An offender has to pay a penalty amount of tax evaded/short deducted etc., i.e., 100% penalty, subject to a minimum of Rs. 10,000.
Not only the taxable person but any person who-
- Helps any person to commit fraud under GST
- Acquires/receives any goods/services with full knowledge that it is in violation of GST rules
- Fails to appear before the tax authority on receiving a summons
- Fails to issue an invoice according to GST rules
- Fails to account/vouch any invoice appearing in the books
-Will have to pay a penalty extending upto Rs. 25,000
For cases of fraud, additional penalties as follows-
|Tax amount involved||100-200 lakhs||200-500 lakhs||Above 500 lakhs|
|Jail term||Upto 1 year||Upto 3 years||Upto 5 year|
|Fine||In all three cases|
For more details please read our article on prosecution.
For other cases (no intention of fraud or tax evasion)
An offender not paying tax or making short-payments has to pay a penalty of 10% of the tax amount due subject to a minimum of Rs.10,000.
[Note: In the earlier model law, the person was penalized if he made short payments “repeatedly”, i.e., in 3 returns out of 6 consecutive tax periods. This has been removed from the revised model law. So it stands, even first-time offenders may be liable to penalty.]
Therefore, the penalty will be high at 100% of the tax amount when the offender has evaded i.e., where there is a deliberate fraud.
For other genuine errors, the penalty is 10% of tax.
Any offense under GST for which penalty is not specifically mentioned will be liable to a penalty extending Rs. 25,000.
General rules regarding penalty
These rules of penalty are generally the same in all laws whether tax laws or contract or any other law.
- Every taxable person, on whom the penalty is imposed, will be served with a show cause notice first and will have a reasonable opportunity of being heard.
- The tax authority will give an explanation regarding the reason for penalty and the nature of offense
- When any person who voluntarily discloses a breach of law, the tax authority may use this fact to reduce the penalty
There will not be substantial penalties for minor breaches (tax amount is less than Rs.5000) or errors which are easily rectifiable and clearly made without any motive of fraud. The tax authority may issue a warning in such cases.
This will be beneficial to businesses, especially SMEs, who may make genuine mistakes especially in the first few months of GST implementation. Being penalized for genuine errors will be a hard blow to the SMEs who do not have as many resources as the larger organizations to adapt to GST.
Persons supplying/receiving goods in contravention of GST law will have such goods confiscated.
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