SECTION 122. PENALTY FOR CERTAIN OFFENCES., Goods and Services Tax - GST

[Sadanand Bulbule]

Section 122- Penalty for certain offences under the GST Act.

122. (1) Where a taxable person who––This section declares the offences that attract penalty as a consequence, apart from the requirement to pay the tax and applicable interest In other words, the first sub-section (1) prescribes 21 types of offences, any one of which, if committed, can attract penalty of ten thousand rupees or equal to the amount of tax involved, whichever is higher.

Section 122 (2)- 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.

QUERY.

Looking at the above provisions closely, there is one conspicuous difference in the opening words of Section 122(1) and 122(2). It is like this, Section 122(1) speaks about “a taxable person” whereas Section 122(2) speaks about “any registered person”. Further careful reading of the penalty rates, there is substantial reduction of penalty in respect of offences committed by “any registered person” under Section 122(2) when compared to the beginning provision of Section 122(1) in respect of a taxable person.

Legal position being so, what are the significant qualities or circumstances which entitles “any registered person” under Section 122(2) to avail the benefit of relatively reduced rate of penalty? Why this differential treatment between a taxable person and any registered person?

Experts are requested to enlighten in detail on this query in the larger interest of all stake holders.

Regards.

Posts / Replies

[Rajagopalan Ranganathan]

Sir,

According to Section 2 (94) of CGST Act, 2017 "registered person" means a person who is registered under section 25 but does not include a person having a Unique Identity Number.

According to Section 2 (107) of CGST Act, 2017 "taxable person" means a person who is registered or liable to be registered under section 22 or section 24.

Therefore if you are a taxable person then you are automatically a registered person. Therefore in my opinion there is no legally defined difference between the two. as far as CGST Act is concerned both are same.

Section 122 (1) of CGST Act, 2017 stipulates that the person who violates the provisions of the Act or the rules made thereunder as enumerated therein 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.

Section 122 (2) of CGST Act, 2017 stipulates that (2) 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.therefore the difference in quantum of [penalty depends on the nature of violation committed and the penalty is on the higher side where the violation is committed with intention to evade payment of tax.

[Sadanand Bulbule]

Respected Sir

Thank you very much for your prompt reply.

Again I have an extended query. Parliament had knowledge - or is deemed to have knowledge of creating an independent sub-section 122(1) and sub-section 122(2) with the use of taxable person in the beginning sub-section (1) and any registered person in the later sub-section (2). Therefore in my opinion, the change of terminology may have some significance with specific intent. Importantly the amount of penalty is equal to tax in sub-section (1). But it is 10% of tax in sub-section(2) for non-fraudulent offences.

Sir, please throw further light on this query.

[GB Rao]

Dear sir,

A person who fulfils the conditions laid down for getting registered is a taxable person. It is his obligation to get himself registered and continue his business. If he does not get registered, inspite of becoming eligible to get himself registered, he will be a taxable person only and the penal provisions will be stringent in such cases as he is disobeying/violating the provisions laid down by Government. A registered person is one who gets himself registered upon becoming eligible for registration and obeying the provisions laid down by Government and hence the penal provisions are not stringent when compared with taxable person.

[Sadanand Bulbule]

Dear Sir

Thank you very much for your clarification.

[ABHISHEK TRIPATHI]

Dear GB Sir,

The explanation was beautiful, however, the same doesn't fit when we say that taxable person also includes registered person.

[Sadanand Bulbule]

Respected Sir

Thank you very much for your comprehensive decoding of the intrinsic intent of the issue under discussion. It is experienced that, there is still huge confusion among the GST Authorities as regards to the invocation of the provisions of Section 122 (1) & (2), irrespective of its need or not. Very casually the authorities are misusing this tool in every case without the computation of tax liability. I am confident, your esteemed efforts would clear all the clouds of doubts and pave the way for judicial application of the provisions with clarity of facts and the application of the appropriate penal provisions, so that that the intent of the lawmaking body is gracefully respected by the law enforcement agencies.

Warm regards.

[Sadanand Bulbule]

In continuation of the discussion on penalty under Section 122,I am sharing the recent judgement of Hon'ble Karnataka High Court:

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

DATED THIS THE 17TH DAY OF FEBRUARY 2021

BEFORE

THE HON'BLE MR.JUSTICE S. SUNIL DUTT YADAV WRIT PETITION No.602/2021 (T-RES)

BETWEEN:

TINTON RIVER PALMS,

Thombathu, Hengavalli Road, Hengavalli Post,

Goliangadi, Udupi - 576 212, By its Proprietor

Sri Francis George,

Aged about 57 years. … Petitioner (By Sri K.M. Shivayogiswamy, Advocate)

AND:

State of Karnataka, By its Chief Secretary,

Department of Finance, Vidhana Soudha, Bangalore - 560 001.

The Commissioner of Commercial Taxes, Commercial Taxes Buildings,

Gandhi Nagar, Bangalore - 560 009.

The Asst. Commissioner of Commercial Taxes (Enf) - 1, West Zone, 5th Floor,

Vanijya Terige Bhavan, Maidan Road,

Mangalore - 575 001. … Respondents (By Sri K. Hema Kumar, HCGP for R1 to R3)

This Writ Petition is filed under Articles 226 & 227 of the Constitution of India, praying to declare and hold that the enforcement/inspecting authority authorized under Section 67 of KGST/CGST Act, has no power or jurisdiction to quantified the tax liability and sought to levy penalty under Section 122(1) of the Act and etc.

This Writ Petition coming on for preliminary hearing in 'B' Group this day, the Court made the following:

ORDER

Learned HCGP appearing for the respondents has filed a memo, which reads as follows:-

"The Writ Petition is filed challenging the notice dated 01.12.2020 issued by the 3rd respondent under Section 122(1) of the CGST Act. The Respondent No.3 has now addressed a letter dated 02.02.2021 inspecting and informing the undersigned as follows:

"The enforcement report is submitted with details of observation made during the course of inspection and after verification of the book of accounts submitted by the tax payer. The report is submitted with advisory, to utilize the observations while initiating adjudication proceedings.

The status of the case as to the enforcement authority is closed as soon as the report is submitted. The notice issued under Section 122(1) of the Act was merely to appraise the tax payer about observations made and the liability arising thereof. No adjudication proceeding to create a legal demand is initiated, nor will be initiated.

A copy of the communication addressed by the 3rd respondent to the undersigned is annexed to this memo."

Learned counsel for the petitioner submits that in light of the stand taken by learned HCGP, the petitioner's grievance for the present is addressed.

Keeping open the contentions, the petition is dismissed as not calling for adjudication in light of the stand taken by learned HCGP as reflected in the memo.

Sd/- JUDGE.