PENALTY UNDER SECTION 122(1)(II) OF THE GST ACT

[Sadanand Bulbule]

Dear experts

Section 122(1)(ii) of the GST Act speaks about the offence of 'issue of invoices without the supply of goods or services or both'. However in exceptional cases, such invoices do not lead to the wrongful availment or utilisation of input tax credit. The CBIC Circular No. 171/03/2022 dated 06/07/2022 has illustrated such kind of events for the purpose levy of only penalty in a particular situation or adjudication under Section 74 and levy of penalty under section 122(1)(vii) in proven situations of wrongful availment or utilisation of input tax credit.

Query:

What is the amount of penalty under Section 122(1)(ii) for the offence of issue of invoices without the actual supply of goods or services or both not leading to the wrongful availment or uitlisation of input tax credit?

Experts to throw spotlight.

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir, As per Board's circular this transaction falls under the category of non-fraud, it being without tax and without involvement of wrongful ITC. So penalty of Rs.10,000/- is imposable under Section 122(1) (ii)but in my view such transaction is covered under Section 122 (3) (e) and penalty of Rs.25,000/- is imposable.

Therefore, in my view Board's circular is required to be either amended to this extent or withdrawn.

[KASTURI SETHI]

When we talk of 'fake' invoice, the element of 'intentional untrue' is present. In my view, even the penalty of Rs.25,000/- is not sufficient in this scenario.. Keeping in view the gravity of the offence such meagre penalty does not meet the ends of justice.

[Sadanand Bulbule]

Dear Sirji

Thank you so much for throwing spotlight on the issue. But Sir, as long as the provisions of Section 122 remain unchanged, in my personal opinion the CBIC need not think of amending or withdrawing it to that extent.

Warm regards

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Agreed, Sir. You mean to say that problem is inherent in Section 122 and NOT in circular. So Section 122 is the 'cause' and 'cause' requires the 'treatment' for the solution of the problem.

[Sadanand Bulbule]

Dear Sir

Yes Sir. It is the prerogative of the GST Council and the law makers. CBIC can clarify the law, but not beyond that per say.

[Amit Agrawal]

Relevant portion from Section 122(1)(ii) reads as under:

"122. (1) Where a taxable person who––

............................

(ii) 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;

........................................

he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher."

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KALLESHAMURTHY MURTHY K.N.]

Sri Amit Agarwal Ji has rightly extracted the penalty provision under GST.

Where Sec. 73 is initiated, if tax liability does not exceed Rs. 10000-00, the imposition of penalty will be at Rs. 10000-00 or equivalent to tax when this limit exceeds.

This is my understanding of the law.

[Sadanand Bulbule]

Dear all

Assuming but not accepting that, none of the ingredients like tax evasion or non deduction of tax under section 51 or short deduction or deduction but not payment to the Government or non collection of tax under section 52 or short collection or collection but not payment to the Government or input tax credit availment of or passing on or distribution of tax irregularly or the claim of refund fraudulently are manifest on record as prescribed 122, then what should be penalty ?

[Sadanand Bulbule]

Dear experts,

While continuing the discussion on the subject I wish to add here that, Section 74 of the GST Act comprises following explanation:

Explanation 1.- For the purposes of section 73 and this section,-

(i) XXXX

(ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122 and 125 are deemed to be concluded.

Thus there is statutory immunity from the levy of penalty under Section 122 against all the persons [other than the main person] in the chain of all proven offences under Section 122 and particularly under sub-section 122[1][ii] & 122[1][vii].

Query:

1] How such statutory immunity from the levy of penalty under Section 122 by virtue of Explanation-1 to Section 74 against all persons [other than the main person] can be ensured/expanded keeping in mind the CBIC Circular No 171/03/2022 dated 06/07/2022?

2] Whether CBIC Circular No.171 syncs with the object of Explanation-1 above or come into conflict ?

Experts are welcome with their comprehensive thoughts on this.

[Sadanand Bulbule]

Dear all

Further to add-

Section 75(13) read as under:

Where any penalty is imposed under section 73 or section 74, no penalty for the same act or omission shall be imposed on the same person under any other provision of this Act.

 

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

I wish to add that in my reply No. 7 dated 1-01-2024, I missed to mention the penalty payable u/s 73 is equal to ten per cent of tax when the tax amount exceeds Rs. 10000-00.

