GST Offences & Penalties in India: Avoid Late Filing, Interest & Legal Issues

• Goods and Services Tax (GST)
• ||
• November 12, 2019

Do you know that even a one-day delay in GST payment can attract interest and penalties?

Or

What if a taxpayer commits an offence under GST either voluntarily or involuntarily?

The GST law was introduced in India in a strict way with the aim of ‘One Nation, One Tax’ to replace all other indirect taxes. Taxpayers must comply with GST requirements, as delays in payment of tax and filing of returns can result in late fees or interest. Serious offences committed by a taxpayer can lead to both monetary and non-monetary consequences.

In this guide, we explain all GST offences and penalties, GST non-compliance and interest rates for late filing — plus expert tips to stay compliant and avoid legal trouble.

GST Offences

GST offences refer to actions or failures that violate the Goods and Services Tax (GST) law in India. Under this, there are certain acts defined which are called: tax evasion, fraud, non-compliance, or misuse of the GST system.

Key takeaways:

• In simple terms, a GST offence is committed when a taxpayer has done any act that they/are not supposed to do or any act that is not required by the law, which is called a violation of the GST law and termed as a GST offence

• GST is introduced to bring transparency, and if a taxpayer is going against the rules, it is treated as an offense and attracts penalties

What are the offences under GST Section 122?

The law has clearly stated the GST offence list which includes the activities that are considered an offence under GST. Any act of a taxpayer that violates GST law is a GST offence. Let’s understand this list: there are a total of 21 offenses mentioned in the law:

1. A supplier supplies goods or services without a proper invoice or has issued a false invoice.
2. He affects the issuance of an invoice without supplying the goods or services as per the provisions of GST.
3. He fails to submit GST to the government that was deducted by him, within a period of 3 months from the date of such deduction.
4. If tax is collected in contravention of the provisions of GST, he is still liable to pay the same within three months. If such collected tax is not submitted within three months, then it is an offense.
5. He claims input tax credit without receiving the goods or services.
6. He claims and obtains a refund of CGST or SGST by fraud.
7. He does not distribute input tax credit properly or distribute against the provisions of law, being an Input Service Distributor.
8. He does not maintain books of accounts as required by law and produces false documents to evade tax.
9. He understates his sales during the period to evade tax.
10. He supplies goods that are subject to confiscation under the law.
11. He destroys or tampers with the goods that have been confiscated under GST.
12. He obstructs the officer in the performance of his duties.
13. He intentionally destroys or tampers with any evidence or document.
14. He does not deduct TDS wherever applicable, or deducts less than the prescribed amount, or fails to pay it to the government.
15. He does not collect TCS wherever applicable, or collects less than the prescribed amount, or fails to pay the government.
16. He does not register himself, even though he is liable to register under GST.
17. He submits false information during registration.
18. He provides incorrect or false information during assessment proceedings.
19. He uses the GSTIN of any other registered person instead of his own.
20. He transports or affects the movement of goods without proper documentation.
21. He gives wrong information while filing returns or files false returns to evade tax.

If a business or taxpayer knows offences and clearly understands which acts are treated as offences under GST, it helps to avoid unnecessary financial and legal trouble and stay compliant.

GST Penalties for Late Filing and Interest Charged

Penalty is a punishment imposed by law when a taxpayer commits an offence. It can be both monetary and non-monetary.

Offence

Let’s discuss the penalties applicable in different cases of offences committed by the taxpayer

 In cases of significant tax evasion, it can lead to prosecution, arrest, or higher penalties.

Penalties of Late GST Filing/Non-filing

The taxpayer must give 50 (25 CGST + 25 SGST) for delayed filing. Interest will be charged on the unpaid tax amount for delayed filing at an 18% p.a. rate. The interest will be charged from the due date of filing to the date of payment made.

The maximum late fee that can be charged for most of the returns is INR 5000.

If the taxpayer has claimed excess ITC or shown a reduced output tax liability, the applicable interest rate is 24% p.a.

The major issues with non-filing or delayed filing are that the taxpayer cannot file subsequent returns without filing the prior return, and, ultimately, this will result in heavy fines and penalties.

Aiding GST fraud: A fixed penalty of 25000 will be imposed on individuals or entities who assist in GST fraud. This amount is applicable to all parties involved in such fraud, whether they are registered or not.

