The Goods and Services Tax (GST) Act, introduced on July 1st, 2017 is set to revolutionise the entire Indian tax collection structure. A lack of political will is the only one reason why India waited till so late to join an ever-burgeoning list of countries that have implemented this form of tax legislation. The fact that this legislation took 17 years to come into existence after it was proposed is a testimony to the culture of Indian politics. The GST is a comprehensive, multi-stage, destination-based tax that will be levied at every level of value-addition. This new tax structure is composed of four different legislations:
- The Central Goods and Services Tax Act, 2017
- The Integrated Goods and Services Tax Act, 2017
- The Union Territory Goods and Services Tax Act, 2017
- The Goods and Services Tax (Compensation to States) Act, 2017
Offences and Penalties under GST
There are three broad areas that need to be covered to understand the entire mechanism of committing of offences, imposition of penalties, prosecution of the said offences and the way the offences will be compounded. These three areas are:
- Offences and penalties under GST
- Prosecution of offences under GST
- Compounding of offences under GST
Offences and Penalties
Chapter XIX of the CGST Act deals with the offences and penalties under the new structure.
Section 122 lists the offences on which penalties may be imposed by departmental authorities:
- Supply of goods/services without issue or with issue of a false/incorrect invoice.
- Issuing an invoice without making a supply
- Not paying tax collected for a period exceeding three months
- Collection of tax in contravention of the Act and failure to pay same to Government, after three months of it becoming due.
- Failure to deduct tax in accordance with Section 51 or deduction of tax lower than required by the Act or failure to pay to the Government, the tax deducted.
- Failure to collect tax in accordance with Section 52 or collection of amount less than what is required by the Act or failure to pay tax to the Government the tax so deducted.
- Availing/utilising input tax credit without actual receipt of goods/services.
- Fraudulent obtaining of any refund.
- Taking or substituting input tax credit in contravention of the Act
- Falsifying/substituting financial records, or producing/furnishing false documents/information, etc. with the intention to evade tax due.
- Failure to register inspite of being eligible to do so.
- Furnishing of false information with regards to registration.
- Obstructs/Prevents an officer in discharge of his duties.
- Transporting of goods without document cover.
- Evasion of taxes by suppressing the turnover.
- Failure to keep/maintain/retain documents in accordance with the Act.
- Failure to furnish information/documents or furnishing false information/documents on being called for it by an officer under the Act.
- Supplying/transporting/storing goods which can be confiscated under the Act.
- Issuing of invoice/document using another person’s registration credentials.
- Tampering/destroying any material evidence/documents
- Disposing off/tampering with goods that have been detained/seized/attached.
Offence of aid and abetment: A penalty can be imposed on someone who aids or abets any of the 21 offences mentioned above. This is covered by Section 122 (3).
Section 123 provides for a penalty for failure to furnish information return under Section 150.
Section 124 provides for a penalty to be imposed when a person either does not furnish information/return or furnishes false information/return when required to do so under Section 151.
According to Section 125, a general penalty can be imposed for any contravention of the Act and where no penalty has been separately specified for the contravention.
Other general rules regarding penalties:
Section 126(1) lays down that penalties cannot be imposed for minor breaches, i.e., less than five thousand rupees. It also lays down that no penalties cannot be imposed for omission or mistake in documentation which is easily rectifiable and made without any fraudulent intent.
Section 126(2) provides that the amount of penalty should depend on the facts and circumstances of the case, i.e., the penalty imposed should be commensurate with the degree and severity of the breach.
Section 126(3) calls for penalties to be not imposed without giving an opportunity of hearing.
Under Section 126(4), the tax authorities have to provide an explanation to the person on whom the penalty is being imposed.
Section 126(5) allows for imposition of a lower penalty if the offender voluntarily discloses the fact of his breach.
Section 127 provides the proper officer with the power to impose penalty for acts and omissions which are not covered by the certain sections mentioned.
Section 128 confers the Government with the power to waive off penalties, in part or full and late fees in certain circumstances.
Section 129 provides for provisions relating to detention, seizure and release of goods and conveyances in transit. This section also provides ffor penalty which shall be payable for release of such goods.
