Demand & Recovery and Offences & Penalties

UNIT IV–DEMAND & RECOVERY AND
OFFENCES & PENALTIES

❖ INTRODUCTION
The Goods and Service Tax is payable on a self-assessment basis. If the assessee pays the tax
on self-assessment correctly then there will not be any problem. If there is any short payment
or wrong utilization of input credit, then the GST authorities will initiate demand and recovery
provisions against the assessee.
Provisions of demand under GST Act and the consequent recovery provisions are similar to
the provisions of Service Tax and Central ExciseAct.
❖ DETERMINATION OF TAX NOT PAID/SHORT PAID/ERRONEOUSLY

REFUNDED / ITC WRONGLY AVAILED/UTILIZED
Section 73 applies to non-fraud cases when:
∙ Tax is unpaid/short paid or,

∙ Refund is wrongly made or,
∙ Input tax credit has been wrongly availed/utilised
——for any reason, other than fraud etc. i.e., there is no motive to evade tax.
The proper officer (i.e., GST authorities) will serve a show cause notice on the taxpayer. They
will be required to pay the amount due, along with interest and penalty.
✔ Time Limit
The proper officer is required to issue the show cause notice 3 months before the time
limit. The maximum time limit for the order of payment is 3 years from the due date for
filing of annual return for the year to which the amount relates.
✔ For Other Tax Periods

Once the above notice has been issued, the proper officer can serve a statement,
with details of any unpaid tax/wrong refund etc. for other periods not covered in the
notice. A separate notice does not have to be issued for each tax period.
✔ Voluntary Tax Payment

A person can pay tax along with interest, based on his own calculations (or the
officer’s calculations), before the notice/statement is issued and inform the officer in
writing of the same. The officer will not issue any notice in this case.
However, if the officer finds that there is short payment, they can issue a notice for the
balance amount.
✔ No Penalty
Yeshwant Mahavidyalaya, Nanded
If the taxpayer pays all their dues within 30 days from date of notice, then the penalty
will not be applicable. All proceedings (excluding proceedings u/s 132,i.e.,
prosecution) regarding the notice will be closed.
✔ Penalty in Other Cases

The tax officer will consider the taxpayer’s representation and then calculate interest
and penalty. Penalty will be 10% of tax subject to a minimum of Rs. 10,000. The tax
officer will issue an order within three years from the due date for filing of relevant
annual return.
✔ Opinion
The penalty will be applicable irrespective of whether or not the taxpayer pays before
or after SCN. If he is paying 30 days after due date of payment, he will be liable to pay
10% penalty. This is a rather harsh provision considering GST is completely new and
there will be many taxpayers making genuine mistakes. Taxpayers will be penalised for
making genuine errors.
❖ NON-PAYMENT/SHORT PAYMENT ETC.. ON ACCOUNT OF REASONS

OF FRAUD
This section applies to cases of tax evasion involving:
∙ fraud
∙ wilful misstatement
∙ suppression of facts
This results in:
∙ unpaid/short paid tax or,

∙ wrong refunds or,
∙ wrongly availed/utilized input tax credit
In such cases, the proper officer will serve a show cause notice to the taxpayer. They will be
required to pay the amount due along with interest and penalty.
✔ Time Limit

For cases of fraud, the proper officer is required to issue the notice 6 months before the
time limit. The maximum time limit is 5 years from the due date for filing of annual return
for the year to which the amount relates.
✔ For Other Tax Periods

Once the above notice has been issued, the proper officer can serve a statement,
with details of any unpaid tax/wrong refund etc. for other periods not covered in the
notice. A separate notice does not have to be issued for each tax period.
✔ Voluntary Tax Payment

