Penalty under Section 73(1) of CGST Act, 2017

[Alkesh Jani]

Dear All Experts,

Show Cause Notice was issued for recovery of short payment of CGST Rs.1600/- and SGST Rs.1500/- under Section 73 of CGST Act, 2017.

Now the Query is :- what will be the amount of penalty Rs.10,000/- for CGST and SGST or Rs.10,000/- for CGST and Rs.10,000/- for SGST (Total Rs.20,000/-) (Refer Section 73(9) of CGST /SGST Act, 2017).

Please share your valuable insight and any of such quantification.

Thanks in advance.

[Sadanand Bulbule]

Dear Sir 

Minimum penalty is Rs.10,000/- both under Section 73[9] of the CGST Act and the SGST Act respectively. So total penalty shall be Rs. 20,000/-  Your query contains the answer.

[Alkesh Jani]

Shri  Sadanand Bulbule ji,

Thanks for your prompt reply. The query is raised as some jurisdictions are following different procedure. i.e. Rs. 10,000/- for both. The reason is, when penalty equivalent to tax is prescribed for fraud,  suppression of facts etc under Section 74. than Rs.20,000/- for other than fraud, suppression of facts etc cannot be imposed.

I invite all our experts to share their insights.

Thanks

With regards.

[Sadanand Bulbule]

Dear Sir

As are your aware, the objects of the size of penalty under Section 73 and 74 are entirely contrast. So while quantifying penalty under Section 73[9], one need look at Section 74.

[Sadanand Bulbule]

Pleas read it as; Need not look at Section 74.

[KASTURI SETHI]

Sh.Alkesh Jani Ji,

(i) Section 73 or 74. are independent of each other. 

(ii) Both Sections are not to be compared for any purpose. 

(iii) The emphasis is laid on the phrase, 'whichever is higher'  If tax evaded is Re.one and Section 73 has been invoked, even then a penalty of Rs.10,000/- (Tax-wise each)   i.e. Rs.10,000/- + Rs.10,000/-has to be imposed upon.

[KASTURI SETHI]

In continuation of my previous post,   

(iv) Rationally, logically and practically, it looks preposterous.  Law should be amended to the extent that the quantum of penalty should not be more than  the amount of tax evaded whether  penalty is to be imposed under Section 73 or 74.

[KASTURI SETHI]

Sh. Alkesh Jani Ji,

The issue raised by you is full of logic and reason inasmuch as a person who plays fraud with the Govt. is liable for penalty equal to the amount of tax evaded under Section 74 whereas a person who pays short payment of tax due to technical lapse or procedural lapse or clerical mistake/typographical mistake etc. he is liable to pay the amount of penalty more than the amount of tax evaded under Section 73 by virtue of the wording, ''whichever is higher''.

I am of the view that it is a flaw in the law which requires amendment. The issue is worth making representation to the GST Council.

Disclaimer : These are my personal views for exchange of views with the experts on TMI.

[Sadanand Bulbule]

Dear Sh. Sethi Sirji

While fully endorsing your deep analysis of the disparity as regards to the quantum of penalty under Section 73 & 74, my understanding is:

The Acts of Parliament/Legislature are not drafted with divine presence and perfect clarity. it is not possible for the legislators to foresee the manifold sets of facts and controversies that may arise while giving effect to a particular provision. Indeed, the legislators do not deal with the specific controversies. It is for the Hon'ble High Courts/Apex Court to clarify the legislative intent and to cure the defects and disparity in law, if any. 

Secondly, your apprehension can also be expanded to the provisions of  Section 129 as well.

[ These are purely my personal thoughts].

[Alkesh Jani]

Shri Kasturiji Sir & Shri Sadanand Bulbule ji,

I am very thankful to you for responding to my query.

“whichever is higher” very clear and without any ambiguity, I fully agree to your views expressed at Sl. No. 06 above.

The Government has made many amendment to benefit the small taxpayer, and these small taxpayer are not in a position to contest the issue before higher legal forum, as it will be expensive for them. Imposition of such penalty is against the spirit of the law.

Here, I am neither comparing any provisions with each other, but few points are to be referred and is noteworthy. If we refer Section 122(2)(a) of the CGST Act, 2017, the penalty is 10% of the tax short paid (if for the reason, other than fraud, suppression of facts etc. (Section 73)) and penalty equal to ten thousand rupees or the tax due from such person ( for reason of fraud, suppression of facts etc. (Section 74)).

I think it would be harsh to impose such huge penalty. As the upper limit in all other section is equivalent to tax and not beyond that. I am of the view that deliberation in the matter is required.

Thanks

With regards

[KASTURI SETHI]

Sh.Sadanand Bulbule Ji,

Sir,  I am highly thankful to you. In support of your views, it is worthwhile to peruse the following:       

"Judges do not make law, they only discover or find the correct law".--------Supreme Court in the case of  Asstt. Commissioner, Income Tax, Rajkot Vs. Saurashtra Kutch Stock Exchange Ltd. - 2008 (9) TMI 11 - SUPREME COURT

The department's appeal was dismissed.

[Shilpi Jain]

Is there no way you can contest the penalty levy?

[Alkesh Jani]

Shri/Ku. Shilpi Madam,

First of all thanks for participating in this discussion.

One can contest but on what ground and which authority has the power to drop the penalty, APL-1, Tribunal, High Court or Supreme Court of India.

The Expense may be more than what penalty is imposed. A small taxpayer may not be in the position to bear the expense to contest. 

Please suggest.

Thanks,

[Padmanathan KV]

You may try the argument that provisions of section 126 would apply as penalty envisaged under 73 is neither a fixed sum nor expressed as a fixed percentage but both.

[Alkesh Jani]

Dear Experts,

The Section 75(13) of the CGST Act, 2017, same is reproduced below:-

"(13) 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."

Do any other provision includes Section 6 of the CGST Act, 2017.

Please offer your comments.

Thanks

[Padmanathan KV]

Dear Alkesh JI,

Could you explain the context more? How is penalty imposed under section 6 of the Act? Isn't section 6 for limited purpose of authorisation of officers?

[Alkesh Jani]

Shri Padmanathan Kollengode ji,

This would be too lengthy, but in short CGST Officer passes an order whereby confirming CGST & SGST, under which Authority, SGST is confirmed? I think it’s under the authorization under Section 6. Further, Section 6 talks of Order only and not of SCN.

Therefore, I am of the view that Section 75(13) is restricting the penalty under both CGST & SGST, as this cannot be the intention of the law maker or the spirit of the law to impose penalty more than the amount of tax short paid or not paid, that too in the circumstances where there is no intention to evade, the tax or there is no suppression of facts. When there is intention to evade the tax by suppression of fact etc. under Section 74, equivalent penalty is imposed means if the person is charged for the same amount of short paid tax, penalty under 74 would be Rs.3100/-.

Moreover, where there is short payment of Rs. 1600/- of CGST and Rs.1500/- for SGST, total of Rs. 3100/- penalty will be Rs.20,000/- (10,000/- each) under Section 73.

Here, I may be wrong in interpreting the statute, but I am not able to accept this with full heart.

These are my personal views.

Thanks

AI Summary

Section 73 penalty: potential per-tax-head minimum penalties can apply separately, raising concerns of disproportionate double fines.
Whether the statutory minimum monetary penalty for short-paid tax under the general recovery provision attaches separately to central and state tax heads is disputed; the phrase "whichever is higher" has been invoked to support a per-head minimum, producing potential aggregate penalties that exceed the tax shortfall, raising questions about interplay with the fraud penalty framework, prohibition on duplicate penalties for the same act, and proportionality for small taxpayers.