PENALTY UNDER SECTION 127

[Sadanand Bulbule]

Dear experts

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 74¹[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]

Dear Sir,

It is a residual penalty for breach of any provisions of the CGST Act, if no penalty has been prescribed for the offences other than the offences covered under Sections 62, 63, 64, 73, 74, 74A, 129 and 130. The object of Section 127 is to plug all escape routes for the offenders.

[Sadanand Bulbule]

True Sir. But the question of how much penalty is the darker than moonless night. 

[Shilpi Jain]

This is the provision that authorises the issuance of order of penalty. Penalty could be the general penalty u/s 125 or any other sections not mentioned in s 127.

S. 127 pertains to the manner of demanding the penalty.

[KASTURI SETHI]

Dear Sir,

Section 127 is silent on the quantum of penalty to be imposed upon. Either the expression, "such penalty" has to be clarified by the Board or the quantum of penalty has to be specifically mentioned in Section 127 by way of amendment. No other way-out. 

[KASTURI SETHI]

Dear Sir,

Offences punishable under Sections 62, 63, 64, 73, 74, 74 A, 129, and 130 are clearly out of scope of Section 127.

Sections 125 and 127 independent of each other.

 

[Sadanand Bulbule]

Dear Sir

It is high time for the CBIC to clarify, why has Parliament introduced Section 127? And what is the pre-requisite condition for the applicability of Section 127 ?Till then the officers invoking this section have to be very cautious.

[Vijay kumar]

In my view, penalty should be imposed as per the principles set out in Section 126

[Sadanand Bulbule]

In my personal opinion, Section 126 provides immunity from penalty for bona fide minor breaches as explained therein. So no link can be extended to Section 127.

[KASTURI SETHI]

Dear Sir,

 At present the need is to identify the specific offences punishable under Section 127excluding offences punishable under Sections 125, 126 and other Sections mentioned in Section 127 as already raised by you above.

This reply is to be read with my above replies.

     

[KASTURI SETHI]

Sh.Harish Varun Ji,

Very useful article on the issue. Thanks a lot  for sharing.

[DEVARA SIVAPRASAD]

As seen from language of the Section 127, it can be noticed that the "Penalty is being arisen out of Proper Officer's view but not as Express Penalty Provisions as captured under the GST Act, 2017." Given that, it is speaking about the Circumstances other than the Express Penalty Provisions as mentioned under the GST Act. Obviously, it should be " Penalty for any Contravention of Provisions of the CGST Act and the rules made thereunder."

As we all Know, such situation/View/Opinion invariably covers under "General Penalty Clause only under Section 125." Therefore, the Quantum of Penalty is Rs. 25,000/-. Thus,Section 125 and Section 127 are interlinked with each other.

Hope, I clarified this issue.

[DEVARA SIVAPRASAD]

Frankly speaking, section 127 appears to me as redundant provisions as all residuary penalty provisions already covered under section 125. There is nothing to specify circumstances by virtue of any Notifications as the penalty is being arisen out of proper officer’s view. It is nothing but redundant provision as it appears there is no legislative intent has not been prescribed or captured under section 127.

[Sadanand Bulbule]

Dear all

With indepth deliberation by the experts, many officers are still intending to invoke Section 122 read with Section 127 to levy penalty against those who are not liable for adjudication under Section 73/74.

But the legal framework is different. Explanatory Notes to Section 74 reads that once adjudication is concluded against the main person, remaining all “others” in the chain enjoy immunity from penalty under Section 122. This particularly applies in the fraudulent evasion of tax by “bill traders or circular traders” — issuing fake invoices without actual supply of goods to avail unlawful ITC.

 Don’t know what exactly is logic of the officers. This unclear situation pushed me to post this query.

[DEVARA SIVAPRASAD]

Section 122(1)(ii) itself covers those situations under Express Penalty Provisions. Even Section 122(1)(ii) has to be dealt under Section 74/74A for recovery of ineligible Credit in such Paper Transactions/ no supply cases. Even in the case of Supplier also, the Penalty can be imposed for such Offences under Section 122(1)(ii) as it is meant for to impose Penalty upon "Taxable Persons"(Who is registered under the Act)

In the absence of explicit clause under Section 127 to cover the cases of Penalty in r/o Paper Transactions, I feel penalty has to be imposed under Section 122(1)(ii) of the CGST act only. It is not necessary to read Section 122(1)(ii) read with the Section 127 as Penalty is being imposed upon "Taxable Persons."

Hope, I clarified this aspect also.

[Sadanand Bulbule]

There are mandatory requirements under Section 122 to levy panalty in respect of “ paper transactions” and they have to be demonstrated with evidence by the proper officers. It’s not a simple job. 

[DEVARA SIVAPRASAD]

A Gist of my views in this regard are as follows:

It is obvious on the part of any Registered Person, who deals with the Goods or Services or both in India should have business Premises as declared in their certificate of Registration, having sufficient infrastructure, machinery, Floor space, Storage facilities, Adequate space for loading and unloading facilities, human and technical sources etc., to dealt with the Goods or services or both as the case maybe, for which the Registration was sought.

