The Complete Guide to GST Penalties and Appeals in India

A Step-by-Step Understanding of GST Offenses, Penalties, Prosecution, Appeals and Strategies to Avoid Them

The Goods and Services Tax (GST) regime brought in a unified tax system and compliance procedures across India. However, the complex GST laws also introduced stringent penalties and prosecution provisions for non-compliance. Even minor errors can impose hefty fines or prosecution if not handled carefully.

This comprehensive, guide will explain GST penalties and appeals in simple terms to help businesses stay compliant. We cover:

An Overview of GST Offenses and Penalties

The GST Act classifies 21 types of offenses that attract penalties if committed. Here are some major non-compliance issues that call for penalties:

  • Not registering under GST – This offense attracts a penalty between Rs. 10,000 to Rs. 100,000. Not registering despite being liable is a serious offense.
  • No invoice or false invoice – This can impose a heavy penalty of 10% of tax amount, subject to Rs. 10,000 minimum. Issuing false invoices to avail input credit or evade taxes invites the highest penalties.
  • Wrong GSTIN on invoice – Entering a wrong GSTIN attracts a 100% tax amount penalty, with a minimum of Rs. 10,000. This is considered an act of evasion.
  • Fake financial records – Keeping fake accounts or filing false returns to evade taxes also imposes a 100% tax amount penalty. It can even lead to prosecution.
  • Suppressing sales – Deliberately suppressing sales figures to evade taxes also attracts 100% tax penalty and prosecution.
  • Excess ITC claim – Claiming ineligible input tax credit or excess ITC attracts 10% penalty on the tax amount, with Rs. 10,000 as the minimum. This is a common error to watch out for.
  • Ineligible person taking Composition Scheme – Opting for the Composition Scheme even when ineligible can attract a penalty up to Rs. 10,000. Meet the turnover criteria carefully.

Clearly, the penalties can be quite steep even for seemingly minor errors or omissions. Businesses need to be extra cautious with their GST compliance.

Penalty for Delayed Filing or Non-Filing of GST Returns

Late filing or non-filing of GST returns is another offense that attracts heavy fines. The penalties are as follows:

Late Fee: Delay in filing GST returns attracts a late fee of Rs. 200 per day (Rs. 100 under CGST + Rs. 100 under SGST). The maximum late fee applicable is upto Rs. 5,000 or 0.25% of turnover in the state, whichever is lower.

Non-Filing: If you do not file your GST returns at all, then subsequent returns get blocked. You cannot file further returns until the missing return is filed. This builds up the late fee with each passing month. Ultimately, it can also lead to prosecution after a point.

Hence, it is critical for businesses to file each GST return (GSTR-1, GSTR-3B etc.) before the due date every month/quarter. Even nil returns have to be filed to avoid compliance issues.

Penalties for Tax Evasion and Fraud

More severe penalties are applicable when offenses are committed deliberately to evade taxes or defraud the exchequer. These attract 100% penalty of tax amount evaded along with prosecution.

Issuing fake invoices to wrongly claim ITC, suppressing sales to reduce GST liability, maintaining fake accounts/records to under-report income are some examples of fraudulent activities to evade tax.

The penalty imposed for tax evasion or fraud under GST is 100% of the tax amount evaded or wrongly claimed as credit. A minimum penalty of Rs. 10,000 applies in all cases.

Jail term upto 5 years can also be imposed based on the tax amount involved:

Tax Amount InvolvedJail Term
Rs. 100 – 200 lakhsUpto 1 year
Rs. 200 – 500 lakhsUpto 3 years
Above Rs. 500 lakhsUpto 5 years

In case of prosecution, the offender will have to appear before a Magistrate leading to expensive and tedious litigation. Hence, sufficient precautions must be taken to avoid prosecution triggers.

Search, Seizure and Confiscation Provisions

GST officers also have the power to search premises and seize goods or documents in specific cases.

If the GST officer has reasons to believe that a registered person is hiding goods to evade tax, he can authorize the search and seizure of:

  • Goods at the premises under inspection
  • Documents/account books that indicate suppression of transactions
  • Goods in transit without valid documents (e-way bill, invoice etc.)

The seized goods are released only after payment of the applicable tax and penalty. The GST officer can also levy a penalty equal to 150% of the tax liability by confiscating the goods.

