NEW PENAL PROVISION IN GST

[Dr. Sanjiv Agarwal]

The Union Interim Budget 2024-25 was presented in Parliament on 1^st February, 2024 and so was the Finance Bill, 2024 (Bill No. 14 of 2024).

The Finance Bill, 2024, inter alia, contains proposals for amendments to CGST Act, 2017 also. Accordingly, three changes are proposed, viz, section 2(61) and 20 in relation to Input Service Distributor (ISD) and insertion of new section 122A in relation to penalty for failure to register certain specified machines used to manufacture specified goods as notified under section 148 of the CGST Act, 2017.

White penal provisions including compounding of offences, confiscation and detention are contained in Chapter XIX of the Act (Sections 122 to 138), Finance Bill, 2024 seeks to insert a new section, section 122A to provide for penalty for failure to register certain machines used in manufacture of goods as per special procedure.

The text of proposed new section 122A provides as under:

“122A. (1) Notwithstanding anything contained in this Act, where any person, who is engaged in the manufacture of goods in respect of which any special procedure relating to registration of machines has been notified under section 148, acts in contravention of the said special procedure, he shall, in addition to any penalty that is paid or is payable by him under Chapter XV or any other provisions of this Chapter, be liable to pay a penalty equal to an amount of one lakh rupees for every machine not so registered.

(2) In addition to the penalty under sub-section (1), every machine not so registered shall be liable for seizure and confiscation:

Provided that such machine shall not be confiscated where––

1. the penalty so imposed is paid, and
2. the registration of such machine is made in accordance with the special procedure within three days of the receipt of communication of the order of penalty.”

What does section 148 say ?

Section 148 of CGST Act, 2017 specifies special procedure for certain processes. Accordingly, the Government may, on the recommendations of the Council, and subject to such conditions and safeguards as may be prescribed, notify certain classes of registered persons, and the special procedures to be followed by such persons including those with regard to registration, furnishing of return, payment of tax and administration of such persons.

Background of Amendment

GST Council in its 50^th meeting had recommended to prescribe penalties in case of using any unregistered machine. It recommended as follows:

1. issuance of notification under section 148 of CGST Act, 2017 prescribing a special procedure to be followed by the manufacturers of tobacco, pan masala & other similar items inter alia for registration of machines and for filing of special monthly returns.
2. insertion of section 122A in CGST Act, 2017 providing for special penalty for non-registration of machines by such manufacturers.

Notification No. 30/2023-Central Tax dated 31.07.2023 rescinded

• CBIC has rescinded Notification No. 30/2023-CT dated 31.07.2023.
• Notification No. 30/2023-CT prescribed special procedure to be followed by a registered person engaged in manufacture of certain goods, i.e., tobacco and related products.
• The recession is effective from 1^st January, 2024.
• A new Notification No. 4/2024-CT dated 05.01.2024 has since been issued w.e.f. 01.04.2024 for the new special procedure.

(Vide Notification No. 3 and 4/2024-Central Tax dated 05.01.2024)

Notification No. 4/2024-CT dated 05.01.2024

CBIC had issued Notification No. 4/2024-CT dated 05.01.2024 for special procedure specifying that manufacturers of the following goods shall be required to register the machines used for production / manufacture:

Chapter / Heading / Tariff	Description of Goods
2106 90 20	Pan-masala
2401	Unmanufactured tobacco (without lime tube) – bearing a brand name
2401	Unmanufactured tobacco (with lime tube) – bearing a brand name
2401 30 00	Tobacco refuse, bearing a brand name
2403 11 10	'Hookah' or 'gudaku' tobacco bearing a brand name
2403 11 10	Tobacco used for smoking ‘hookah’ or known as ‘hookah’ tobacco or ‘gudaku’ not bearing a brand name
2403 11 90	Other water pipe smoking tobacco not bearing a brand Name
2403 19 10	Smoking mixtures for pipes and cigarettes
2403 19 90	Other smoking tobacco bearing a brand name
2403 19 90	Other smoking tobacco not bearing a brand name
2403 91 00	“Homogenised” or “reconstituted” tobacco, bearing a brand name
2403 99 10	Chewing tobacco (without lime tube)
2403 99 10	Chewing tobacco (with lime tube)
2403 99 10	Filter khaini
2403 99 20	Preparations containing chewing tobacco
2403 99 30	Jarda scented tobacco
2403 99 40	Snuff
2403 99 50	Preparations containing snuff
2403 99 60	Tobacco extracts and essence bearing a brand name
2403 99 60	Tobacco extracts and essence not bearing a brand name
2403 99 70	Cut tobacco
2403 99 90	Pan masala containing tobacco ‘Gutkha’
2403 99 90	All goods, other than pan masala containing tobacco 'gutkha', bearing a brand name
2403 99 90	All goods, other than pan masala containing tobacco 'gutkha', not bearing a brand name

New Penal provision

Section 122A is non-obstante provision and shall override all other sections. To be applicable, following points must be noted:

• Applies to any person who is engaged in manufacture of goods for which any special procedure is prescribed for registration of machines as notified under section 148 of CGST Act, 2017.
• There should be contravention of notified special procedure for such specified goods.
• Penalty under section 122A shall be over and above any penalty paid or payable under Chapter XV or XIX of the Act i.e., it would be an additional penalty.
• The quantum of penalty shall be equal to rupees one lakh for every machine not registered as per section 148.
• Apart from monetary penalty, every machine not so registered shall be liable for seizure and confiscation.
• Such machine shall not be confiscated where––

(a) the penalty so imposed is paid, and

(b) the registration of such machine is made in accordance with the special procedure within three days of the receipt of communication of the order of penalty.