OFFENCES UNDER GST LAW (PART 5)

Penal Provisions (Section 122) (as amended)

The penal provisions in relation to GST are contained in section 122 of CGST Act, 2017 as amended:

The Finance Act, 2020 inserted sub-section (1A) w.e.f. 01.01.2021to make beneficiary of certain transactions as whose instance such transactions are conducted liable for penalty.

The CGST Act, 2017 in section 122(1) has specified following 21 offences, apart from the penalty prescribed under section 10, i.e., composition levy scheme, for wrongly availing composition scheme. These specified offences committed by a taxable person are enumerated as follows:

1. Supplies any goods and services without issue of an invoice or issue an incorrect or false invoice.
2. Issues any invoice or bill without the supply of any goods and/or services in violation of the provisions of the Act or Rules.
3. Collects any amount of tax and failure to pay it to the credit of Government beyond a period of three months from its due date.
4. Collects any tax in contravention of provisions of this Act and failure to pay it to the credit of Government beyond a period of three months from its due date.
5. Fails to deduct tax or deduction of an amount which is less than the amount required to be deducted or failure to pay to the credit of appropriate Government the amount of tax deducted.
6. Fails to collect tax or collect an amount which is less than the amount which is required to be collected or failure to pay to the credit of appropriate Government the amount of tax collected.
7. Takes and/or utilize input tax credit without the actual receipt of goods and/or services either fully or partly.
8. Fraudulently taking refund of CGST/SGST
9. Takes or distribution of input tax credit in violation of section 20
10. Falsifies or substitutes financial records or producing fake accounts or documents or furnishing any false information or return with an intention to evade tax.
11. Fails to obtain registration, when liable to be registered
12. Furnishes any false information with regard to registration either at the time of applying for registration or subsequently.
13. Obstructs or prevents any officer in discharge of his duties.
14. Transports any taxable goods without the cover of documents
15. Suppresses of turnover leading to evasion of tax.
16. Fails to keep, maintain or retain books of accounts and other documents in accordance with provision of law.
17. Fails to furnish information and/or documents called for by CGST/SGST officer or furnishing false information and/or documents.
18. Supplies, transports and stores of goods which he has reason to believe are liable for confiscation.
19. Issues any invoice or document by using the identification number of another taxable person.
20. Tempers with or destroy any material evidence
21. Disposes off or tempers with any goods that have been detained, seized or attached.

For all the aforementioned offences, the penalty has been prescribed, i.e. Rs. 10,000 or tax evaded/ITC availed/tax passed on, whichever is higher.

The Finance Act, 2023 has inserted sub section (1B) in section 122 of the CGST Act, 2017, i.e., 138. In section 122 of the Central Goods and Services Tax Act, after sub-section (1A), the following sub-section shall be inserted, namely:-

'(1B) Any electronic commerce operator who-

(i) allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration by a notification issued under this Act to make such supply;

(ii) allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or

(iii) fails to furnish the correct details in the statement to be furnished under sub-section (4) of section 52 of any outward supply of goods effected through it by a person exempted from obtaining registration under this Act, shall be liable to pay a penalty of ten thousand rupees, or an amount equivalent to the amount of tax involved had such supply been made by a registered person other than a person paying tax under section 10, whichever is higher.'.

The new sub-section (1B) in section 122 of the Central Goods and Services Tax Act has been inserted so as to provide for penal provisions applicable to electronic commerce operators in case of contravention of provisions relating to supplies of goods or services made through them by unregistered persons or composition taxpayers.

These penal Provisions for E-com Operators are summarized hereunder:

• Finance Act, 2023 has inserted sub-section (1B) in section 122 of CGST Act, 2017.
• It provides for penal provisions applicable to Electronic Commerce Operators in case of contravention of provisions relating to supplies of goods made through them by unregistered persons or composition taxpayers.
• Any electronic commerce operator shall be liable to penalty of Rs. 10,000 or amount equivalent to tax amount had such supply been made by registered person other than under section 10 whichever is higher, where e-com operator:

1. allows a supply of goods or services or both through it by an unregistered person other than a person exempted from registration by a notification issued under this Act to make such supply;
2. allows an inter-State supply of goods or services or both through it by a person who is not eligible to make such inter-State supply; or
3. fails to furnish the correct details in the statement to be furnished under sub-section (4) of section 52 of any outward supply of goods effected through it by a person exempted from obtaining registration under the Act.

• This shall come into force w.e.f. 01.10.2023 as notified vide Notification No. 28/2023 - Central Tax dated 31.07.2023.

Finance Act, 2024 has made amendment in section 122(1B) of the CGST Act, 2017 so as to restrict the applicability of the said sub-section to electronic ecommerce operators, who are required to collect tax at source under section 52 of the said Act. The said amendment is made effective from the 1st day of October, 2023 when the said sub-section had come into force.

According to notes on clauses to the amendments as per Finance Bill, the objective of amendment is as follows:

Clause 140 of the Bill seeks to amend sub-section (1B) of section 122 of the Central Goods and Services Tax Act, so as to restrict the applicability of the said sub-section to electronic commerce operators, who are required to collect tax source under section 52 of the said act.

The said amendment is proposed to be made effective from the 1st day of October, 2023 when the said sub-section had come into force.

TRU letter No. D.O.F. No. 334/04/2024-TRU dated 23.07.2024 explains the amendment so as to restrict the applicability of penal provisions under this section to only those Electronic Commerce Operators who are required to collect tax at source under section 52.

Penalty for specified activities

In terms of section 122(3) of the CGST Act, 2017, penalty can be imposed on any person who-

1. Aids or abets any of the offences(21 offences as listed in Q. No.3 above),
2. acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reason to believe are liable to confiscation.
3. Receives or in any way concerned with the supply of services which he knows are in contravention of provisions of the Act or rules.
4. Fails to appear to give evidence or produce a document, when issued with a summon for giving evidence/producing documents in an enquiry.
5. Fails to issue invoice or fails to account for an invoice in books of accounts.

For the above offences, any person shall be liable for a penalty which may extend to INR 25,000/-. This implies that penalty can be less than INR 25,000/- but subject to maximum amount of INR 25,000/-.

Punishments for certain offences

Section 132 of CGST Act, 2017 provides for punishment in case of certain offences which results into punishment involving monetary penalty and imprisonment.

Offences in relation to fraudulent activities

Out of the above mentioned activities, following transactions or activities can be said to be arising out of fake invoices and other fraudulent transactions:

1. supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
2. issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;
3. takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;
4. fraudulently obtains refund of tax under this Act;
5. takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;
6. falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act;
7. transports any taxable goods without the cover of documents as may be specified in this behalf;
8. suppresses his turnover leading to evasion of tax under this Act;
9. supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act;
10. issues any invoice or document by using the registration number of another registered person;

(2) Any person who--

(i) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);

(ii) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;

(iii) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account, shall be liable to a penalty which may extend to twenty-five thousand rupees.