If the person pays tax along with interest and a 15% penalty based on their own
calculations (or the officer’s calculations) before the notice/statement is issued and
informs the officer in writing, then the officer will not issue any notice.
However, if the officer finds that there is short payment, they can issue a notice for the
balance amount.
If the taxpayer pays all their dues and a penalty of 25% within 30 days from the date of
the notice, then all proceedings (excluding proceedings u/s 132,i.e.,
prosecution)regarding the notice will be closed.
✔ Issue of Order
The tax officer will consider the taxpayer’s representation and then calculate interest
and penalty and issue an order.
The order must be issued within five years from the due date for filing of the relevant
annual return. [For wrong refunds the order must be issued within five years from the
date of the wrong refund].
If the taxpayer pays all their dues and a penalty of 50% within 30 days from the date of
order, then all proceedings (including prosecution) regarding the notice will be closed.
❖ OFFENCIES AND PENATIES UNDER GST
Goods and Services Tax (GST) is not merely a tax reform. It’s a complete overhaul of the pre
existing indirect tax regime. This is because it makes way for a simpler indirect tax system and
an enhanced compliance. Simplicity in GST regime stems from integration of a host of
indirect taxes levied previously. And the enhanced compliance results from digitization
brought about in implementing GST. Digitization involves shifting each aspect of procedural

compliance online. Each aspect of compliance has been duly automated including
application for registration, return filing, or refund processing.
And, to further aid effective implementation of the GST system, penal provisions for law
offenders have been laid down. These penalties under GST Penalty are levied to prevent
evasion of tax and to punish those who breach the law.
✔ What is an offence?
An offence is a breach of a law or rule, i.e., an illegal act.
Similarly, an offence under GST is a breach of the provisions of GST Act and GST Rules.
✔ What are the offences under GST?

There are 21 offences under GST. For easy understanding, we have grouped them as-
∙ Fake/wrong invoices
1. A taxable person supplies any goods/services without any invoice or issues a false
invoice.
2. He issues any invoice or bill without supply of goods/services in violation of the
provisions of GST
3. He issues invoices using the identification number of another bonafide taxable
person
∙ Fraud
4. He submits false information while registering under GST
5. He submits fake financial records/documents or files fake returns to evade tax
6. Does not provide information/gives false information during proceedings
∙ Tax evasion
7. He collects any GST but does not submit it to the government within 3 months 8. Even
if he collects any GST in contravention of provisions, he still has to deposit it to the
government within 3 months. Failure to do so will be an offence under GST. 9. He
obtains refund of any CGST/SGST by fraud.
10.He takes and/or utilizes input tax credit without actual receipt of goods and/or
services
11.He deliberately suppresses his sales to evade tax
∙ Supply/transport of goods
12.He transports goods without proper documents
13.Supplies/transports goods which he knows will be confiscated
14.Destroys/tampers goods which have been seized
∙ Others
15.He has not registered under GST although he is required to by law
16.He does not deduct TDS or deducts less amount where applicable.

17.He does not collect TCS or collects less amount where applicable.
18.Being an Input Service Distributor, he takes or distributes input tax credit in violation
of the rules
19.He obstructs the proper officer during his duty (for example, he hinders the officer
during the audit by tax authorities)
20.He does not maintain all the books that he required to maintain by law
21.He destroys any evidence
For the 21 offences above, for fraud cases, penalty will be 100% (minimum Rs. 10,000)
✔ Penalties under GST

The word “penalty” is not specifically defined in GST and so it takes the meaning from
various judicial pronouncements and principles of jurisprudence.
A penalty is a punishment imposed by law for committing an offence or failing to do
something that was the duty of a party to do.
A penalty can be both corporal or pecuniary, civil or criminal.
Both corporal (jail) and pecuniary (monetary) penalties are applicable under GST.
❖ PENALTY FOR CERTAIN OFFENCES

