PENALTY UNDER SECTION 127

[Sadanand Bulbule]

Plz peruse the following:

Power to impose penalty in certain cases.

127. Where the proper officer is of the view that a person is liable to a penalty and the same is not covered under any proceedings under section 62 or section 63 or section 64 or section 73 or section 74 ¹[or section 74A] or section 129 or section 130, he may issue an order levying such penalty after giving a reasonable opportunity of being heard to such person.

Query:

What is amount of penalty leviable under Section 127? And what are the specific certain cases to invoke this section?

Plz elaborate.

 

[KASTURI SETHI]

Sh. Sadanand Bulbule Ji,

Sir, The phrase, 'such penalty' is silent about the quantum of penalty. Section 127 is meant for general penalty but the quantum of penalty needs to be specified as it was specified in Central Excise Act and Central Excise Rules. Such penalty was specified in Rule 27 of Central Excise Rules, 2002 and Rule 173 of Central Excise Rules, 1944.

[Sadanand Bulbule]

Dear Sir

I fully agree with the unclear position of Section 127. But officers are proposing to levy penalty equal to tax under this section. How can officers convert this section to their convenience, rather to take revenge? 

what is the object of this section when it doesn’t speak the specific situation and the amount of penalty? Is this section not a candle on the wall? 

Let the CBIC clarify it to prevent its abuse. 

[Sadanand Bulbule]

The real problem is each officer thinks himself with great knowledge of law than his neighbor. There is no urge to learn from the intellectuals. Honest taxpayers are trembling like "scared sheep" in slaughter's shop.

May Government bestow its attention on such issues urgently.

[KASTURI SETHI]

Dear Sir,

(i) This is a flaw in the law. The words, "such penalty" must refer to specific amount of penalty. The words, "such penalty" must be replaced by "a penalty which may extend to Rs._________________." This language existed in Central Excise Act and Rules.

(ii) The word, 'such' cannot be integrated to Sections mentioned in Section 127.

(iii) The flaw should be brought to the notice of the Board with a copy to the Chairman, GST Council. This is the best option now keeping in view of the urgency.

(iv) Your proposal/representation will be in the interest of fair justice for the whole Trade and Industry.

(v) If immediate request is not sent to Govt., floodgates of litigation will open.

[Sadanand Bulbule]

Dear Sir

I shall do that. Thanks for your timely support as well.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

Adjudication proceedings were taken up u/s 74. DRC-1A issued, Tax Payer has not filed the reply within the time provided and has not filed even after the further period granted but filed replies to DRC-1A after SCN was issued stating that the tax amount intimated in DRC-1A has been paid. The reply is treated as for SCN and a personal hearing was provided. He has paid interest after the lapse of one month of SCN served. He lost the chances of the concessional penalty of 15% and 25% in both stages.

Now the order is being passed. As per Sec. 74(9), the 100% penalty is applicable. As per Sec. 74(11), if there was still tax due for payment and paid with interest within one month, he is eligible for 50% abate. But he has already paid the dues before passing the order. If 100% is levied as per procedure what is the amount of penalty leviable at this stage?

Whether in such condition, Sec. 127 can be exercised and levied the penalty at 50% since there is a lacuna between the order to be passed and the order passed afterwards where no tax and interest are due.

[Sadanand Bulbule]

Dear Murthy

Why are you wishing for penalty under Section 127,  when experts have opined that it is irrelevant? 

[KALLESHAMURTHY MURTHY K.N.]

Dear Sadanand Bulbule Sir, 

The issue is the amount of penalty leviable u/s 74 (9).

The penalty for tax and interest not paid within the prescribed time of one month from the service of SCN will attract a penalty equivalent to 100% of tax liability u/s 74 even if the tax and interest are paid after the lapse of one month but before passing the order. In case, there is tax or interest due for payment after the order has passed and the liability is paid within 30 days, the penalty is payable at 50% of the tax u/s 74(11). Does it cause injustice to the taxpayer if he clears the dues but belatedly before the order is passed?  Or can the penalty be leviable at 50% in the order in such a case? Or when the penalty attracts a 100% penalty u/s 122(1) read with Sec. 74(9). 

[DEVARA SIVAPRASAD]

Penalty leviable is 100% under Section 122 of the CGST Act, 2017 read with Section 74(9) ibid.

if Penalty of 50% paid/payable along with Tax due and applicable interest within 30 days of the Communication of Order under Section 74(9) ibid, the Proceedings deemed to be concluded in terms of the Section 74(11) ibid. It implies that concessional penalty would be available only if the mandated amount [Tax due+applicable Interest+ applicable Penalty, in the instant case is 50%] has been paid within the time frame prescribed.

AI Summary

Penalty power unclear: officers may levy penalties where other proceedings don't apply, but the penal quantum is unspecified. Section 127 permits a proper officer to levy a penalty after hearing when the liability is not covered under specified other proceedings, but it does not specify the amount or ceiling of 'such penalty,' producing uncertainty. Practitioners observe officers sometimes levy penalties equal to tax, and commentators urge administrative clarification and legislative amendment to prescribe the quantum or ceiling to prevent inconsistent enforcement and abuse of discretion.