ITC wrongly availed & penalty levied

[RAGHAV SHARMA]

Respected Members,

One of my client has claimed the excess CGST of Rs 3714 and SGST 3714 in the Financial Year 2018-2019 due to an accounting error. The department has issued the form DRC-01. In the DRC-01, the Proper officer calculated the Penalty of 10000 for each CGST and SGST. How far it is valid to calculate the penalty at 10000 for each CGST and SGST when the total ITC to be reversed is 7428? Kindly guide me in this matter

Thanks

[KASTURI SETHI]

The department is correct.

Section 73 (9) of CGST Act

"The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order"

Emphasis is laid on the phrase, "Whichever is higher"

[Amit Agrawal]

Section 73(9) reads as follows: The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.

Relevant portion from Section 126(6) are as under:

"126. (1) No officer under this Act shall impose any penalty for minor breaches of tax regulations or procedural requirements and in particular, any omission or mistake in documentation which is easily rectifiable and made without fraudulent intent or gross negligence.

Explanation.––For the purpose of this sub-section,––

(a) a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than five thousand rupees;

(b) an omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on the face of record.

(2) The penalty imposed under this Act shall depend on the facts and circumstances of each case and shall be commensurate with the degree and severity of the breach.

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

(6) The provisions of this section shall not apply in such cases where the penalty specified under this Act is either a fixed sum or expressed as a fixed percentage."

One can argue that penalty u/s 73(9) is NOT mandatory as same is neither a fixed sum nor expressed as a fixed percentage, but same is 'fixed sum or a a fixed percentage, whichever is higher' and then, plead for no penalty using Section 126.

Please note that these should not be taken as my views / opinion per se. But same are just a line of argument in case you want to contest the penalty. As jurisprudence of GST law is at nascent stage and still evolving, these arguments will be thoroughly tested in courts of law over a period in future.

Also, if any amnesty scheme comes in future (one cannot predict or to be sure about it happening), hopefully, your penalty will be dropped. But, for that, you need to contest the penalty and keep alive through judicial means (i.e. by challenging penalty, filing appeal & so on).

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

[Padmanathan KV]

I endorse the views of Ld friend Amit Ji.

AI Summary

GST penalty calculation as higher of fixed sum or percentage can be contested invoking minor breach exclusion. A taxpayer claimed excess ITC and the proper officer, via DRC-01, proposed reversal and imposed penalty under the GST penalty provision as the higher of a fixed percentage of tax or a fixed monetary sum for each tax component; an argument is available to contest the penalty by invoking the minor breach limitation to seek remission or reduction through representation and appeal.