Section 122 of CGST Act, 2017, Goods and Services Tax - GST

[Kaustubh Karandikar]

Section 122(1)(vii) provides for penalty for taking the ITC. Section 122(2) also provides for penalty for wrong availment of ITC. Under which situation 122(1) will get attracted under which situation 122(2) will get attracted?

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

Penalty under Section 122 (1) of CGST Act, 2017 is imposable under following circumstances:-

Where a taxable person who–– (i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;

(ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;

(iii) collects any amount as tax but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

(iv) collects any tax in contravention of the provisions of this Act but fails to pay the same to the Government beyond a period of three months from the date on which such payment becomes due;

(v) fails to deduct the tax in accordance with the provisions of sub-section (1) of section 51, or deducts an amount which is less than the amount required to be deducted under the said sub-section, or where he fails to pay to the Government under sub-section (2) thereof, the amount deducted as tax;

(vi) fails to collect tax in accordance with the provisions of sub-section (1) of section 52, 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 Government the amount collected as tax under sub-section (3) of section 52;

(vii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;

(viii) fraudulently obtains refund of tax under this Act;

(ix) takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;

(x) falsifies or substitutes financial records or produces fake accounts or documents or furnishes any false information or return with an intention to evade payment of tax due under this Act; Non-appealable decisions and orders.

Penalty for certain offences.

76 THE GAZETTE OF INDIA EXTRAORDINARY [PART II-

(xi) is liable to be registered under this Act but fails to obtain registration;

(xii) furnishes any false information with regard to registration particulars, either at the time of applying for registration, or subsequently;

(xiii) obstructs or prevents any officer in discharge of his duties under this Act;

(xiv) transports any taxable goods without the cover of documents as may be specified in this behalf;

(xv) suppresses his turnover leading to evasion of tax under this Act;

(xvi) fails to keep, maintain or retain books of account and other documents in accordance with the provisions of this Act or the rules made thereunder;

(xvii) fails to furnish information or documents called for by an officer in accordance with the provisions of this Act or the rules made thereunder or furnishes false information or documents during any proceedings under this Act;

(xviii) supplies, transports or stores any goods which he has reasons to believe are liable to confiscation under this Act;

(xix) issues any invoice or document by using the registration number of another registered person;

(xx) tampers with, or destroys any material evidence or document;

(xxi) disposes off or tampers with any goods that have been detained, seized, or attached under this Act, he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly or the refund claimed fraudulently, whichever is higher.

Penalty under Section 122 (2) of CGST Act, 2017 is imposable under following circumstances:-

Any registered person who supplies any goods or services or both on which any tax has not been paid or short-paid or erroneously refunded, or where the input tax credit has been wrongly availed or utilised,-

(a) for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of ten thousand rupees or ten per cent. of the tax due from such person, whichever is higher;

(b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to ten thousand rupees or the tax due from such person, whichever is higher.

[Rachit Agarwal]

Section 122(1) deals with the situations and to be levided where

1. Tax has been evaded

2. tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government

3. input tax credit availed of or passed on or distributed irregularly

4. refund claimed fraudulently

Section 122(1) covers only the fraudulent acts and not other than fraudulent acts

Section 122(2) deals with the penalty amount for undermentioned situations in cosonance with Section 73 and Section 74 of CGST Act, 2017

a. Reaons Other than fraud, wilful mis-statement or wilful supression of facts to evade tax

b. Reaons of fraud, wilful mis-statement or wilful supression of facts to evade tax

Further penalty with respect to Reaons of fraud, wilful mis-statement or wilful supression of facts to evade tax is equivalent to tax amount. However one take advantage of reduced penalty u/s 74 being 15% of tax, 25% of tax and 50% of tax. If the person does avail the benefit of 50% of tax, then he will be liable to pay penalty equivalent to tax amount which is consonance with Section 122(1) and Section 122(2).

[CAVenkataprasad Pasupuleti]

In addition to the above answers, the penalty under sec. 122(1) is leviable on taxable person (i.e. even on unregistered person) whereas the penalty u/s. 122(2) is only on the registered person.

[KASTURI SETHI]

Section 122 (2) also includes an unregistered person. Change was made in March,20.

[CAVenkataprasad Pasupuleti]

Dear Kasthuri ji,

I couldn't see any amendment in section 122(2) to cover unregistered persons also. Can you please provide me the reference. Thanks in advance.

[KASTURI SETHI]

Dear Mr. CAVenkataprasad Pasupuleti,

Section 126 - Amendment of section 122. - Finance Act, 2020

126. In section 122 of the Central Goods and Services Tax Act, after sub-section (1), the following sub-section shall be inserted, namely:-

“(1A) Any person who retains the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.”.

It is w.e.f. 27.3.2020. See the highlighted portion and its meaning and application..

[KASTURI SETHI]

Dear Mr. CAVenkataprasad Pasupuleti,

If you have passion for seeking more and more knowledge on this issue you must also peruse Rule 173 Q of erstwhile Central Excise Rules, 1944 along with Section 14 of Central Excise Act. Go word for word.

[CA Seshukumar]

Dear Kasturi Sethi sir

I agree about amendment vide Finance Act.2020 however the said section.126 of said act giving amendment to 122 is not yet notified.

Even otherwise also this new insertion is in relation to certain scenarios as enumerated in 122(1) only and hence 122(2) still will be applicable only for registered person.

However , govt has covered the scenarios holistically if the above amendment gets notified.

[KASTURI SETHI]

Dear CA Seshukumar Ji,

Unregistered person is covered under Section 122 (3). It starts with " Any person who ---------". Hence here no amendment was required.

Section 122 (1) starts with "Where a taxable person who ------------". Here unregistered person was not covered so the Govt. has amended this sub-section by way of amendment inserting 1A w.e.f. 27.3.2020.