This section is used, or I must say misused, in most of the Notices!
The department is trying to levy a penalty under this section in most cases, but the High Court's views are in favour of the Assessee.
Section 122 of the CGST Act
Penalty for Certain Offences
1. General Offenses (Subsection 1)
This subsection lists 21 offences, such as supplying goods or services without issuing an invoice, issuing incorrect invoices, failing to pay collected taxes to the government, wrongfully availing or utilizing input tax credit, obtaining fraudulent refunds, and more. For any of these offences, the person is liable to pay a penalty of Rs 10,000 or the amount of tax evaded (whichever is higher).
A taxable person can be penalized for various offenses like:
- Supplying goods or services without an invoice or with a false invoice.
- Issuing invoices without actual supply.
- Collecting tax but not paying it to the government within three months.
- Failing to deduct or collect tax as required.
- Taking or utilizing input tax credit without actual receipt of goods or services.
- Fraudulently obtaining refunds.
- Falsifying financial records or providing false information to evade tax.
- Failing to register when required.
- Obstructing tax officers.
- Transporting goods without proper documentation.
- Suppressing turnover.
- Not maintaining proper books of account.
- Failing to provide information or providing false information during proceedings.
- Handling goods liable for confiscation.
- Misusing another's registration number.
- Tampering with or destroying evidence.
The penalty for these offenses is Rs 10,000 or an amount equivalent to the tax evaded, whichever is higher.
2. Penalty for Beneficiaries of Certain Transactions (Subsection 1A)
If a person retains benefits from transactions involving tax evasion or wrongful input tax credit (as specified in clauses (i), (ii), (vii), or (ix) of subsection 1) and has facilitated such transactions, they are liable to a penalty equal to the tax evaded or input tax credit wrongly availed. Individuals who benefit from transactions involving false invoices or unauthorized input tax credit are liable for a penalty equivalent to the tax evaded or the credit availed.
3. Electronic Commerce Operators (Subsection 1B)
Operators who allow supplies by unregistered persons, inter-State supplies by ineligible persons, or fail to report correctly are liable for a penalty of Rs 10,000 or the tax amount involved, whichever is higher.
4. Penalty for Non-Fraudulent Errors (Subsection 2)
- Registered persons who supply goods or services without proper payment of tax or wrongfully avail input tax credit face penalties. If the error is without fraudulent intent, the penalty is Rs 10,000 or 10% of the tax due (whichever is higher). If the error is due to fraud or wilful misstatement, the penalty is Rs 10,000 or the amount of tax due (whichever is higher).
If tax is not paid, short-paid, or erroneously refunded, or if input tax credit is wrongly availed:
- Without fraud, the penalty is Rs 10,000 or 10% of the tax due, whichever is higher.
- With fraud, the penalty is Rs 10,000 or the tax due, whichever is higher.
5. Aiding and Abetting (Subsection 3)
Any person aiding or abetting the offenses listed or dealing with goods or services known to be in contravention of the Act can face penalties up to Rs 25,000.
This section essentially outlines the penalties for various non-compliance issues under the GST regime, aiming to enforce proper tax collection, documentation, and adherence to the legal framework of goods and services taxation.
I am sharing with you a Few High Court Judgments
1. Shantanu Sanjay Hundekari vs Union of India - Bombay High Court (2024) 17 CENTAX 18
Petitioner, who was a mere employee of MLIPL, which was although a group company of Maersk, could not fall within purview of section 122(1A), as the petitioner could not be a registered person"s within meaning and purview of CGST Act so as to retain such benefits as provision ordains; hence, there was no question of revenue invoking section 122(1-A) against the petitioner; thus, revenue invoking said provision against petitioner was an act wholly without jurisdiction, so as to issue show cause notice demanding tax and penalty from petitioner was also without jurisdiction.
2. Shree Om Steels vs Additional Commissioner Grade-2 - Allahabad High Court (2024) 21 CENTAX 19
Where in the survey carried out under section 67 of UPGST Act goods found excess, notice under section 130 read with section 122 of UPGST Act issued for confiscating goods, tax and penalty levied, even if excess stock found proceedings under section 130 of GST Act could not be initiated, tax demand can be quantified and raised only in the manner prescribed in section 73 or section 74 of CGST Act, impugned orders were to be set aside.
3. Faruk Rathore vs Dy. Commissioner, CGST, Bikaner - Rajasthan High Court (2024) 18 CENTAX 375
Where goods of assessee were detained, since it was not a case that E-way bill was not available, instead same had merely expired and it could not be said that there existed an intention to evade tax or any fraudulent intention on part of petitioner, penalty should not have been imposed under Section 129, and a penalty of Rs. 10 thousand was to be imposed under Section 122.
4. Girish and Company vs State of Uttar Pradesh - Allahabad High Court (2024) 15 CENTAX 291
Where the assessee faced seizure for non-downloading of the E-way Bill due to confusion arising from frequent changes in notifications, the High Court held that imposition of the maximum penalty, without allegations in show cause notice or impugned order, was unjustified, particularly when the lesser penalty is prescribed under Section 122 of CGST Act.
5. Greenstar Fertilizers Ltd vs Joint Commissioner (Appeals), GST and Central Excise, Coimbatore Circuit Office, Madurai (2024) 19 CENTAX 324
Where the assessee transitioned input tax credit while the penalty was confirmed for wrongful ITC availment, since fraud or misstatement was not proved by revenue and credit was reversed immediately after show cause notice was issued, imposition of penalty under section 74 were inappropriate and, thus, a tokenn penalty of Rs. 10,000 under Section 122 was to be imposed on assessee instead of higher penalty initially levied.
Conclusion
It is evident from the judicial pronouncements that the invocation of Section 122 by tax authorities is often found to be excessive and without proper jurisdiction, leading to the imposition of unjust penalties on assessees. The High Courts have consistently held that penalties under this section should not be levied in cases where the taxpayer"s actions do not demonstrate fraud, wilful misstatement, or gross negligence. Therefore, the imposition of penalties under Section 122 must be cautiously approached, ensuring that it aligns with the legislative intent and judicial principles, failing which, such actions are liable to be quashed as ultra vires.
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