PENALTY DURING DEPARTMENTAL GST AUDIT

[NAMAN DOKANIA]

During audit under gst department raised demand named as audit observation.. with interest and asked to pay penalty of 15%. The assessee is paying within 30 days of issue of audit observation...

Is the view of charging penalty is correct???

[KASTURI SETHI]

SH.NAMAN DOKANIA JI,

Yes. Audit is correct in terms of Section 74 (5) & (6) of CGST Act. The Audit intends to close your client's file.(Close all proceedings).

If you want to contest the audit para, you can. You will get the SCN and then penalty may be imposed higher i.e. 50 %.

So it is better to pay tax, interest and 15% penalty and get the proceedings closed and be tension free.

In case you opt for litigation

As per Section 126(3) of CGST Act No penalty shall be imposed on any person without giving him an opportunity of being heard.

Undoubtedly, better option is 15% penalty.

[Rajagopalan Ranganathan]

Sir,

If the audit has demanded the short paid under Section 74, that is, tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful misstatement or suppression of facts, then the demanding penalty @ 15% is correct and legal.

However if the audit demanded the tax short paid under Section 73, that is, tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful misstatement or suppression of facts, then no penalty is leviable. Therefore please check under what provisions of the CGST Act the audit have made the demand.

If the department has invoked Section 74 and if you are satisfied that you have not shot paid the tax by reason of fraud or any wilful misstatement or suppression of facts then you can contest the entire demand.

[Ganeshan Kalyani]

Sir, it is better to pay and close the case as the litigation cost is to be considered. However, if you feel the lapse is not intentional then you may justify the auditor accordingly.

AI Summary

Penalty in GST audits may apply for fraud-related tax shortfalls; consider contesting or paying to close proceedings. Where a departmental GST audit finds a tax shortfall due to fraud, wilful misstatement or suppression of facts, a penalty (commonly fifteen percent in audit practice) may be levied; shortfalls for reasons other than fraud generally do not attract penalty. No penalty should be imposed without giving the person an opportunity of being heard, and an audit observation can be contested through subsequent show-cause proceedings, though contesting may risk higher penalties and added litigation costs.