Penalty rebate before order passed and after order passed

[KALLESHAMURTHY MURTHY K.N.]

Dear Sirs,

Tax paid after the time limit attracts a 100% penalty before the order is passed. If the Taxpayer has paid the tax with interest after the order is passed within the time limit, he will get a 50% rebate on the penalty. Doesn't such a circumstance cause injustice to the Taxpayer who paid the tax before the order passed?

For example,

ABC received SCN on 20-09-2024, the tax due was paid belatedly on 31-10-2024. and the Order was passed on 30-11-2024 levying a 100% penalty for the delayed payment.

XYZ received SCN on 20-08-2024 and did not pay the tax. The order was passed on 30-11-2024. The tax due was paid on 26-12-2024. and gets a 50% rebate on penalty.

ABC was deprived of a 50% penalty rebate for early payment before the order passed.

[KASTURI SETHI]

Dear Sir,

Pl. mention Section.

[KALLESHAMURTHY MURTHY K.N.]

Dear Sir,

Sorry, Sir. Forget to mention the section. Sec. 74(9) & 74(11). As per Sec. 74(9), even though the tax is paid, the interest not discharged within 30 days attracts a 100% penalty u/s 122. In case, the tax is not paid but discharged within 30 days along with interest after the order is passed will attract a 50% penalty.  

[KASTURI SETHI]

Sh. Kalleshamurthy Murthy Ji,

Sir,

(i) The benefit of reduced penalty is conditional. One has to fulfil the conditions laid down in Section 74 (5), 74 (8) and 74 (11).

(ii) We should not intermingle Sections 74 and 122. Both have different objects.

(iii) In order to be eligible for the benefit of reduced penalty by 85 %, the offender has to deposit the whole amount of tax and the whole amount of interest as per Section 74 (5)before the service of the SCN otherwise that person will not be eligible for the benefit of reduced penalty.. Thus non-payment of whole tax and whole interest makes that person ineligible for the benefit of reduced penalty.

(iv) In order to be eligible for the benefit of reduced penalty by 75 % the offender has to deposit the whole amount of tax and whole amount of interest as per Section 74 (8) after the service of the SCN but before the expiry of 30 days of the issue of SCN. Non-payment of full tax and full interest makes that person ineligible for the benefit of reduced penalty.

(v) In order to be eligible for the benefit of reduced penalty by 50 % the offender/Noticee has to deposit confirmed demand of tax and interest in full as per Section 74 (11)after the issuance order but before the expiry of thirty days from the date of communication of the Order. Non-payment of full tax and full interest makes that person ineligible for the benefit of reduced penalty.

(vi) It is pertinent to add that even if paltry amount of tax or interest is paid less than the required amount that will render him ineligible for the benefit the reduced penalty of 85%, 75% & and 50% as mentioned above at serial no. (iii) (iv) & (v) respectively. Calculation must be correct to the core.

(vii) We should not intermingle Sections 74 and 122 since both have different objects.

(viii) In view of the position explained above, a person who deposits full due tax and full due interest before the issuance of Order or the SCN will not be deprived of the benefit of reduced penalty.

Sir, I welcome your opinion, if I am in the wrong or I have missed something.

[KALLESHAMURTHY MURTHY K.N.]

Respected Sri KASTURI SETHI Ji,

What you have explained is correct in all respects. My point is that, before passing the order, the RTP clears the tax within 30 days but does not pay interest. While passing the order, the penalty leviable in such a situation is 100% of the tax amount since he has not fulfilled the conditions of Sec.73 (8).

If the RTP remains unpaid tax due with interest either partly or in full, after the lapse of 30 days after the SCN is issued, the order will be passed for all dues tax & interest and the penalty at 100%, but the penalty gets reduced to 50% if tax is paid the dues within 30 days in terms of Sec. 74(11).  

However, a 100% penalty cannot be reduced in the earlier issue since no tax is due to pay tax which was paid before the order is passed but only interest is due and even paid within 30 days from the issue of the order. 

So discrimination is caused if tax is paid before the order is passed and tax is paid after the order is passed.

I believe that to get a 50% benefit of the penalty, the tax and the interest are to be paid after the order is passed along with the interest.

[KASTURI SETHI]

Sh.Kalleshamurthy Murthy Ji,

Sir, You are talking about the intervening period. I agree with you about the issue raised by you. The issue raised by you is full of substance and logic and reason.

In my view, chances are bleak. In real terms, you are asking for 'luxury'. If any tax payer intends to avail the benefit of reduced penalty of 85 %, 75 % or 50%, that person must adhere to time limit fixed under Section 74.

Do you intend to make a representation to the GST Council in the interest of Trade and Industry ?

[KALLESHAMURTHY MURTHY K.N.]

Sri Kasturi Sethi Ji,

Thanks for recognising my point.  I am looking for the two types of cases to elaborate on the issue with examples to write to the Council. Thanks very much for your support.

[Padmanathan KV]

ABC can pay the tax along with interest and 50% interest up to 30-12-2024 as per section 74(11). So where is the question of ABC being deprived?

[Padmanathan KV]

please read "50% penalty up to" instead of "50% interest".

[Sadanand Bulbule]

Dear all

In my opinion, Section 74 is in the nature of a built-in permanent amnesty/settlement/compounding scheme, where the tax payer, liable to pay penalty under Section 74, is given an opportunity to voluntarily accept wrong doing and reduce the penalty that would be payable by him.

In a way taxpayer himself decides the amount of penalty that he would be liable depending upon the facts of the case at a given point of time.

As far as penalty under Section 122 is concerned, it is controlled by Section 75 [13].

AI Summary

Penalty reduction under GST depends on timely full payment of tax and interest, otherwise full penalty applies. Reduced penalty relief is available only where the taxpayer deposits the full tax and full interest within the specific statutory windows tied to notice and order stages; any shortfall in tax or interest disqualifies the taxpayer from the reduced penalty for that window, and absence of full payment may lead to imposition of the full penalty. The reduced penalty provisions function as a time bound settlement mechanism distinct from other penalty provisions and must be strictly followed to secure any rebate.