Obviously, such Premises are conspicuous in nature & easily identifiable and same as in the case of suppliers of Impugned supplier also. Further, every Registration person should display his certificate of Registration in a prominent location at this place of business and he shall display his Goods and Service Tax Identification Number (GSTIN) on the name Board exhibited at the entry of the business Premises in terms of rule 18 of the the CGST rules, 2017.However, the Central GST Officer/Range Officer, who is the Authorized Officer to carry out the physical verifications in the instant case, stated that the Impugned Supplier as well their Suppliers are also Non-existent at their declared Place of business, after due process of physical verification. Therefore, the Contention of the petitioner that they have received Goods from Impugned Supplier is totally false.

The taxable Person contention that they have fulfilled all the Conditions of the Section 16 of the CGST Act, 2017 is null and void as there is no supply in the subject Transactions as submitted and justified in earlier Paras to qualify as Supply in terms of the Section 7 of the CGST Act. As such, the Petitioner’s Contention that they have received Goods is uttered false and also not legal and proper. Accordingly, there is no scope for any sort of Taxability, payment of GST arises in the subject Transactions and thus there is no scope for availment Input Tax Credit by the Petitioner also from the subject Supplier during the Impugned period. In simple terms, the subject Transactions are fake invoice Transactions without supply of Goods exploiting the facility available under Goods and Service Tax network (GSTN) for generation of GSTINs (Goods and Service Tax Identification numbers) based upon Aadhaar based authentication and verification of the original documents as uploaded by the Applicant during filing of the Registration. In the instant case also, the Impugned Supplier also generated large number of Tax invoices, e-way Bills without doing any sort of supply in terms of the Section 7 of the CGST Act, 2017. Therefore, whatever, the Input Tax credit availed and utilized by the Petitioner is irregular Credit and the same needs to be recovered as the petitioner has not received any Goods to avail ITC in terms of the Section 16(2) (b) of the CGST Act, 2017 read with Section 7 ibid. Since the subject Transaction is a Paper Transaction without supply of Goods involving fake invoices, fake e-way Wills and invalid Consignment notes. Fulfilment any of other conditions of the Section 16 ibid will not arise including Section 16(2)(c) ibid.

It is enough on the record to say that the petitioner connived with their impugned supplier in order to avail the irregular Credit or Fake Credit. Thus, the claim of the petitioner being a genuine buyer and has received Goods from subject supplier, is completely wrong and is also baseless.

[Sadanand Bulbule]

Dear all

It is gathered from the top most administrators that, there is no clarity about the intent of Section 127 of the GST Act. No one is able to forecast the relevance and amount of penalty under this section. Everyone has his own perception. For me it is a " mysterious section".

[Punit Prajapati]

Dear Sir, 

I want to add one more point here regarding time limit to issue such notices under section 122 read with 127.

Such Notices had been issued by department within the time limit of section 74 for the F.Y. 2017-18 (i.e., within 5th of August 2024.)

Since, such SCNs not issued under section 73 and/or 74, time limit of 3 years or 5 years not applicable in this situation then question arises that within what period of time department can issue such notices? Whether GST Law allows unlimited time to the department to issue such kind of notices?

Answer should be NO. It should be barred by limitation act.

Kindly throw your valuable inputs to this discussion.

[Sadanand Bulbule]

Dear sir

In my considered opinion, Section 127 is not at all required since it is totally blind about the situations and the amount of penalty to be levied. Of course, this forum is open to exchange perceptions but it cannot convert into the relevance of Section 127 per se.

Let the authors of the Act answer to themselves.

[DEVARA SIVAPRASAD]

My views with regard to invoking Normal or extended are in conformity with the Board's Views in the legacy Master Circular:

The Apex Court‟s in the case of M/s Cosmic Dye chemical Vs Collector of Cen. Excise, Bombay [1994 (9) TMI 86 - SUPREME COURT], has laid the law on the subject very clearly. The same is reproduced below for ease of reference. 

Now so far as fraud and collusion are concerned, it is evident that the requisite intent, i.e., intent to evade duty is built into these very words. So far as mis-statement or suppression of facts are concerned, they are clearly qualified by the word “wilful” preceding the words “mis-statement or suppression of facts” which means with intent to evade duty. The next set of words “contravention of any of the provisions of this Act or Rules” are again qualified by the immediately following words “with intent to evade payment of duty”. It is, therefore, not correct to say that there can be a suppression or mis-statement of fact, which is not wilful and yet constitutes a permissible ground for the purpose of the proviso to Section 11A. Misstatement or suppression of fact must be wilful.

Since Section 122 is a residuary Provision, such contravention should be followed by "with an intent to evade Tax," to invoke extended period. otherwise, it should be limited to Normal period

AI Summary

Residual penalty power where no specific penalty provision applies: officer discretion exists but quantum and limits remain unclear. Section 127 provides a residuary procedural power for a proper officer to levy penalty where contraventions are not covered by specified assessment, adjudication or seizure/confiscation proceedings; it requires a reasonable opportunity to be heard but does not itself prescribe the quantum of penalty, producing uncertainty about whether applicable penalty amounts derive from general or other specific penalty provisions and prompting calls for administrative or legislative clarification.