OFFENCES AND PENALTIES UNDER MODEL GOODS AND SERVICE TAX ACT, 2016

[Mr. M. GOVINDARAJAN]

Introduction

Chapter XVI of Model Goods and Service Tax Act, 2016 (‘Act’ for short) provides for penalties for contravention of the provisions of the Act and the rules made there under.  The following Sections deal with penal provisions-

• Section 66 – Offences and penalties;
• Section 67 – General Penalty;
• Section 68 – General disciplines related to penalty;
• Section 69 – Detention of goods and conveyances and levy of penalty;
• Section 70 – Confiscation of goods and levy of penalty;
• Section 71 – Confiscation of conveyances;
• Section 72 – Confiscation or penalty not to interfere with other punishments.

The minimum penalty to be imposed is ₹ 10,000/-.  The welcome provisions contains in Section 68.  Usually before imposing penalty the provisions of tax laws provide that reasonable opportunity should be given to the assessee in order to observe the principles of Natural Justice.  Section 68 is a different one from the regular provisions.  Section 68 gives detailed instructions to the authorities before imposing penalty.

Offences and penalties

Section 66 provides three types of offences and penalties.  Section 66(1) provides that a taxable person shall be liable to a penalty of ₹ 10,000/- or an amount equivalent to-

• the tax evaded; or
• the tax not deducted; or
• short deducted; or
• deducted but not paid to the credit of the Government; or
• input tax availed of orpassed on or distributed irregularly; or
• the refund claim fraudulently,

as the case may be, whichever is higher, if such person-

• supplies any goods and/or services without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;
• issues any invoice or bill without supply of goods and/or services in violation of the provisions of this Act, or the rules made there under;
• collects any amount as tax but fails to pay the same to the credit of the appropriate Government beyond a period of three months from the date on which such payment becomes due;
•  collects any tax in contravention of the provisions of this Act but fails to pay the same to the credit of the appropriate Government beyond a period of three months from the date on which such payment becomes due;
• fails to deduct the tax in terms of Section 37 (1), or deducts an amount which is less than the amount required to be deducted under the said subsection, or where he fails to pay to the credit of the appropriate Government under subsection (2) thereof, the amount deducted as tax;
• fails to collect tax in terms of Section 43C (1), or collects an amount which is less than the amount required to be collected under the said sub-section, or where he fails to pay to the credit of the appropriate Government under sub-section (4) thereof, the amount collected as tax;
• takes and/or utilizes input tax credit without actual receipt of goods and/or services either fully or partially, in violation of the provisions of this Act, or the rules made there under;
• fraudulently obtains refund of any CGST/SGST under this Act;
• takes or distributes input tax credit in violation of section 17, or the rules made there under;
•  falsifies or substitutes financial records or produces fake accounts and/or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act;
•  is liable to be registered under this Act but fails to obtain registration;
• furnishes any false information with regard to particulars specified as mandatory, either at the time of applying for registration, or subsequently;
• obstructs or prevents any officer in discharge of his duties under the ;
• transports any taxable goods without the cover of documents as may be specified in this behalf;
• suppresses his turnover leading to evasion of tax under this Act;
• fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made there under;
• fails to furnish information and/or documents called for by a CGST/SGST officer in accordance with the provisions of this or rules made there under or furnishes false information and/or documents during any proceedings under this ;
• supplies, transports or stores any goods which he has reason to believe are liable to confiscation under this Act;
• issues any invoice or document by using the identification number of another taxable person;
• tampers with, or destroys any material evidence;
• disposes off or tampers with any goods that have been detained, seized, or attached under this Act.

Section 66(2) provides penalty for making short payments repeatedly.  A taxable person shall be deemed to have made short payments ‘repeatedly’, if there were short payments in three returns during any six consecutive tax periods.  According to Section 66(2) any registered taxable person who repeatedly makes short payment of tax shall be liable to a penalty of rupees ten thousand or ten percent of the tax short paid, whichever is higher.

Section 66(3) provides that any person who-

• aids or abets any of the offences specified in Section 66(1);
• acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reason to believe are liable to confiscation under this Act or the rules made there under;
• receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reason to believe are in contravention of any provisions of this Act or the rules made there under;
•  fails to appear before the CGST/SGST officer, when issued with a summon for appearance to give evidence or produce a document in an enquiry;
•  fails to appear before the CGST/SGST officer, when issued with a summon for appearance to give evidence or produce a document in an enquiry;

shall be liable to a penalty which may extend to ₹ 25,000/-.      

General Penalty

Section 67 provides that any person, who contravenes any of the provisions of this Act or any rules made there under for which no penalty is separately provided for in this Act, shall be liable to a penalty which may extend to ₹ 25,000/-.

