Overview

Goods and Services Tax (GST) is an indirect and a value-added tax (VAT) levied on the sales of goods and services for domestic consumption in India, and is introduced to streamline various taxes, such as VAT, excise duty etc., under one umbrella to combat tax evasion and corruption.

The GST law has several scenarios and stringent protocols to follow its rules and guidelines failing to which can lead to committing offences and then, penalties. Therefore, it is mandatory for every tax professional or CAs etc. to follow GST laws to avoid committing offences and getting charged with the penalties.

Key Takeaways

• There are 21 offences under GST
• The GST Act has clear rules and guidelines failing to follow which can result in serious consequences such as getting charged with penalties and prosecution along with the possibility of fine
• For minor breaches in the GST law, done with no intention of tax evasion or fraud whatsoever, SMEs and MSMEs can rectify their mistakes and save themselves from getting imposed with penalties and prosecutions
• Jail punishments are also granted under the GST law
• An offender is free to file for an appeal if he is displeased with the decision taken by the First Appellate Authority. There are 4 levels which ends with the decision taken by the Supreme Court which is considered final.

Offences under GST

Any activity that defies the law is termed as an offence. In case of the GST Law, an offence is when there is a breach in any of the GST Act and Rules.

The GST law has clear mention of 21 major offences under various categories:

Common Offences and Penalties under GST 

A penalty can be either corporal (jail) or pecuniary (monetary), civil or criminal. GST has corporal and pecuniary both as penalties. 

Scenarios with No Penalty Applicable with Optional Application of Interest

Prosecution and Penalties Under GST

The GST law requires absolute commitment to its rules and provisions. If there is a breach in any of them, then there will be severe consequences known as penalties. 

Penalty in cases of Fraud 

The offender will be charged with the penalty amount of tax evaded/short deducted etc. meaning 100% penalty, subject to a minimum of Rs. 10,000. For all the above-mentioned 21 offence cases, 100% penalty is prescribed for the fraud cases. 

The prosecution becomes non-bailable if the person has committed below offences where more than Rs. 500 lakhs are involved:

• Evades tax by supplying goods and/or services without an invoice
• Obtains input credit or refund by fraud by issuing an invoice without delivering goods and/or services
• Does not submit any GST (including the case of infringement of provisions) to the government within three months of taking it

Government has brought such rules and measures to strictly avoid malpractices for tax evasion and corruption. If an individual or a business commits any of the offences mentioned above, the action will bear serious consequences, resulting in getting prosecuted for the same.

Prosecution for Evidence Destruction 

The offender will have to face 6 months’ worth of imprisonment time if:

• He destroys the evidence
• Prevents the officer from doing his duty
• Falsifies information or helps someone committing the same

Repeat Offenders

For repeat offenders meaning if the offender has committed the same offence twice, then punishment can go up as high as 5 years with fine. The Commissioner is the leading authority in sanctioning the prosecution.

Special Case Penalties 

In cases where the offence has been committed without the intention of fraud or tax evasion, there are different measures for actions. Such cases can be when the offender has not paid the tax or made short-payments, then he is liable to pay a penalty of 10% of due tax, subject to a minimum Rs. 10,000.

General Penalty

Any offence the penalty measure of which isn’t specifically mentioned under GST will be liable to a maximum penalty of Rs. 25,000.

Minor Breaches under GST

Minor breaches under GST are defined as the offences where tax amount is less than Rs. 5,000 or the person has committed the errors that can be rectified and done without the intention of fraud or tax evasion. For such cases, there is no provision of a substantial penalty under GST. Though, the tax authority may issue a warning. 

This comes as a relief for MSMEs and SMEs. Since they are at the other end of the resource spectrum, they do not have the resources to submit penalties in case of genuine errors/mistakes as opposed to large enterprises. 

Common Rules Regarding GST Penalty

Below rules are applicable to all types of laws (tax laws, contract laws, corporate laws or any other laws):

• Upon imposed with penalty, the offender will be served with a show-cause notice first and will have the fair chance to be heard
• The tax authority is liable to explain the reason regarding the penalty and the nature of offence committed
• A reduced penalty can come into consideration if the offender voluntarily exposes his offence

Filing an Appeal under GST

An appeal is a plea or a request to a higher court in order to change or reverse the decision passed by the lower court. Similarly, when an offender of GST is displeased with the decision given by the court, he can challenge it by appealing to the higher court.

There are 4 levels to the process. If the offender is displeased with the decision of the First Appellate Authority, he can then appeal to the National Appellate Tribunal, then to the High Court ultimately placing the final appeal at the Supreme Court.