Applicability of Section 125 of the CGST Act

01) Introduction: Section 125 of the CGST Act 2017 provides for a General Penalty of Rs.25,000 for contravention of any of the provisions of CGST Act or CGST Rules. This Section is applicable in all cases where no penalty is SEPARATELY PROVIDED under this Act. Thus, in order to make this section applicable, two conditions are required to be fulfilled SIMULTANEOUSLY. First there must be a contravention of any Section or Rules. Second, there is no penalty SEPARATELY PROVIDED under this Act for the contravention. However, instances of applying Section 125 even in non-applicable cases are on the higher side. Moreover, even when the separately provided penalty is less than the amount specified under Section 125, most of the GST OFFICERS invariably make Section 125 applicable to ensure collection of more penalty. This article intends to create awareness on this issue so that a case may be built for waiver of penalty or reduction in penalty as the case may be by the taxpayer in applicable cases.

02) Madras High Court: The High Court of Madras had an occasion to examine the above issue in the case of TVL. JAINSONS CASTORS & INDUSTRIAL PRODUCTS, REP. BY ITS AUTHORIZED REPRESENTATIVES, K.V. SRINIVASAMURTHY VERSUS THE ASSISTANT COMMISSIONER (ST), CHENNAI - 2025 (2) TMI 1000 - MADRAS HIGH COURT The High Court has held vide para 7 of the order that Section 125 is applicable only in cases where no separate penalty is leviable for the said contravention. The Act provides for various penalties under different Sections for contravention of few provisions. 2025 (2) TMI 1000 Madras High Court.

03) The Case: The issue in the above case is when a levy of late fee under section 47 is made applicable, and this is a penalty which is separately provided for late filing of returns, the levy of one more penalty for the same contravention under Section 125 again is NOT CORRECT and accordingly the High Court  has set aside the penalty of Rs.50,000 (CGST +SGST).

04) Whether late fee is a penalty: The Madras High Court has examined this aspect and concluded that late fee is a penalty. Wherever the contravention is once and not recurring in nature, the act provides for lump sum penalty. However, as delay in filing the GSTR is a continuous contravention till such time the applicable GSTR is filed, the penalty is linked to the period of delay. It does not in any way make any difference only because it is called a late fee and in my view, this concept should be made applicable in all cases.

05) Why two punishments: The Act specifically identifies various contraventions and a separate late fee or penalty is already provided under this act under various sections. For any other contravention, for which such separate penalty is not leviable, Section 125 is applicable where the MAXIMUM penalty suggested is 25000 under the CGST Act. However, the officers mostly impose a penalty of Rs.50,000 (CGST+SGST) in all cases under Section 125.  Thus, a taxpayer is normally levied with penalty under two different sections for a single contravention, which the High Court has held as NOT CORRECT.

06) Penalties: Section 122 is on penalty for certain offences. The Act  provides for a minimum penalty of Rs.10,000 in respect of 21 different contraventions under the CGST Act. Similarly other penalties are covered under sections 122A, 123 and 124. In short, for any contravention, which is not covered in above sections or under any other provisions of the Act/Rules, then Section 125 is applicable.

07) The Allahabad High Court: the Court has ruled in the case of M/S RATHORE BUILDING MATERIAL VERSUS THE COMMISSIONER OF STATE TAX AND 2 OTHERS - 2023 (12) TMI 555 - ALLAHABAD HIGH COURT on 01/12/2023 that when the Return was furnished within 15 days as per the requirements of the notice, levy of penalty under Section 125 was not lawful and accordingly set aside the order imposing penalty under Section 125.

08) Exhaustive: The case law discussed in para 2 has exhaustively analysed the applicability of Section 125 and concluded that this Section 125 is applicable only for a contravention of any of the provisions for which no other penalty is specifically leviable under the CGST Act.

09) Minimum and Maximum: The law specifies the minimum penalty in certain cases such as Section 122 and a Maximum penalty of Rs.25000 (CGST and SGST Each) under Section 125. As the contravention could be minor in many cases, levy of uniform penalty to the maximum prescribed extent may be avoided in deserving cases.

10) Conclusion: Proper officers may take a lenient stand on levy of penalties and may impose the penalty only to the desired level. Imposing penalty of Rs.50,000 under Section 125 (CGST+SGST) uniformly in all cases along with other penalties for the same contravention is INCORRECT and may be avoided in future.