The Central Goods and Services Tax (CGST) Act, implemented in 2017, marked a significant stride in the Indian taxation system, aiming to eradicate indirect taxes and corruption. While the intent was to create a more transparent and efficient tax system, the reality is that no system is entirely immune to breaches. Recognising this, the CGST Act explicitly outlines various offences and their corresponding punishments. These penalties deter businesses from participating in fraudulent activities.
The consequences for GST offences can vary widely, including monetary fines and, in severe cases, imprisonment. In fact, certain offences may lead to imprisonment for up to five years!
This information is not intended to scare you but rather to tell you the importance of staying updated on GST regulations. Read this article to find out what offences there are and what their penalties are so you can avoid being a victim of them.
What is an Offence Under GST?
An offence under the Central Goods and Services Tax Act 2017 is a violation of any of the provisions of the Act or the rules made there under. The penalty for committing an offence under GST can vary depending on the nature of the offence and the amount of tax involved.
What are the Types of Offences Under GST?
Under the GST system, offences are categorised into two main types:
1. Offences Attracting Fiscal Penalties
Proceedings related to these offences are quasi-judicial in nature and are conducted by departmental officers. They can be further divided into two sub-categories:
A. Revenue Issues
These involve proceedings that are quasi-judicial in nature and are carried out by departmental officers. Revenue issues include the demand and recovery of amounts such as tax, interest, penalty, or fines owed to the government.
B. Procedural Issues
These are also quasi-judicial proceedings but focus on contraventions of prescribed procedures or modalities that do not directly involve revenue.
2. Offences Attracting Prosecution
These are judicial in nature and are dealt with by courts. Offences that attract prosecution can lead to imprisonment or fines.
What are the Types of Breaches Under GST?
Under the GST law, breaches are categorised into two main types:
1. Minor Breaches
These breaches are characterised by the involvement of a tax amount of less than ₹5,000. Examples of minor breaches include errors in filing returns, such as documentation mistakes and omissions. In most instances, no penalty shall be imposed for such minor breaches.
2. Major Breaches
Major breaches involve a tax amount equal to or exceeding ₹5,000. Penalties are applicable in the case of major breaches, and they can take the form of monetary fines or corporal punishment, such as a jail term. The nature and severity of the penalty depend on the specific amount of tax involved in the breach.
What is a Penalty in GST?
In criminal and civil law, penalties are consequences for breaking laws, contracts, or rules. They can be physical or monetary and are applied for either doing something or not doing it.
A penalty in the context of GST is a financial charge imposed by the tax authorities for non-compliance with the provisions of the GST Act or the rules made thereunder.
What is the Significance of Penalties Under GST?
The significance of penalties under GST can be understood through their multiple roles:
1. Revenue Protection
Penalties act as a financial deterrent against non-compliance and tax evasion. Businesses are less likely to underreport income or claim invalid credits, knowing they face hefty fines. Thus, penalties promote a fair and honest tax system.
2. Compliance Encouragement
Businesses take their tax obligations seriously and invest in proper accounting and compliance systems due to the fear of penalties. Such practices lead to better record-keeping and transparency in the economy. It also reduces costs for both the government and businesses.
3. Social Responsibility
Generally, penalties discourage activities that harm society, such as issuing fake invoices or engaging in tax fraud. Also, certain offences with severe penalties, like imprisonment for deliberate fraud, deter organised crime and protect the financial system from abuse.
What are the GST Offences and Their Penalties?
Under Section 122 of the CGST Act 2017, there are 21 offences, each attracting penalties for non-compliance.
Offences Under Sub-Section 1
Issue of Fake/Wrong Invoices
This offence may be committed when you, as a taxable person, do the following:
- Make supply without issuing an invoice or issuing incorrect or false invoices.
- Issue an invoice or bill of supply without making a supply
- Furnish invoice or document using another registered person’s registration number
Offences Involving Fraud
These offenses pertain to Section 122(1)(viii), 122(1)(x), and 122(1)(xii) respectively. They may occur when you, as a taxable person, do the following:
- Obtain a refund of tax fraudulently
- Falsify or substitute financial records
- Produce fake accounts or documents
- Furnish false information or return
- Furnish false information regarding registration particulars
Offences Related to Tax Evasion
These offenses are associated with Section 122(1)(iii), 122(1)(iv), and 122(1)(xv) respectively. They may occur when you, as a taxable person, do the following:
- Collect tax but fail to deposit it to the government within three months from the due date
- Deliberately understate turnover to evade taxes
- Collect tax in contravention of the law but fail to deposit it within three months from the due date
Offences Related to TDS and TCS
These violations are linked to Section 122(1)(v) and 122(1)(vi) respectively. They may occur when you, as a taxable person, do the following:
1. Fail to Deduct Appropriate tax as per Section 51 and Deposit the Deducted tax to the Government:
Certain specific persons must deduct tax at a rate of 1% from payments exceeding Rs 2.50 Lakhs and deposit it to the government.
2. Fail to Collect Appropriate tax as per Section 52 and Deposit the Collected tax to the Government:
Electronic commerce operators must collect tax at a rate of 1% from the supplier at the time of payment and deposit it to the government.
Offences Related to Input Tax Credit (ITC)
These offenses are connected to Section 122(1)(vii) and 122(1)(ix) respectively:
- Using Input Tax Credit without actually receiving the supplied goods or services.
- Distribute ITC in contravention of section 20 or the rules thereunder.
