The implementation of the  GST tax regime has been a welcome change to the way taxes are levied on value addition for delivery of goods and services. In order to comply with the new taxation structure, a business has to register GST number also called GSTIN, file GST returns,  and maintain a high GST compliance rating. Non-Compliance with any of the rules and regulations of the GST could prove to be costly for businesses.  This could also expose the business to GST penalty, offense processing, as well as, Appeals. Let’s look at the penalties a business exposes themselves on the non -compliance with the GST rules.

Also, Check: Verifying GSTIN

GST is a destination based tax, which means the end consumer of the goods and products weighs the burden of the tax. In addition to this,  the tax system calls for strict compliance as each and every financial transaction is under the microscope of the authorities. This calls for businesses to furnish information about the transactions with utmost accuracy.

The Central Board of Indirect Taxes and Customs, CBIC, controls everything with regards to GST and has imposed strict penalties for the non-compliant businesses. 21 offenses have been described by the Council and their corresponding penalties have been laid out as well. Let’s discuss this GST penalty in further detail.

Offenses under GST

Here are the 21 offenses under GST:

  1. A supplier supplies goods or services without any proper invoice or has issued a false invoice.
  2. The supplier affects the issuance of an invoice without supplying the goods or services as per provisions of GST.
  3. He uses a fake GSTIN or of any other person instead of his own. Check Out: GST Verification
  4. Submission of false information during the process of GST enrolment.
  5. Files false returns or furnishes incorrect information while filing GST returns
  6. Providing false/incorrect information during the assessment proceedings.
  7. Failing to submit the GST deducted to the government within a time period of 3 months.
  8. TDS deducted on false pretenses/ TDS not submitted within the allocated time frame.
  9. Obtaining GST refund of CGST and IGST by fraud/ on false pretenses.
  10. Claiming Input Tax Credit without an actual receipt of goods and services.
  11. Understating the sales during a taxation period in order to evade tax.
  12. Effecting the movement of goods without proper documentation
  13. Sale of illegal items liable to be confiscated by law.
  14. Destroying or tampering with confiscated goods
  15. Not registering even though the taxpayer is liable to be registered under GST.
  16. TDS deductions are not made or the deductions made are less than the prescribed amount
  17. TCS not collected wherever applicable or less than the prescribed
  18. Credit is not distributed or is distributed against the provisions of the law being an Input Service Distributor.
  19. Obstructing an appointed officer from performing his duties
  20. Non-maintenance of proper  books of accounts, as mandated by the law
  21. Intentional Destruction of Evidence

Hence, the offenses under the provisions of GST  have been clearly defined. If the taxpayer entity is under the Company Registration rules,  the company committing the fraud will be held responsible in addition to this, the officer in charge will be charged with fraud.  In case the offenses under GST is committed by a HUF, LLP or a Trust then the Karta,  Partners, and managing trustee respectively will be held responsible for such offense.

Penalties under GST

The GST Penalty provisions in case of fraudulent activities such as committing any of the above mentioned 21 offenses are treated very severely. The GST provisions indicate that any taxable entity who has committed fraudulent activities intentionally w.r.t to the provisions of GST  they are liable to pay 100% penalty which is equivalent to the amount of tax evaded or short deducted,  subject to a minimum of ₹ 10,000.

Where the offenses committed with regards to the provisions are unintentional, the GST penalty shall be 10%  in that case, subject to a minimum of ₹ 10,000.

Non Taxable entities Offences

Entities which are not under the rules of registration can also be penalized under the provisions of GST, for committing fraud. If a non-taxable entity is a part of the following activities:

  • Abating in committing a fraud
  • Knowingly acquires  goods and/or services which are against the provisions of GST
  • Fails to issue a genuine invoice
  • Failure to maintain or vouch for the books of accounts
  • Failure to appear in front of the relevant authority upon the summons issued to the name.

the non-taxable person/entity will be eligible to pay a ₹25,000  GST penalty. In addition to this,  if the fraud has been ascertained,  the following amounts could be applied on the defaulter.