Detention of goods and levy of penalty

Section 69(1) provides that where any person-

• transports any goods or stores such goods while they are in transit in violation of the provisions of this Act; or
• stores or keeps in stock goods or supplies goods which have not been accounted for in the books or records maintained by him in the manner required by this Act;

all such goods and the conveyance used as a means of transport for carrying the said goods shall be liable to detention, in the manner prescribed, by the proper officer.  The same shall be released only after payment of applicable tax, interest and penalty leviable thereon or upon furnishing a security, in such form as may be prescribed, equivalent to the amount of the applicable tax, interest and penalty.

 Section 69 (2) provides that no tax, interest or penalty shall be determined without giving a notice to show cause and without giving the person a reasonable opportunity of being heard.

Confiscation of goods

Section 70(1) provides under what circumstances the goods are liable to be confiscated.  Section 70(1) provides that if any person-

• supplies any goods in contravention of any of the provisions of this Act or rules made there under leading to evasion of tax; or
• does not account for any goods on which he is liable to pay tax under this Act; or
• supplies any goods liable to tax under this Act without having applied for the registration; or
• contravenes any of the provisions of this Act or rules made there under with intent to evade payment of tax,

then, all such goods shall be liable to confiscation.  Such person shall be liable to penalty under section 66.

Section 70 (5) provides that where any goods are confiscated under this Act, the title of such goods shall thereupon vest in the appropriate Government.  Section 70(6) provides that the proper officer adjudging confiscation shall take and hold possession of the things confiscated and every Officer of Police, on the requisition of such proper officer, shall assist him in taking and holding such possession.

Confiscation of conveyances

Section 71 provides that any conveyance used as a means of transport for carriage of taxable goods without the cover of documents as may be prescribed in this behalf shall be liable to confiscation, unless the owner of the conveyance proves that it was so used without the knowledge or connivance of the owner himself, his agent, if any, and the person in charge of the conveyance.   

Redemption fine

Section 70 (2) provides that whenever confiscation of any goods is authorized by this Act, the CGST/SGST officer adjudging it shall give to the owner of the goods or, where such owner is not known, the person from whose possession or custody such goods have been seized, an option to pay in lieu of confiscation such fine as the said officer thinks fit.  Such fine shall not exceed the market price of the goods confiscated, less the tax chargeable thereon.

Section 70(3) provides that where any fine in lieu of confiscation of goods is imposed under sub-section (2), the owner of such goods or the person referred to in sub-section (1), shall, in addition, be liable to any tax and charges payable in respect of such goods.  Section70 (4) provides that no order of confiscation of goods and/or imposition of penalty shall be issued without giving a notice to show cause and without giving the person a reasonable opportunity of being heard.

The proviso to Section 71 provides that where any such conveyance is used for the carriage of the goods or passengers for hire, the owner of the conveyance shall be given an option to pay in lieu of the confiscation of the conveyance a fine equal to the tax payable on the goods being transported thereon.

Confiscation or penalty not to interfere with other punishments

Section 72 provides that no confiscation made or penalty imposed under the provisions of this Act or the rules made there under shall prevent the infliction of any other punishment to which the person affected thereby is liable under the provisions of this Act or under any other law.

General disciplines related to penalty

Section 68 lays down instructions to the Officers to follow certain disciplines while imposing penalty as detailed below-

• No tax authority shall impose substantial penalties for minor breaches of tax regulations or procedural requirements. In particular, no penalty in respect of any omission or mistake in documentation which is easily rectifiable and obviously made without fraudulent intent or gross negligence shall be greater than necessary to serve merely as a warning.This section further explained that-

• a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than ₹ 5,000/-;
• an omission or mistake in documentation shall be considered to be easily rectifiable if the same is an error apparent on record.

• The penalty imposed shall depend on the facts and circumstances of the case and shall be commensurate with the degree and severity of the breach.
• No penalty shall be imposed on any taxable person without giving a notice to show cause and without giving the person a reasonable opportunity of being heard.
• The tax authority shall ensure that when a penalty is imposed in an order for a breach of the laws, regulations or procedural requirements, an explanation is provided therein to the persons upon whom the penalty is imposed, specifying the nature of the breach and the applicable law, regulation or procedure under which the amount or range of penalty for the breach has been prescribed.
• When a person voluntarily discloses to a tax authority the circumstances of a breach of the tax law, regulation or procedural requirement prior to the discovery of the breach by the tax authority, the tax authority may consider this fact as a potential mitigating factor when establishing a penalty for that person.
• The provisions of this section will not apply in such cases where the penalty prescribed under the Act is either a fixed sum or expressed as a fixed percentage.

Discussions to this article

[RAJESH MANGAL AGRAWAL]

VERY NICE PRESENTATION.