Penalties for Not Registering Under GST

Offences and Penalties under GST

Goods and service tax GST will bring in “One nation one tax “to unite indirect taxes under one umbrella and facilitate Indian businesses to be globally competitive. The Indian GST is structured for efficient tax collection, reduction in corruption, easy inter-state movement of goods etc.

To prevent tax evasion and corruption, the GST Law lists the offences and penalties. There are  21 offences under GST, apart from the penalty for availing compounding by a taxable person who is not eligible for it.

Offences under GST 

When has anyone committed an offence under GST?

There are 21 offences under GST. For easy understanding, we have grouped them as-

Fake/wrong invoices

1. A taxable person supplies any goods/services without any invoice or issues a false invoice.
2. He issues any invoice or bill without supply of goods/services in violation of the provisions of GST
3. He issues invoices using the identification number of another bonafide taxable person

Fraud

4. He submits false information while registering under GST
5. He submits fake financial records/documents or files fake returns to evade tax
6. Does not provide information/gives false information during proceedings

Tax evasion

7. He collects any GST but does not submit it to the government within 3 months
8. Even if he collects any GST in contravention of provisions, he still has to deposit it to the government within 3 months. Failure to do so will be an offence under GST.
9. He obtains refund of any CGST/SGST by fraud.
10. He takes and/or utilizes input tax credit without actual receipt of goods and/or services
11. He deliberately suppresses his sales to evade tax

Supply/transport of goods

12. He transports goods without proper documents
13. Supplies/transports goods which he knows will be confiscated
14. Destroys/tampers goods which have been seized

Others

15. He has not registered under GST although he is required to by law
16. He does not deduct TDS or deducts less amount where applicable.
17. He does not collect TCS or collects less amount where applicable.
18. Being an Input Service Distributor, he takes or distributes input tax credit in violation of the rules
19. He obstructs the proper officer during his duty (for example, he hinders the officer during the audit by tax authorities)
20. He does not maintain all the books that he required to maintain by law
21. He destroys any evidence

He has opted for composition scheme even though he is not eligible

Offences under GST by Companies, LLPs, HUFs and others

For any offence committed by a company, both the officer in charge (such as director, manager, secretarty) as well as the company will be held liable.

For LLPs, HUFs, trust, the partner/karta/managing trustee will be held liable.

Penalties under GST

For fraud

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.

Not only the taxable person but any person who-

• Helps any person to commit fraud under GST
• Acquires/receives any goods/services with full knowledge that it is in violation of GST rules
• Fails to appear before the tax authority on receiving a summons
• Fails to issue an invoice according to GST rules
• Fails to account/vouch any invoice appearing in the books

-Will have to pay a penalty extending upto Rs. 25,000

For cases of fraud, 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

For more details please read our article on prosecution.

For other cases (no intention of fraud or tax evasion)

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

[Note: In the earlier model law, the person was penalized if he made short payments “repeatedly”, i.e., in 3 returns out of 6 consecutive tax periods. This has been removed from the revised model law. So it stands, even first-time offenders may be liable to penalty.]

Therefore, the penalty will be high at 100% of the tax amount when the offender has evaded i.e., where there is a deliberate fraud.

For other genuine errors, the penalty is 10% of tax.

General Penalty

Any offense under GST for which penalty is not specifically mentioned will be liable to a penalty extending Rs. 25,000.

General rules regarding penalty

These rules of penalty are generally the same in all laws whether tax laws or contract or any other law.

• Every taxable person, on whom the penalty is imposed, will be served with a show cause notice first and will have a reasonable opportunity of being heard.
• The tax authority will give an explanation regarding the reason for penalty and the nature of offense
• When any person who voluntarily discloses a breach of law, the tax authority may use this fact to reduce the penalty

There will not be substantial penalties for minor breaches (tax amount is less than Rs.5000) or errors which are easily rectifiable and clearly made without any motive of fraud. The tax authority may issue a warning in such cases.

This will be beneficial to businesses, especially SMEs, who may make genuine mistakes especially in the first few months of GST implementation. Being penalized for genuine errors will be a hard blow to the SMEs who do not have as many resources as the larger organizations to adapt to GST.