  • If the amount of tax is involved is up to ₹ 50 lakhs, defaulter will have to serve a jail term of 1 year in addition to the paying to penalty.
  • If the amount ranges ₹ 50 lakhs – ₹ 100 lakhs Jail term will be 3 years plus payment of the penalty
  • If the amount is over ₹ 100 lakhs the prison term could be 5 years plus payment of the penalty

The concerned authorities will issue a show-cause notice to the taxable entity and provide a hearing to explain their default. The authorities have to justify the implication of the penalty on the taxpayer and the nature of the offenses committed which warrant the actions taken. The penalty imposed on a defaulter can be reduced by the powers vested in the authorities if they come forward and disclose the details of the offense commited themselves.

GST Penalty For Late Filing

The late filing of GST returns attracts a penalty for the taxpayers. The late filing fee or late fee as it is called is ₹100/day  This means the fees is ₹ 100 / day for CGST and ₹ 100/ day for SGST, this makes the total out to be ₹200/day. The maximum amount is ₹ 5,000. IGST has no late fee for delayed filing.

In addition to the late filing fee, interest has to be paid 18% per annum. Taxpayers have to calculate this amount on the amount of tax paid. The time period for the same will have to be from the  next day of the due date of filing  to the date of payment

GST Penalty For  Non-Filing

If the taxpayer has not paid the GST returns, no subsequent returns can be filed. Eg.  if the GSTR-2 for the month of September then the subsequent returns GSTR-3 for the month of October cannot be filed. Therefore, non-filing of the GST returns will lead to a cascading effect of fines as well the returns which could prove to be extremely costly.

Inspection under GST

An inspection of the place of business can be ordered by the joint commissioner authorizing any officer of CGST /SGST if they suspect/have reasons to believe that a taxpayer is evading taxes by suppressing transactions or claimed excess input tax credit etc. The authorization for the inspection has to be given in writing by the Joint Commissioner.

Search and Seizure

On orders of the Joint Commissioner of SGST and CGST, a search of the can be conducted in order to catch incriminating evidence against defaulters on the basis of the results of the inspection. A search can be ordered if there is a reason to beleive that:

  • There are goods in possession of the taxpayer which should be confiscated
  • Documents/ books / hidden evidence which could be helpful during proceedings

Such incriminating goods/ documents  should  and will be seized by authorities

Goods in Transit

The transporter/ person in charge of transporting the goods where the value of the goods exceeds ₹ 50,000  has to carry the below mentioned documents.

  • Bill of supply/ Invoice
  • Copy of the e-Way Bill [Hard Copy or via RFID]

Authorized personnel or a proper officer has the power to intercept the goods in transit and inspect containing goods and relevant documentation. If the goods are in violation of any GST rules,  then the goods accompanying documents will be seized and will only be released when the taxes and the  GST penalty have been paid in full.

Compounding of Offences under GST

Compounding of offenses acts as a means to avoid litigation. In normal cases for an offense under GST, accused has to appear in front of the magistrate at every hearing via an advocate. This procedure is not only time-consuming, as well as,  expensive.

In compounding of the offenses, the accused is not required to appear in front of the magistrate personally and they can be discharged on payment of a particular compounding fee which cannot be more than the fine as applicable under the provisions of GST. Compounding of offenses under GST is not applicable where the value exceeds ₹ 1 Crore.

Prosecution under GST

A prosecution is basically the action of conducting legal proceedings against someone charged with criminal activity. With regards to a deliberate intention of committing fraud, any taxable entity becomes liable for prosecution under GST. The prosecution of a person under GST can be conducted on grounds of committing any of the above-mentioned offenses.

Arrest under GST

Commissioner of CGST/SGST if has a firm belief that any taxable person has committed the mentioned offenses, they can be arrested under the violations of the rules of GSTby the appointed CGST/SGST officer. The person so arrested under violations of the rules of GST will be informed for the grounds of their arrest. In addition to this, they will appear in front of the magistrate within 24 hours of the arrest of a cognizable offense. Cognizable Offenses are those where the police can arrest the accused without any prior warning/ warrant. Serious Offenses like robbery, murder, counterfeiting etc.

Appeals under GST

If any taxable person is aggrieved by the decision passed against them they can make an appeal against the decision they feel is unjust. The first appeal against the decision of the adjudicating officer has to be made to the First Appellate Authority.  If First Appellate Authority’s decision can appeal towards the National Appellate Tribunal, then to the High Court of respective state and then finally to the Supreme Court.