GST Penalties, Interest & Offences: Complete Guide

Key Takeaways

• Section 122 prescribes penalties for specified offences: Rs. 10,000 or the tax amount, whichever is higher, for most contraventions.
• Interest under Section 50 is charged at 18% p.a. on net tax liability paid late (reduced from gross liability by the 2022 retrospective amendment).
• Section 129 allows detention and seizure of goods in transit with penalties of 200% of the tax payable.
• Section 132 lists offences attracting criminal prosecution -- including issuing invoices without supply of goods (punishable with imprisonment up to 5 years for tax amounts exceeding Rs. 5 crore).
• Compounding under Section 138 allows settlement of certain offences by paying a compounding amount between 25% to 100% of the tax involved.

Interest on Late Payment -- Section 50

| Scenario | Interest Rate | |----------|---------------| | Tax paid after due date (on net cash liability) | 18% per annum | | ITC wrongly availed and utilised | 24% per annum | | ITC wrongly availed but not utilised | No interest (reversed without interest) |

Interest is calculated from the day following the due date up to the date of actual payment. It is auto-computed in the GST portal when filing belated returns.

Penalties Under Section 122

Section 122(1) lists offences by taxable persons:

• Supplying goods/services without issuing invoice or issuing incorrect invoice
• Collecting tax but not paying to Government within 3 months
• Taking or distributing ITC without actual receipt of goods/services
• Fraudulently obtaining refund
• Furnishing false information during registration
• Obstructing an officer in the discharge of duties
• Transporting taxable goods without prescribed documents

Penalty: Rs. 10,000 or the tax amount involved, whichever is higher.

Section 122(2) covers penalties for persons other than taxable persons (e.g., transporters, warehouse operators) -- penalty up to Rs. 25,000.

Detention, Seizure & Confiscation

Section 129 -- Detention

Goods transported in contravention (no e-way bill, no invoice, tax evasion) may be detained. Release requires:

• Owner of goods: Payment of applicable tax + 100% penalty
• If owner comes forward: Tax + 100% penalty on the goods
• Total penalty exposure: 200% of the tax payable on the detained goods

Section 130 -- Confiscation

Goods liable to confiscation include those supplied/received in contravention with intent to evade tax. The owner may pay a fine in lieu of confiscation (not less than the tax payable and not more than the market value of goods).

Prosecution Under Section 132

The following offences attract prosecution if the tax amount exceeds Rs. 2 crore (reduced from Rs. 5 crore for certain offences):

| Offence | Punishment | |---------|------------| | Tax evasion exceeding Rs. 5 crore | Up to 5 years imprisonment + fine | | Tax evasion between Rs. 2 crore and Rs. 5 crore | Up to 3 years imprisonment + fine | | Tax evasion between Rs. 1 crore and Rs. 2 crore | Up to 1 year imprisonment + fine | | Issuing invoices without supply (fake invoicing) | Up to 5 years imprisonment + fine |

Section 132(6): Offences under this section are cognizable and non-bailable if the tax amount exceeds Rs. 5 crore.

Worked Example -- Section 129 Detention

Scenario: Goods worth Rs. 10,00,000 (taxable at 18% GST) are intercepted during transport without a valid e-way bill in Uttar Pradesh.

| Component | Calculation | Amount | |-----------|-------------|--------| | IGST applicable | 18% of Rs. 10,00,000 | Rs. 1,80,000 | | Penalty (100% of tax) | 100% of Rs. 1,80,000 | Rs. 1,80,000 | | Total payment for release | Tax + Penalty | Rs. 3,60,000 |

The owner must pay Rs. 3,60,000 to secure release. Alternatively, a security bond of equivalent value may be furnished. If the owner does not come forward within the prescribed time, proceedings for confiscation under Section 130 may be initiated.

Landmark Judgement

Case: Shri Bajrang Power and Ispat Ltd. v. Commissioner of CT & GST Court: Orissa High Court Year: 2023 Ruling: The Court held that proceedings under Section 129 (detention) and Section 130 (confiscation) are mutually exclusive and cannot run simultaneously. If goods are released upon payment of tax and penalty under Section 129, confiscation proceedings under Section 130 cannot be subsequently initiated for the same goods and the same contravention. Impact: Clarified the relationship between detention and confiscation provisions, preventing double jeopardy for taxpayers. Once goods are released under Section 129, the matter is settled.

Expert Tip

For detention cases, always insist on a physical verification report by the intercepting officer. Many detention orders are overturned because the officer relied solely on document discrepancies without examining the goods. If goods match the invoice description and the only defect is a procedural e-way bill error, our qualified CAs can help mount a strong representation citing the Satyam Shivam line of judgements distinguishing technical defects from evasion intent.

Section Interconnect

• Previous: Chapter 7 -- Composition Scheme covers the simplified regime with its own penalty considerations.
• Start Over: Chapter 1 -- GST Fundamentals for the foundational GST framework.
• Related: Chapter 5 -- GST Audit & Assessment discusses demand proceedings that often precede penalty imposition.

Frequently Asked Questions

Q1: Can GST penalties be waived? Section 126 provides that no penalty is imposable for minor breaches or procedural requirements, or where the tax involved is less than Rs. 5,000. The officer must consider the degree and circumstances of the breach and give the person an opportunity of being heard before imposing any penalty.

Q2: What is the difference between penalty under Section 73 and Section 122? Section 73/74 penalties arise from demand proceedings (tax not paid, short paid, ITC wrongly availed). Section 122 penalties apply to specific listed offences (like supplying without invoice, obstructing officers). Both can apply to the same transaction in different contexts.

Q3: Can prosecution be compounded under GST? Yes. Section 138 allows compounding of offences under Section 132 (except the offence of issuing invoices without supply and habitual offenders). The compounding amount ranges from a minimum of 25% to a maximum of 100% of the tax involved. Application is made to the Commissioner.

---

Disclaimer: This article is for educational purposes only and does not constitute legal or professional advice. GST laws are subject to frequent amendments. Readers should consult qualified CAs or tax professionals before acting on any information provided here.