Redundant penal provisions of GST Law under various Sections of CGST Act, 2017 (Sections 73, 74, 122, 129, 130) :-
As GST has completed more than 3 years of proclaiming “Ease of Doing Business” whereas all aware that on many counts this proverb failed and instead one may appropriately call it “Very Hard to Do Business”.
In this article, we would analyse the different penal provisions of CGST Act, 2017 (hereinafter referred to as “the Act”) covered by Sections 73, 74, 122, 129 & 130 and suggestions to the GST Council for better compliance and "Ease of Doing Business" in real sense.
General penal provisions of Section 73 :-
Where a person not paid or short paid GST or wrongly availed ITC or got erroneous refund by any reason other than fraud or any wilful-misstatement or suppression of facts, then penal provisions of Section 73 made applicable wherein the person is not liable for any penalty subject to payment of GST along with interest within 30 days of service of notice under sub-section (1) of Section 73 and if paying after 30 days of service of notice then liable for a penalty of Rs.10,000/- or equivalent to 10% of GST involved, whichever is higher, i.e. minimum penalty of Rs.10,000/- is applicable. Similar provisions existed in excise regime also.
General penal provisions of Section 74 :-
Whereas any person evades GST or wrongly availed ITC or got erroneous refund by reason of fraud or any wilful-misstatement or suppression of facts then penal provisions of Section 74 made applicable wherein the person is liable for penalty equivalent to the amount of GST involved and if the person pays GST along with interest & penalty equal to 15% of GST involved before service of notice under sub-section (1) of Section 74 then the proceeding deemed to be concluded. Similar provisions existed in excise regime also.
General penal provisions of Section 122(1) :-
Whereas a taxable person supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to such supply; or issues any invoice without supply of goods or services or both in violation of the provisions of the Act; or collects GST but failed to pay the same to the Government beyond a period of 3 months from the due date; or failed to deduct/collect the tax as per provisions of Section 51/52; or takes or utilises ITC without actual receipt of goods or services or both either fully or partially; or takes or distributes ITC in contravention of Section 20; then the person is liable for a penalty of Rs.10,000/- or an amount equivalent to such GST, whichever is higher.
General penal provisions of Section 122(2) :-
(a) The situations of Section 122(1) which are 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 Rs.10,000/- or 10% of the GST involved, whichever is higher. In other words, similar to Section 73.
(b) The situations of Section 122(1) other than above clause (a) shall be liable for a penalty equal to Rs.10,000/- or the GST involved, whichever is higher. In other words, similar to Section 74 to some extent.
General penal provisions of Section 122(3) :-
Any person who –
- (a) Aids or abets any of the offences specified in Section 122(1);
- (b) Acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, orpurchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;
- (c) 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 reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;
- (d) fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry;
- (e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account,
shall be liable to a penalty up to Rs.25,000/-.
General penal provisions of Section 129(1) :-
Where any person transports any goods or stores any goods while they are in transit in contravention of the provisions of this Act or the rules made thereunder, all such goods and conveyance shall be liable to detention or seizure and shall be released –
(a) on payment of applicable GST & penalty equal to GST and, in case of exempted goods, on payment of amount equal to 2% of value of goods or Rs.25,000/- whichever is less, where the owner of the goods comes forward for payment of such GST & penalty;
(b) on payment of applicable GST & penalty equal to 50% of value of the goods reduced by the tax amount paid thereon and, in case of exempted goods, on payment of amount equal to 5% of value of goods or Rs.25,000/- whichever is less, where the owner of the goods does not comes forward for payment of such GST & penalty;
(c) upon furnishing a security equivalent to the amount payable under clause (a) or (b) in such form and manner as may be prescribed;
General penal provisions of Section 129(2) :-
The provisions of Section 67(6) shall, mutatis mutandis, apply for detention & seizure of goods & conveyances, which inter-alia reads as –
“The goods so seized under sub-section (2) shall be released, on a provisional basis, upon execution of a bond and furnishing of a security, in such manner and of such quantum, respectively, as may be prescribed or on payment of applicable tax, interest and penalty payable, as the case may be.” This implies that amount of bond & security depends upon the discretion of GST Officer which needs amendment by GST Council to make a fixed percentage of goods / conveyance.