Type of offence Amount of penalty
Penalty for delay in filing GSTR Late fee is Rs. 100 per day per Act. So it is 100
under CGST & 100 under SGST. Total will be Rs.
200/day. Maximum is Rs. 5,000. There is no late fee
on IGST.
Penalty for not filing GSTR Penalty 10% of tax due or Rs. 10,000
-whichever is higher
Penalty for committing a fraud Penalty 100% of tax due or Rs. 10,000
(High value fraud cases also have jail term)*
Penalty for helping a person to Penalty extending uptoRs. 25,000*

commit fraud
Penalty for opting for composition Demand & recovery provisions of sections 73 & 74
scheme even though he is not will apply.
eligible
∙ Fraud case

Penalty 100% of tax due or Rs. 10,000
∙ Non-fraud case
Penalty 10% of tax due or Rs. 10,000

Penalty for wrongfully charging Penalty 100% of tax due or Rs. 10,000
GST rate— charging higher rate -whichever is higher
(if the additional GST collected is not submitted
with the Govt.)
Penalty for not issuing invoice Penalty 100% of tax due or Rs. 10,000
Penalty for not registering under GST Penalty 100% of tax due or Rs. 10,000
Penalty for incorrect invoicing Penalty of Rs. 25,000
✔ Situations where there is no penalty (but interest may apply)

Type of offence Action
Penalty for incorrect type of GST No penalty. Pay the correct GST and get refund
charged (IGST instead of CGST/SGST) of the wrong type of GST paid earlier
Penalty for incorrect filing of GSTR No penalty. But interest @18% on shortfall amount
Penalty for delay in payment of ITC will be reversed if not paid within 6
invoice. months. No penalty as such
Penalty for wrongfully charging GST Interest @18% applicable on the shortfall
rate— charging lower rate
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.
For the 21 offences above, for fraud cases, penalty will be 100% (minimum Rs. 10,000).

✔ *What is the penalty for helping someone to commit fraud under GST?
Not only the taxable person but any person who does the following will have to pay a
penalty extending upto Rs. 25,000
∙ 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
✔ *Are there any jail punishments?

Yes, GST has corporal punishments (jail) for high value fraud cases as follows
Tax amount 100-200 lakhs 200-500 lakhs Above 500 lakhs
involved
Jail term Up to 1 year Up to 3 years Up to 5 year
Fine In all three cases
✔ Penalty 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.
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 non-fraud cases, the penalty is 10% of tax.
✔ General Penalty
Any offence under GST for which penalty is not specifically mentioned will be liable to a
penalty extending Rs. 25,000.

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UNIT IV–DEMAND & RECOVERY AND

OFFENCES & PENALTIES

❖ DETERMINATION OF TAX NOT PAID/SHORT PAID/ERRONEOUSLY

Section 73 applies to non-fraud cases when:

∙ Tax is unpaid/short paid or,

✔ For Other Tax Periods

✔ Voluntary Tax Payment

✔ Penalty in Other Cases

❖ NON-PAYMENT/SHORT PAYMENT ETC.. ON ACCOUNT OF REASONS

This section applies to cases of tax evasion involving:

This results in:

∙ unpaid/short paid tax or,

Yeshwant Mahavidyalaya, Nanded

✔ For Other Tax Periods

✔ Voluntary Tax Payment

❖ OFFENCIES AND PENATIES UNDER GST

Yeshwant Mahavidyalaya, Nanded

✔ What are the offences under GST?

Yeshwant Mahavidyalaya, Nanded

✔ Penalties under GST

❖ PENALTY FOR CERTAIN OFFENCES

Penalty for helping a person to Penalty extending uptoRs. 25,000*

Yeshwant Mahavidyalaya, Nanded

Penalty 10% of tax due or Rs. 10,000

Penalty for incorrect invoicing Penalty of Rs. 25,000

✔ Situations where there is no penalty (but interest may apply)

Yeshwant Mahavidyalaya, Nanded

∙ Helps any person to commit fraud under GST

✔ *Are there any jail punishments?

Jail term Up to 1 year Up to 3 years Up to 5 year

Fine In all three cases

✔ Penalty for Other Cases (no intention of fraud or tax evasion)

Yeshwant Mahavidyalaya, Nanded

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