100% penalty under sec122 of gst act

[giri gattupalli]

respected sir,

one of my client executed works contracts to govt tax departments during FY 2021-22 and nil returns filed during FY 2021-22 after finding lapses, but before issuance of any notice by department we have discharged total liability at 12% amounting to RS 25,00,000 by way of filing FORM -DRC-03 in june-2022 with interest and intimated to department

now in July 2025 my client received notice from department invoking SEC 122 of CGST ACT asking to pay 100 % penalty amounting to Rs 25,00,000 as the tax amount did not remitted to govt with in three months of tax collection.

i request our respected members please to discuss whether 100 % penalty under sec 122 can be invoked where alleged tax liability already discharged .

thanking you sir

Giri

advocate & tax consultant

AI Summary

Tax department issues 100% penalty under Section 122 despite voluntary payment of Rs 25 lakh liability A tax consultant sought advice regarding a client who executed government works contracts during FY 2021-22 and filed nil returns despite having tax liability. Before receiving any departmental notice, the client voluntarily discharged the entire tax liability of Rs 25,00,000 at 12% through Form DRC-03 in June 2022, including interest. However, in July 2025, the department issued a notice under Section 122 of the CGST Act demanding 100% penalty (Rs 25,00,000) for not remitting tax within three months of collection. A respondent cited the Mahadev Construction Co case from Jharkhand High Court, which held that Section 122 is penal in nature and must be interpreted strictly. The court ruled that unless fraud or misrepresentation is proven, equal penalty is not justified, suggesting nominal penalty under Section 125 might be more appropriate. The consultant requested continued discussion as the case was heading toward legal dispute with the department. Another case reference from Delhi High Court was also mentioned for further consideration.