Let’s look at the cases when the action is termed aiding in GST fraud

• Assist a GST-registered entity in committing fraud

• Goods & services acquired by violating GST regulations

• Invoices are listed in business records, but the business failed to justify them

• Invoices issued by a business that do not comply with GST rules

• Ignoring the order issued to appear before the GST authorities for a hearing

Businesses must ensure compliance with GST regulations to avoid heavy penalties and fines. Non-compliance and breaking the rules not only cost money but also affect the business’s reputation and disrupt operations.

Our professional team guides taxpayers on how to avoid GST penalties, GST return delays and interest by staying alert to the GST law’s deadlines and rules. If you want to know more about the offences and penalties applicable under GST, you can get in touch with us here.

Enforcement and Legal Actions under GST Frauds

To ensure honesty and compliance in the tax system, the GST law gives authorities the power to act against tax evasion and fraud. These actions include inspection and seizure, compounding of offences, prosecution, and arrest in serious cases. Knowing these measures helps taxpayers understand the importance of following GST rules and staying compliant. Let’s understand these types of actions:

1. Inspection and seizure under GST

Inspection and seizure under GST are enforcement tools used by tax authorities to prevent tax evasion and fraud.

The joint commissioner of CGST/SGST has the authority to order an inspection of the business premises if they suspect tax evasion, excessive input tax credit claims, or fraudulent activities.

If, during or after inspection, the officer has strong reasons to believe that the business is hiding goods that should be confiscated or keeping important documents or books of accounts, they can carry out a search and seizure. 

This means they can enter the premises, search for those items, and take (seize) the goods or documents as evidence to be used in legal or tax proceedings.

2. Compounding of offences under GST

Compounding of offences under GST means giving a person who has committed a GST offence the option to pay a compounding fee instead of facing a full legal trial.

A person who has committed an offence under GST can pay a compounding fee, which will not exceed the maximum applicable fine under GST. It saves time and money for the person and the authorities, as the person need not undergo a lengthy legal trial or appear before a magistrate. Compounding is allowed if the tax value involved in the case does not exceed one cr.

3. Prosecution under GST

Prosecution under GST is the legal action taken by authorities against the person who has committed a GST offence and has the intention of fraud.

4. Arrest under GST

The commissioner of CGST/SGST may order the arrest of a person if he is suspected of serious GST offences. The person needs to be present before the magistrate within 24 hours of arrest and informed of the reason for their arrest in case of a cognizable offence. Cognizable offences are those in which the police can arrest without a warrant.

Appeal Process Under GST Offences

If a person feels unsatisfied or disagrees with the decisions of the GST authorities, they can file an appeal. The appeal process under the Goods and Services Tax (GST) law follows a hierarchical structure, starting from the First Appellate Authority and potentially escalating to the Supreme Court.  Here are the levels of authority under the appeal process:

• First Appellate Authority- The first appeal by a person is filed here

• National Appellate Authority- The person can challenge the decision at the first appellate authority here

• High Court- The State high court handles the case and appeals against the decision if the person is not satisfied with the decision of the national appellate authority

• Supreme Court- The final level authority, and the decision of the Supreme Court is binding and final under the GST rules

To avoid a lengthy appeal process, the taxpayer can seek clarification through an advance ruling from the GST authorities. Understanding appeals under GST can help taxpayers seek fairness in the taxation framework and maintain compliance.

How to avoid GST penalties & interest in India?

Let’s look at some practical tips to get ready beforehand to avoid penalties & interest under GST-

• Make sure to file your GST returns on time. You can set reminders for the due dates

• Keep all your documents, such as invoices, input tax credit claims, and GST-related papers, ready to verify accuracy and avoid incorrect filing

• Regularly reconcile your books of accounts with the documents to identify mismatches and correct them in time

• If any notice is received from the authorities, make sure to respond in time to avoid further legal issues

When it comes to GST compliance, it is always advisable to consult a tax professional or a chartered accountant, as it is not easy for the taxpayer to understand all tax-related matters on their own.

Conclusion

GST is an essential part of businesses operating in India. It is strict in its procedures and deadlines. Non-compliance can lead to serious negative consequences for taxpayers. 

The only key to preventing these consequences is proactive compliance with the law. Instead of dealing with notices from authorities and then paying unnecessary penalties and interest, which will add extra cost to your business, it is advisable to implement strong GST practices from the beginning.

At Mercurius, our dedicated team simplifies GST compliance by filing GST returns on time and handling your ITC claims effectively. We also provide other services, such as company formation & registration, bookkeeping/accounting, taxation, auditing, and assurance services. For further details, you can contact us here.