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GST Penal Provisions – Assessments, Offences & Penalties

The culmination of GST has transformed the Indian economy, reducing tax rates, increasing the corporate tax base, and creating a whole new set of reporting obligations to GST-registered businesses. The GST regime is a comprehensive tax system that is designed specifically to help companies grow and prosper through a competitive and prosperous economy. It is designed with the objective of achieving a common basic tax base for the whole nation, a uniform rate of tax, and a single tax structure that is tax-neutral across countries.

Still, to keep the business owners and entities in line, the GST structure prescribes certain penal provisions and penalties for non-compliance. These provisions are applicable for various offences as listed out in the CGST Act. These offences and penalties are dealt with under Section 122 to Section 128 of the CGST Act.

1. Engaging in fraudulent activities

  • Failure to secure the required GST registration for the business.
  • Giving incorrect information during the registration process.
  • Falsifying information or documents to CGST/SGST tax officers.
  • Obtaining CGST/SGST tax refunds through deception.

Penalty: The perpetrator will be penalized Rs. 10,000 or the amount of tax evaded, whichever is greater. False information will result in Rs. 10,000 fine for the first violation, and subsequent offences will result in fines of Rs. 100 each day, up to a maximum of Rs. 25,000. Anyone who assists the perpetrator would be fined Rs. 25,000.

2. Returns are being filed late.

  • Failure to file GSTR1 monthly returns for outward supply (sales), which registered suppliers must file by the 10th of the following month.
  • Failure to file GSTR2 monthly returns for inbound supply (purchases), which registered suppliers must do by the 15th of the following month.
  • Failure to file GSTR9 annual returns, which must be filed by all registered persons by December 31st of the following year.
  • Penalty: The offender shall be fined Rs.100 each day under the Act (Rs.100 for CGST and Rs.100 for SGST), with a maximum fine of Rs. 5,000. If a taxpayer fails to file GSTR9, they would be penalised Rs. 100 per day, up to a quarter of their annual revenue in the state in question/goods-and-services-tax/.

3. Failure to issue accurate invoices

  • Issuing erroneous or misleading invoices for the sale of goods and services
  • Providing goods or services without providing proper invoices
  • Using another taxable person's identification number to supply goods or services.
  • Issuing an invoice without providing any goods or services.

Penalty: The perpetrator will be penalized Rs. 10,000 or the amount of tax evaded, whichever is greater.

4. Providing goods and services in violation of GST legislation

  • Transporting taxable items without the proper documentation.
  • Despite being eligible for registration, transporting taxable items without GST registration.
  • Providing or keeping products that are subject to seizure, such as those that might violate taxation rules or result in tax evasion.

Penalty: If the guilty chooses to come forward freely, they will face a fine equal to the amount of tax avoided. Otherwise, they will be penalized 50% of the supply's worth.

5. Intentional tax evasion

  • Failure to pay collected taxes to the government within three months of the due date.
  • Failure to deduct or deposit taxes with the government.
  • Suppressing the sale of products or services in order to avoid paying taxes.
  • Obtaining or employing ITC in full or in part without a formal sales receipt.

Penalty: The perpetrator will be penalized Rs. 10,000 or the amount of tax evaded, whichever is greater.

6. Taking part in acts comprising tampering/obstruction

  • Tampering with or destroying legal documents or evidence
  • Obstructing or impeding any tax official from carrying out their duties.
  • Tampering with products after they have been confiscated or are no longer available for supply/transport

Penalty: These actions are taken extremely seriously. Offenders will be sentenced to 6 months in prison and a fine of an unspecified sum.

7. Making short payments on a regular basis

  • Short payment occurs when a payment is made that is less than the legal obligation. A taxpayer is deemed to have made 'repeated short payments' if they made three short payments in three returns over the course of six consecutive tax periods.

Penalty: If a taxpayer is found guilty of this infraction, they will be penalized Rs. 10,000 or 10% of the short tax paid (whichever amount is higher).

Other Violations Considered For Penal Provisions Under The GST Law:

  • Failure to keep appropriate books or documents.
  • Failure to deduct TDS (Tax Deducted at Source) if appropriate, or deducting a lesser amount than required.
  • Failure to collect TCS (Tax Collected at Source) when appropriate, or collecting less than the required amount.

Common Penalty For GST Offences

  • Any violation of GST for which no penalty is stated may result in a fine of up to Rs. 25,000. If the taxpayer is convicted of fraud, the following penalties will be imposed in addition to the ones listed above:
  • When the tax amount involved is up to 50 lakhs, the defendant will be sentenced to a year in prison and fined an amount equal to the tax evaded.
  • If the tax amount is between 50 and 100 lakhs, the individual will be sentenced to three years in prison and must pay a penalty.
  • If the tax amount surpasses 100 lakhs, the prison term will be prolonged by 5 years, in addition to the penalty.

What Happens Once The Taxpayer Is Charged With A Penalty?

  • When a penalty is issued, the offender will be notified and given a fair chance to be heard by the tax authorities.
  • The tax authorities will provide a summary of the penalty's rationale and the legislative conditions under which it was issued to the offender.
  • The tax authorities may use the disclosure as leverage to lessen the penalty if the offender chooses to voluntarily confess a legal violation.

Minor Offences

  • If the amount involved in the infraction is less than Rs. 5000, taxpayers will not be fined under the GST regime.
  • The violation was committed unintentionally and was not motivated by a desire to avoid paying taxes.
  • Due to a lack of understanding of GST legislation, the infraction was committed.
  • Like an omission or an incorrect record in a document, the crime is simply rectifiable.

FAQs

1. What are the major provisions of the GST?

Any tax amount outstanding (including interest and penalty) will be the first charge on the property of such taxable person or such person, and will supersede other laws save the Insolvency and Bankruptcy Code, 2016.

2. Is GST applicable to fines and penalties?

It has been clarified that interest and penal interest charged in connection with the delivery of goods and services would be included in the value of those goods and services and subject to GST.

3. Is it possible to go to jail for not paying GST?

Because the regulations and procedures for GST compliance are new to taxpayers, the government has stated that any violations will be treated lightly for the time being. However, for major offences and violations, a penalty or punishment, including arrest, may be imposed, depending on the nature of the offence.

4. What if I fail to file my GST return?

If you (a normal taxpayer) do not file a return for six months in a row, the GST Officer has the authority to cancel your GST registration. The officer will send you a Notice before cancelling your registration.

5. Is a GST invoice necessary?

It is not required that only the person providing goods or services issue a GST invoice. Any registered person who purchases goods or services from an unregistered person may issue both a payment voucher and a tax invoice.

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