GST Penalties and Appeals

To prevent tax evasion and corruption, the GST law has introduced Indian enterprises to strict provisions around offences such as penalties, prosecution, and arrest. The GST law has clearly defined descriptions of offences and the penalties levied in each scenario. This is important information for all businesses, CAs and Tax Professionals as an inadvertent mistake can cause severe consequences.

This article explains all about offences, penalties, search, seizure, compounding of offences, arrest, appeals under GST.

Latest updates

8th October 2024

The procedure for rectification of demand order and appeal order is notified by the CBIC in its notification number 22/2024 dated 8th October 2024.

Offences and penalties under GST

Offences

There are 21 offenses are given under the GST law as per the CGST Section 122(1), of which a few are listed below. The major offenses under GST are:

• Not registering under GST, even though required by law. (Read our article for the list of those who have to register mandatorily under GST)
• Supply of any goods/services without any invoice or issuing a false invoice
• Issues invoice without actual supply of goods or services
• Collects GST whether or not in contravention with the GST law from the buyer but does not deposit the tax with the government within three months from the invoice due date
• Fails to deduct/collect TDS/TCS or short-deducts/collects it or deducts/collects TDS/TCS but does not deposits with the government
• Claims or utilises ITC without receiving the goods or services
• The issue of invoices by a taxable person using the GSTIN of another bona fide taxpayer
• Submission of false information while registering under GST
• Submission of fake financial records/documents or files, or fake returns to evade tax
• Obtaining refunds by fraud
• Deliberate suppression of sales/turnover to evade tax
• Opting for composition scheme even though a taxpayer is ineligible
• Stops any officer from the discharge of their duties
• Transports goods without documents
• Deals with any goods while knowing it is liable for confiscation
• Tampers with, or destroys any material evidence or document or disposes off or tampers with any goods that have been detained, seized, or attached under the GST law

Penalty

If any of the offenses are committed then a penalty will have to be paid under GST. The principles on which these penalties are based are also mentioned by law.

For late filing the GST returns

Late filing attracts penalty called late fee. The late fee is Rs.100 per day per Act. So it is Rs.25 under CGST and Rs.25 under SGST. Total will be Rs.50/day* for delayed GSTR-3B filing.  There is no late fee on IGST in case of delayed filing. 

Along with late fee, interest has to be paid at 18% per annum. It has to be calculated by the taxpayer on the tax to be paid. The time period will be from the next day of filing to the date of payment.

*Subject to changes announced via Notifications. Check out for updates here.

For not filing the GST returns

The late fee is Rs.20 per day per Act. So it is Rs.10 under CGST and Rs.10 under SGST. Total will be Rs.20/day* for delayed GSTR-3B filing. If you don’t file any GST return then subsequent returns cannot be filed. For example, if GSTR-1 return of August is not filed then the next return GSTR-3B and subsequent GSTR-1 of September cannot be filed. Hence, late filing of GST return will have a cascading effect leading to heavy fines and penalty (see below).

For the 21 offenses with no intention of fraud or tax evasion

An offender not paying tax or making short payments must pay a penalty of 10% of the tax amount due subject to a minimum of Rs. 10,000.

Consider — in case tax has not been paid or a short payment is made, a minimum penalty of Rs 10,000 has to be paid. The maximum penalty is 10% of the tax unpaid.

For the 21 offenses with the intention of fraud or tax evasion

An offender has to pay a penalty amount of tax evaded/short deducted etc., i.e., 100% penalty, subject to a minimum of Rs.10,000. The additional penalties as follows-

Cases of fraud also face penalties, prosecution, and arrest.

Inspection under GST

The Joint Commissioner of SGST/CGST (or a higher officer) may have reasons to believe that in order to evade tax, a person has suppressed any transaction or claimed excess input tax credit etc. Then the Joint Commissioner can authorise any other officer of CGST/SGST (in writing) to inspect places of business of the suspected evader.

Search & seizure under GST

The Joint Commissioner of SGST/CGST can order for a search. He will order a search on the basis of results of inspection (or other reason) if he has reasons to believe –

• There are goods which might be confiscated
• Any documents or books or other things which are hidden somewhere. Such items can be useful during proceedings

Such incriminating goods and documents can be seized.

Goods in transit 

The person in charge of a vehicle carrying goods exceeding Rs. 50,000 is required to carry the following documents:

• Invoice or bill of supply or delivery challan
• Copy of e-way bill (hard copy or via RFID)
• e-invoice wherever applicable

The proper officer has the power to intercept goods in transit and inspect the goods and the documents.

If the goods are in contravention of the GST Act then the goods, related documents, and the vehicle carrying them will be seized. The goods will be released only on payment of tax and penalty.

Before confiscating the goods, the tax officer shall give an option of paying a fine instead of confiscation.

Compounding of offences under GST

Compounding of offenses is a method to avoid litigation. In case of prosecution for an offense in a criminal court, the accused has to appear before the Magistrate at every hearing through an advocate. This becomes expensive and time-consuming.

In compounding, the accused is not required to appear personally and can be discharged on payment of compounding fee which cannot be more than the maximum fine as applicable under GST.

Compounding will save time and money. However, compounding under GST is not available for cases where the value involved exceeds Rs.1 crore.

Prosecution under GST 

The prosecution is conducting legal proceedings against someone in respect of a criminal charge.

A person committing an offense with the deliberate intention of fraud, becomes liable to prosecution under GST, i.e., face criminal charges. A few examples of these offenses are-

1. Issue of an invoice without supplying any goods/services- thus taking input credit or refund by fraud
2. Obtaining refund of any CGST/SGST by fraud
3. Submitting fake financial records/documents or files, and fake returns to evade tax
4. Helping another person to commit fraud under GST

Arrest under GST

If the Commissioner of CGST/SGST believes a person has committed a certain offense he can be arrested under GST by any authorised CGST/SGST officer (click here for the list of offenses for which one can be arrested).

The arrested person will be informed of the grounds for his arrest. He will appear before the magistrate within 24 hours in case of a cognizable offense (Cognizable offenses are those where the police can arrest a person without an arrest warrant. They are serious crimes like murder, robbery, counterfeiting).

Appeals under GST

A person unhappy with any decision or order passed against him under GST can appeal against such decision. The first appeal against an order by an adjudicating authority goes to the First Appellate Authority. 

If the taxpayer is not happy with the decision of the First Appellate Authority they can appeal to the National Appellate Tribunal, then to the High Court, and finally to the Supreme Court.

To avoid the long process of appeal and litigation, a taxpayer may request for the advance ruling under GST. The taxpayer asks for clarification from GST authorities on GST treatment before initiating the proposed activity. The tax authority gives a written decision (called advance ruling) to the applicant on the query.