Section 130 provides for provisions relating to confiscation of goods and conveyances. This section also provides for a fine which shall be payable on the release of such goods.
Prosecution of offences
Section 131 clarifies that confiscation made or penalty imposed under the Act would not prevent the infliction of any other punishment under the Act or any other law.
Section 132 provides for a list of offences which shall be punishable with gradation of fine and imprisonment depending on the amount of tax evaded or the amount of input tax credit wrongly availed or utilised or the amount of refund wrongly taken.
Punishment prescribed on conviction of any offence:
| Amount of Tax Evaded (in Rs.) | Punishment |
| Exceeding 500 lakhs | 5 years, plus fine |
| 200 lakhs – Rs. 500 lakhs | 3 years, plus fine |
| 100 lakhs – Rs. 200 lakhs | 1 year, plus fine |
This section also stipulates that a second or any subsequent conviction for an offence in this section shall be punishable with imprisonment for terms which 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.
Section 133 provides for punishment and imprisonment for declaration of information by any person engaged in connection with the collection of statistics under Section 151 or any person engaged in connection with the provision of service on the common portal or the agent of the common portal.
Section 134 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 such offence.
Section 135 states that the courts should presume the existence of a culpable mental state, unless proved otherwise.
Section 136 provides for relevancy of the statements made and signed by a person on appearance in response to any summons.
Section 137 provides for the person in charge to be held accountable for an offence committed by a company. However, the same person is not liable be punished if he proves that the offence was committed without his knowledge.
Compounding of Offences
Section 138 provides for a detailed compounding of any offence under the Act, before or after the institution of prosecution, by the Commissioner on payment of a prescribed compounding amount.
Therefore, these offences can be Grouped as:-
Fake and Wrong Invoices
- If any taxable person who supplies any goods/services without any invoice or issues a false invoice for example If A has not registered
- If issues any invoice or bill without supply of goods/services in violation of the provision of GST.
- If issues invoices using the identification number of another bonafide taxable person.
Fraud
- If submits false information while registering under GST.
- If submits fake financial records/documents or files fake returns to evade tax
- Does not provide information/gives false information during proceedings.
Tax Evasion
- If collects any GST but does not submit it to the government within 3 months.
- Even if collects any GST but does not submit it to the government within 3 months.
- Obtains any information refund of any CGST/SGST by fraud.
- Takes and /or utilises input tax credit without actual receipt of goods and/or services.
- Deliberately suppresses his sales to evade tax.
Supply/Transport of Goods
- Transports goods without proper documents.
- Supplies/transports goods which he knows will be confiscated.
- Destroys/tampers goods which have been seized.
Others
- Has not registered under GST although he is required to by law.
- Does not deduct TDS or deducts fewer amounts where applicable.
- Does not collect TCS or collects fewer amounts where applicable.
- Being an Input Service Distributor, he takes or distributes input tax credit in violation of the rules.
- Obstructs the proper officer during his duty.
- Does not maintain all the books that he required to maintain by law.
- Destroys any evidence
Power to Arrest
Now that we have enumerated the various offences listed under the Act, it is pertinent here to discuss the circumstances in which arrests can be made under the Act.
Section 69 provides for the situations in which the Commissioner can authorise any officer of the tax authority to make arrests. The Commissioner can do so when he has reasons to believe that a person has committed any offence specified in clauses [a], [b], [c] or [d] of Section 132 (1) or clauses [i] or [ii] of Section 132(1) or Section 132(2).
Conclusion
Although the scope of this article is to inform about the penal provisions of the Goods and Services (GST) Act, it would not be without cause to also throw some light on the defects that the GST Act suffers from.
Businesses are having a very difficult time to adjust to the increase in operating costs due to the steps needed to be taken to comply with the provision of the GST. The GST Act can be expected to disrupt the business environment but that is expected to happen only in the short-term.The penal provisions have kept little regard for small taxpayers, who have a limited knowledge of tax laws and compliance. Thus, the intention to broaden the tax base is appreciated but it goes without saying that it is also the responsibility of the government to educate the masses about the new tax mechanism in place.