[Sadanand Bulbule]

Dear all

On the issue of levying penalty under Section 122 (1) [ii] & 122(1) [vii] of the CGST Act, 2017, plz refer the following:

2024 (3) TMI 1277 - BOMBAY HIGH COURT

SHANTANU SANJAY HUNDEKARI, VIKAS AGARWAL, YOGESH AGARWAL, MAMTA GUPTA VERSUS UNION OF INDIA, THROUGH SECRETARY, MINISTRY OF FINANCE, NEW DELHI., STATE OF MAHARASHTRA, JOINT DIRECTOR, DIRECTOR GENERAL OF GOODS AND SERVICE TAX INTELLIGENCE, GUJARAT. THE ADDITIONAL/JOINT COMMISSIONER, THANE COMMISSIONERATE,

[Sadanand Bulbule]

Dear experts

I am revisiting my posting at Sl. No. 9 dated 18/02/2024 and refresh the query from different dimension. It is like this:

Section 74 of the CGST/SGST Act goes with the following explanation:

Explanation 1.- For the purposes of Section 73 and this section,-

(ii) where the notice under the same proceedings is issued to the main person liable to pay tax and some other persons, and such proceedings against the main person have been concluded under Section 73 or section 74, the proceedings against all the persons liable to pay penalty under sections 122 and 125 are deemed to be concluded.

It can be understood that, once the main person issuing fake invoices or causes to issue fake invoices and retains the benefit arising out of such fake invoices, he shall be subjected to adjudication under Section 73/74 as per law.

The impact of this explanation is clear that, when adjudication take place against the main person under Section 73 or 74, the proceedings against all the persons, [engaged in the cartel of bill trading]under sections 122 and 125 are deemed to be concluded.

My understanding is, penalty proceedings under Section 122 and 125 against all others persons in the cartel of bill trading are to be read as closed or finished or settled or ended by virtue of deeming provision.

In simple words, the jurisdiction to levy penalty under Section 122 and 125 against all other persons automatically gets terminated and consequently provides immunity to them from such penalty in view of the specific deeming factor.

Query:

Experts are requested to clarify the legal position/meaning/impact of the phrase "deemed to be concluded", which is created with specific intent and to serve definite purpose, in the above context with legal support, if any, even at the cost of repetition, so that the object of law shall prevail. Because "deeming provisions" are important part of tax statutes and effective tax administration as well. Secondly, the word " deem" is not defined under the CGST/SGST Act.

[Sadanand Bulbule]

Dear experts

I wish to add the following:

What is of importance is that "Explanatory Notes-2" annexed to Section 74 are expressly recognised by Section 122.

In other words, Section 122 can only be understood by going into the legal narrations made in the “Explanatory notes-2" of Section 74. When one speaks of Section 122, it takes along with it the “ Explanatory note-2 “ of Section 74.

This is the importance of Explanation-2 annexed to Section 74 in collaboration with Section 122.

[Sadanand Bulbule]

Dear all

Please find the attached judgement as regards to levy of nominal penalty under Section 122[1] of the CGST Act, 2017.

My take:

 Actual utilization of ITC to reduce the output tax liability is distinguished between  mere availment [ auto reflection of ITC] in GSTR-3B to levy penalty equal to tax under Section 74 read with Section 122 [1A] of the CGST Act.

M/S. GREENSTAR FERTILIZERS LIMITED, REP. BY ITS CHIEF OPERATING OFFICER, E. BALU VERSUS THE JOINT COMMISSIONER (APPEALS) , THE ASSISTANT COMMISSIONER OF GST AND CENTRAL EXCISE, TUTICORIN - 2024 (6) TMI 667 - MADRAS HIGH COURT

 

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, Your view stands upheld by the High Court. Indirectly, kudos by the High Court. It is a stamp on your deep study. Really, it is a matter of euphoria for you.

[Sadanand Bulbule]

Dear Sirji

You know when you can see and feel the anxiety in somebody, when they are uncertain about what to do next or perhaps even fearful of such matters. Your magical words provide instant relief, and one can typically see the change in the recipient of unalloyed product of neutral  discussion.

My endeavour is to remove dusky dust on the mirror and keep the honest taxpayers in comfortable position to the possible extent.

Gratitude and profound regards

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, You feel the pulse of the Trade and Industry. I have perused all the replies posted by you in this forum. Your replies reflect your altruistic nature. You leave no stone unturned in giving sincere and honest advice.

How to reap the harvest from your replies depends upon the insight as well as luck of the querists. This is a factual position and not exaggerated.

AI Summary

Debate on Penalties for Invoices Without Supply Under GST Act Section 122(1)(ii) and CBIC Circular No. 171/03/2022 A discussion on the penalty under Section 122(1)(ii) of the GST Act focuses on the issuance of invoices without actual supply of goods or services, which does not lead to wrongful utilization of input tax credit. The CBIC Circular No. 171/03/2022 addresses penalties in such cases. One expert argues for a penalty of Rs.10,000, while another suggests Rs.25,000, citing a need for amendment. Further discussion highlights the role of Section 74, which provides statutory immunity to certain parties in penalty proceedings, emphasizing the importance of understanding 'deemed to be concluded' in legal terms. Various contributors share insights and legal interpretations, referencing relevant case law and statutory explanations.