Offences on Account of Failures
These violations are associated with Section 122(1)(xi), 122(1)(xvi), and 122(1)(xvii) respectively. They may occur when you, as a taxable person, do the following:
- Are liable to be registered but fail to obtain registration
- Fail to keep, maintain, or retain books of accounts and other documents in the manner prescribed.
- Either fail to furnish information or documents called for by an officer or furnish false information or documents during any proceedings.
Offences Related to Transportation and Storage
These offences are given in Section 122(1)(xiv) and 122(1)(xviii) respectively. They may occur when you, as a taxable person, do the following:
- Transport any taxable goods without the cover of specified documents
- Supply, transport, or store any goods which you believe are liable to confiscation
Some other offences unde GST that come with penalty include:
- Obstructing officers to perform their duties
- Altering or destroying essential documents
- Interfering with goods detained, seised, or attached under the Act
If you commit any of the above offences, you are liable to pay a sum that is higher between:
- A penalty of ₹10,000, or
- An amount equal to the amount of tax evaded.
Offences Under Sub-Section 2
These offences relate to a registered person who supplies goods or services on which:
- Any tax has not been paid,
- Tax has been short-paid,
- Any tax has been erroneously refunded,
- ITC has been wrongly availed or utilised.
For reasons other than fraud, willful misstatement, or suppression of facts:
- A sum equal to Rs 10,000, or
- 10 per cent of the tax due from such a person, whichever is higher.
For any reason of fraud, willful misstatement, or suppression of facts:
- A sum equal to ₹ 10,000, or
- 100% of the tax due from such a person, whichever is higher.
What is the Penalty for Aiding and Abetting GST Offences?
These offences come under 122(3) and deal with situations where an individual is not directly involved in tax evasion but aids, abets, or is a party to such evasion. It also includes cases where a person does not attend summons or produce documents.
- Aiding or abetting any of the offences specified in clauses (i) to (xxi) of sub-section (1).
- Acquiring or concerned with goods liable to confiscation.
- Failing to issue an invoice in accordance with the provisions of the Act or Rules.
- Receiving or concerned with the supply of services in contravention of the provision of the Act or Rules.
If an offender commits any of the above offences, they shall be liable to pay a penalty which may extend to ₹25,000.
What are the Most Common GST Offences That do not have Penalties?
Certain GST offences do not attract penalties but may incur interest at a specified rate (18% annually) on the tax amount under consideration. Here are some instances where no penalty under GST is applicable:
1. Incorrect Charging of GST
No GST penalty is applicable for charging incorrect GST, such as charging CGST/SGST instead of IGST. However, the registered business/entity is required to pay the correct GST and can seek a refund for the wrong GST paid as soon as possible.
2. Incorrect Filing of GST Returns
No penalty under the GST Act for the incorrect filing of GST returns. However, interest at the rate of 18% per annum is chargeable on the tax amount shortfall.
3. Delayed Invoice Payments
No penalty is applicable for delayed invoice payments. However, if invoice payments are delayed beyond 6 months, any input tax credit claimed based on such invoices is liable to be reversed.
The GST system is ever-evolving, emphasising the importance of staying updated. Timely compliance is the key to avoiding troubles, and even if issues arise, swift amendments can rectify them. However, when it comes to GST penalties, it’s better to be safe than sorry.
Thus, utilising GST billing software can be really helpful for accurate invoicing and timely compliance. It will not only make your work easier but also help avoid offences by minimising errors. So, make use of the technology and always stay ahead of the competition.
Frequently Asked Questions
Q1. Can you go to Jail for not Paying GST?
In GST, the fine for unpaid taxes is set at 10% of the outstanding tax amount, which becomes applicable when it exceeds Rs. 10,000. Additionally, a prison term may be imposed for significant fraudulent activities involving substantial amounts.
Q2. What is the Concept of TDS?
Tax Deducted at Source (TDS) is a method established by the Indian government for gathering taxes directly from the income source.
Q3. What is the Penalty for a Fake Invoice?
Individuals convicted of issuing a fraudulent invoice may be subject to a penalty equivalent to the evaded tax amount or ₹10,000, whichever is greater.
Q4. Who can Claim TDS on GST?
The individual on whom TDS has been deducted, referred to as the deductee, has the option to assert TDS as Input Tax Credit (ITC) and use it to offset the output tax liability.
Q5. How do I Check my GST Penalty Online?
To verify your GST penalty online, log in to the GST portal. Then go to the ‘Payments’ section in the ‘Services’ tab and select ‘Challan History’. A list of challans, along with their payment status, will be displayed.
Q6. What is the Purpose of TCS?
The Tax Collection at Source (TCS) gathers an extra amount as tax from the buyer by the seller of designated goods during the sale transaction. This additional tax, collected beyond the sale amount, is then submitted to the government account.
Q7. What is the Difference Between TDC and TCS?
TDS is the tax subtracted from a payment made by a company to an individual when the amount surpasses a specific limit. TCS, on the other hand, is the tax gathered by sellers during the sale of goods or services to buyers.
Q8. What is the Late fee for 3B?
The existing late fee arrangement for delayed submission of GST Return 3-B is ₹50 per day for CGST and an additional ₹50 per day for SGST.
Q9. What happens if you Pay the Wrong GST by Mistake?
In the event of inadvertently paying an incorrect GST amount, no penalties will be incurred as long as you correct the error by submitting an application for the refund of the surplus tax paid.
Q10. Are GST Offences Bailable?
The aailability of GST offences depends on the specific offence and the involved amount.