GST Offences, Penalties and Appeals

Offences

There are 21 offenses under GST. We have mentioned a few here. For the entire list of 21 offenses please go to our main article on offenses.

The major offenses under GST are:

1. Not registering under GST, even though required by law. (Read our article for the list of those who have to register mandatorily under GST)
2. Supply of any goods/services without any invoice or issuing a false invoice.
3. The issue of invoices by a taxable person using the GSTIN of another bona fide taxpayer.
4. Submission of false information while registering under GST.
5. Submission of fake financial records/documents or files, or fake returns to evade tax.
6. Obtaining refunds by fraud.
7. Deliberate suppression of sales to evade tax.
8. Opting for composition scheme even though a taxpayer is ineligible.

GST penalties & Approvals

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

Late filing attracts penalty called late fee. The late fee is Rs. 100 per day per Act. So it is 100 under CGST & 100 under SGST. Total will be Rs. 200/day. The maximum is Rs. 5,000. 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.

For not filing

If you don’t file any GST return then subsequent returns cannot be filed. For example, if GSTR-2 return of August is not filed then the next return GSTR-3 and subsequent returns 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.

Additional penalties as follows-

Tax amount involved 100-200 lakhs 200-500 lakhs Above 500 lakhs
Jail term Upto 1 year Upto 3 years Upto 5 year
Fine In all three cases

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

If the goods are in contravention to 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 shortcut 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 1 crore.

Prosecution Under GST

The prosecution is conducting of 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 authorized 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

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.

gst-penalties-and-appeals

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 starting the proposed activity. The tax authority gives a written decision (called advance ruling) to the applicant on the query.

Treatment of Advance Received under GST

The rules for the time of supply under GST plays a very important role in determining when to pay tax for a transaction.

The general rule for time of supply for goods is earliest of the following –

1. Date of issue of invoice

2. Date of receipt of payment/advance

3. Date on which invoice should be issued

The second point above is receipt of advance. This means that if the advance is received before the issue of invoice the time of supply would be the date of receipt of advance.

Thus taxpayer receiving advance must pay GST on the money received.

What is a taxpayer supposed when an advance is received?

A taxpayer has to take the following actions on receipt of advance:

1. Issue a Receipt Voucher:

The supplier has to issue a receipt voucher to the person paying advance. The receipt voucher will contain details like amount of advance, the rate of tax applicable, description of goods or services, etc.

2. Calculate Tax on Advance Received:

You have to calculate tax on advance and pay tax while filing the return for the month.

The advance received should be grossed up. This means that advance received is considered inclusive of GST.

When the rate of tax cannot be determined during receipt of advance GST @ 18% has to be charged.

Also if the point of sale cannot be ascertained the advance is considered as interstate supply and IGST has to be paid.

Let us understand the treatment of advance under GST using an example:

Mr. A entered into a contract of supplying goods worth Rs 10,00,000 by 20th February.

The total invoice value along with GST @ 18% is Rs 11,80,000.

He received an advance of Rs 4,00,000 on 10th January and balance payment of Rs 7,80,000 on 20th February. The invoice was also raised on 20th February.
Here is how you will calculate tax:
advance received – part 1

It is very important to note here that the taxpayer paying advance is not eligible to claim ITC on advance paid. The taxpayer can claim ITC on advance paid only on receipt of goods or services.

This means that in the above example recipient will be eligible to claim ITC on an advance in February (goods are received on 20th February).

3. Incorporate advance received in GSTR 1


Any advance received by a taxpayer for which invoice is not issued should be mentioned in Pt.11A of GSTR 1.

Details of each advance need not be given, A cumulative figure of all the advances received has to be provided.

The advance should be first segregated into Interstate and intrastate advances.

The gross figure of advances received should be mentioned under Gross Advance Received/ Adjusted.

After this, the tax payable i.e. CGST and SGST in case of intrastate and IGST in case of interstate advances should be stated.

This tax on advance is added to the tax liability of the supplier.