Hence, it is important to maintain transparent records and fully compliant documents/e-way bills during transit. Otherwise, seizure of goods can cause severe disruption to business.

Compounding to Avoid Prosecution

Compounding offers a way to avoid lengthy prosecution and litigation under GST. Here, the offender pays a compounding fee to settle the offense instead of facing criminal prosecution.

The key advantages of compounding are:

  • Avoid multiple court appearances before a Magistrate for prosecution
  • Resolve the issue by paying a fixed compounding fee instead of litigation expenses
  • Settle compounding through written correspondence instead of physical appearance in courts

However, compounding is not permissible for offenses involving tax evasion or fraud beyond Rs. 1 crore. For small errors or omissions without malicious intent, compounding is an effective way to close the issue with a small fine instead of criminal prosecution.

How to Appeal against Penalties

The GST law does provide an elaborate appeals mechanism to contest unfavorable orders. It is a 4-tier appeals process:

First Appeal: Any order passed by the Adjudicating Authority (tax officer) can be challenged by filing a first appeal before the First Appellate Authority

Second Appeal: If the first appeal’s outcome is unsatisfactory, the next appeal lies before the GST Appellate Tribunal against the first appellate authority’s order.

Third Appeal: The third level of appeal against the Appellate Tribunal’s order lies before the High Court.

Fourth Appeal: Finally, the order passed by the High Court can be challenged before the Supreme Court, which is the highest appeals forum.

The first appeal must be filed within 3 months while the higher appeals need to be filed within 6 months. Condonation from delays is permissible in some cases.

One can also apply for Advance Ruling to seek clarification on GST issues before undertaking a transaction. The Authority will give a binding ruling after hearing the applicant. This prevents future litigation.

How to Avoid Penalties and Prosecution under GST

The ideal approach is to avoid the risks of hefty GST penalties and prosecution by ensuring rigorous compliance and self-audits. Some useful tips include:

  • Register under GST as soon as turnover exceeds the prescribed threshold. Avoid penalties for non-registration.
  • File all GST returns on time, even nil returns, to avoid late fees. Delays cascade into bigger issues.
  • Maintain accurate and updated tax records like invoices, books of accounts etc.
  • Reconcile books regularly with GST returns to confirm no gaps or errors.
  • Review and validate every input tax credit claim to ensure it is correct and eligible.
  • Ensure invoices issued and received have complete details as per rules to claim ITC.
  • Conduct voluntary audits and reviews to catch any errors early. Easy to correct mistakes before scrutiny.
  • Seek regular expert help and guidance from Chartered Accountants and Tax professionals to remain compliant.

Also, stay updated with the latest GST notifications and changes to avoid penalties arising from new provisions. Use technology tools to simplify compliance management.

Frequently Asked Questions

Q: What is the penalty for late filing of GST returns?

A: Late filing of GST returns attracts a late fee of Rs. 200 per day (Rs. 100 under CGST + Rs. 100 under SGST) subject to a maximum of Rs. 5,000 or 0.25% of turnover in the state.

Q: Can I appeal against GST penalties?

A: Yes, a 4-tier appeals process is available under GST law to appeal against any adverse order. You can appeal to the First Appellate Authority, GST Appellate Tribunal, High Court and Supreme Court.

Q: What is the penalty for not registering under GST?

A: Not registering under GST despite being liable attracts a penalty between Rs. 10,000 to Rs. 100,000 based on tax liability. Register as soon as turnover exceeds the threshold.

Q: Can I compound offenses instead of prosecution?

A: Yes, compounding allows you to pay a compromise fee and avoid expensive litigation. But compounding is not available for fraud over Rs. 1 crore.

Q: What documents are required during GST transit of goods?

A: You need invoice/delivery note, e-way bill and other documents during transit of goods above Rs. 50,000. Non-compliance can lead to seizure of goods.

Accurate compliance is crucial for businesses handling GST. Minor errors or gaps can impose hefty penalties while serious non-compliance attracts prosecution.

Hence, it is advisable to take professional assistance from reputed platforms like Filingwala to remain updated and steer clear of GST penalties.

Filingwala’s GST compliance packages help you stay on top of your GST filings and obligations through the year. Their team of Tax Experts also assists with GST registrations, returns filing, reconciliations, and other services at affordable pricing.

Leverage technology and expert help to sail through GST compliance smoothly and avoid penalties.

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