General penal provisions of Section 129(6) :-
Where the person transporting any goods or the owner of the goods fails to pay the amount of tax and penalty as provided in sub-section (1) within fourteen days of such detention or seizure, further proceedings shall be initiated in accordance with the provisions of Section 130;
General penal provisions of Section 130 :-
Whereas if a person supplies goods without cover of any documents (like, Tax Invoice for Supply or Bill of Supply or Delivery Challan and eWay Bill) and intercepted during transit by GST Officer, or the person did not pay the GST & penalty as per notice GST MOV-7 then the GST Officer issues notice (GST MOV-10) by applying Section 130 of the Act for confiscation of goods or conveyance whereby the person is liable for penalty under Section 122 and in addition to it a redemption fine in lieu of confiscation up to market value of the goods less the GST chargeable thereon (such fine & penalty shall not be less than amount of penalty leviable under Section 129(1), since its upon the discretion of the GST Officer so it may vary from a minimum of Rs.25,000 to maximum of market value of goods less the GST chargeable thereon.
Different scenarios or practical examples :-
A GST person located at Hyderabad supplies goods having taxable value of Rs.10,00,000 & GST payable is 18% to a recipient located at Mumbai without cover of GST Invoice & eWay Bill and during movement of goods the GST officer intercepts the vehicle and issues GST MOV-10 for making following payments :-
- Rs.1,80,000/- towards GST
- Rs.1,80,000/- towards penalty
- Rs.10,00,000/- redemption fine in lieu of goods and
- Rs.1,80,000/- redemption fine in lieu of vehicle
Whether above is proper ?
Opinion : Yes as per present provisions, but redemption fine equal to value of goods is very high and termed as harsh and if the person does not pay any amount then govt would not get the same even in auction of goods & vehicle and therefore the GST Officer should also consider the frequency of such offence by the person, if it is first time then such fine should be on lower side, i.e. say between 5% to 10%, but if its repeated offence by the same person then also the amount of fine should be determined considering its auction value by calling for market price of the goods from different suppliers of same goods and the lowest of same may be considered.
Opinion : In above scenario, if the vehicle would not intercepted during transit, then no GST/penalty or fine payable.
Opinion : In above scenario, suppose the vehicle would not be intercepted during transit, but the evasion of GST detected during search of supplier’s premises, then for same amount the person would need to pay only 15% of GST as penalty in addition to GST, i.e. Rs.1,80,000 as GST and Rs.27,000 as penalty. This looks very funny since for same offence there are different yard sticks is not fair, and the GST Council is requested to amend penal provisions Section 129 / 130 for making Ease of Doing Business as well as better compliance by making them in line with Section 73 & 74.
In above scenario, if the goods are being supplied by an honest taxpayer which are accompanied by GST Invoice but there is typing error in eWay Bill or Part-B have not been filled or such mistake which is other than discussed in para 5 of Circular No.64 dated 14.9.2018 of CBIC, what are the consequences being faced by such honest taxpayer who is having enough accumulated ITC due to exports or inverted tax structure or any other reason ?
Opinion : As per provisions of Section 129 the person has to pay Rs.1,18,000 towards GST and Rs.1,18,000/- towards penalty by Electronic Cash Ledger, or execute bond with security of the amounts at the discretion of GST Officer, which terms to be very harsh for an honest taxpayer who is having accumulated balance of ITC. Therefore, it is suggested to GST Council that the provisions of imposition of penalty be in line or similar to Section 73 in case there is any typing error or eWay Bill expired due to unforseen circumstances during movement of goods in transit (like diversion of roads, traffic jams due to accident on road, change of vehicle, floods, natural calamity, etc. etc.) and only 5% to 10% subject to maximum Rs.5,000/- penalty be applicable for genuine or honest taxpayers, like Rs.500/- proposed vide impugned Circular No.64 dated 14.9.2018.
Instead, no GST is to be demanded when goods accompanied GST Invoice since it is up to the taxpayer whether to pay from Electronic Cash Ledger or from Electronic Credit Ledger, that too during filing of GSTR-3B of the month.
Overall suggestion : The GST Council is requested to take lenient view since GST is in nascent stage in India and consider for reducing penalties related to eWay Bill issues for genuine and honest taxpayers by removing the redundant penal provisions of under the CGST Act, 2017 (both Section 129 & 130) and all penal provisions be dealt with Section 73 (if goods supplied on GST Invoice) or Section 74 (if goods supplied without invoice) to make the phrase “Ease of Doing Business” true. Even looking to economy slow down due to COVID’19, this could be a major relief for all GST Taxpayers if the penalty/redemption-fine(s) related to eWay Bill be rationalised or kept at minimum level by fixing some specific amount.
The above article containing suggestions have been forwarded on twitter @mytax_