 75 of the MGL presumes the existence of a state of mind (i.e. “culpable

mental state” or mens rea) required to commit an offence if it cannot be committed without such a state of mind.

• The burden of proof is on the accused in this regard.• The fact of existence of mens rea is proved when Court believes it to exist beyond

reasonable doubt.

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Offences by companies and certain other persons• Prosecution of offences by companies

Section 77 of the MGL provides that – every person who was in-charge of or responsible to a company for the conduct of its

business shall, – along-with the company itself, – be liable to be proceeded against and punished for an offence committed by the company – while such person was in-charge of the affairs of the company. – If any offence committed by the company

• has been committed with the consent/ connivance of, or• is attributable to negligence of—• any officer of the company

– then such officer shall be deemed to be guilty of the said offence – and liable to be proceeded against and punished accordingly.

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COMPOUNDING OF OFFENCES UNDER GST

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Compounding of Offences (S. 78)Compounding means forbearance from prosecution for consideration or any other private motive .Offences that may be compounded:• all offences under the act • before or after institution of prosecution• compounding may be allowed by competent authority on payment of compounding amount • compounding to be paid by the accused• to the Central/ State government, as the case may be

Restrictions to compoundingThe following offences cannot be compounded:

– offences prescribed in clause (a) to (g) of sub-section (1) of S. 73 and attempt or abatement to commit the said offences, if once compounded – offences (other than the above offences) under any SGST Act/CGST Act/ IGST Act in relation to supplies exceeding value of Rs.1 Crore, if

once compounded – offences which is also an offence under NDPS Act or FEMA or any other Act other than CGST/SGST– any other class of offences or persons that may be prescribed in this behalf.

• Compounding of offence to not effect proceedings if any instituted under any other law• Compounding to be allowed only after payment of tax, interest and penalty

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Contd.Monetary limits for compounding of offence• To be as per rules to be prescribed, subject to following minimum and maximum compounding

amount limits.

• lower limit: greater of the following – – 50% of tax involved, or– Rs.10,000

• upper limit: greater of the following – – 150% of tax involved or– Rs.30,000

Consequence of compounding• on payment of the compounding amount• no further proceeding shall be initiated under this Act • against the accused for the same offence• any criminal proceeding if already initiated shall stand abated

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Athena Comments• Scope of compounding of offences is limited by the number of restrictions brought

in as mentioned above• It is once in a lifetime opportunity• The compounding provisions read with offences and prosecution provisions make

GST law a strict law and brings in necessity of abidance more emphatically and makes failures more risk inclined

• Such shall aid in a higher degree of compliance and tighten the noose on the defaulters

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Questions??

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THANK YOU Contact us:

Puneet AgrawalPartner

Athena Law Associatespuneet@athenalawassociates.com

+91-9891-898911Website: athena.org.inBlog: gstlawindia.com