The Goods and Services Tax (GST) regime in India has brought about significant changes in the way businesses function and comply with taxation laws. One such aspect that has gained importance under the new tax regime is the imposition of penalties for contraventions and non-compliance with the provisions of the GST Act and Rules. In this article, we will discuss the concept of General Penalty in GST Laws, the relevant sections, and the latest High Court Judgements that impact the imposition of such penalties. We will also touch upon the instances where the courts have removed or reduced penalties in specific cases and the importance of displaying GST registration numbers as per Rule 18 of the GST Rules.
Section 125: General Penalty under GST Laws
Section 125 of the Central Goods and Services Tax (CGST) Act provides for the imposition of a general penalty on any person who contravenes any provision of the GST Act or rules made thereunder, for which no specific penalty is separately provided. The maximum penalty that can be imposed under this section is twenty-five thousand rupees.
When is General Penalty applicable?
The General Penalty under Section 125 is applicable in cases where a person contravenes any provision of the GST Act or rules made thereunder, and no separate penalty has been prescribed for that specific contravention. This serves as a residual penalty provision, ensuring that any violation of the GST laws does not go unpunished.
Any offence that does not have a specific penalty prescribed anywhere cannot be let off without penal consequences. Section 125 is a general penalty provision under the GST law for cases where no separate penalty is prescribed under the Act or rules.The penalty in under this section may extend to Rs. 25,000 each for CGST and SGST/UTGST or Rs. 50,000 for IGST.
Section 126: General Disciplines Related to Penalty
Section 126 of the CGST Act lays down certain guiding principles that must be followed while imposing penalties under the GST regime. These principles ensure that the penalties are imposed fairly, objectively, and in a proportionate manner.
Key Points of Section 126
- No penalty for minor breaches: The Act specifies that no penalty should be imposed for minor breaches of tax regulations or procedural requirements, particularly in cases where the contravention is easily rectifiable and has been made without fraudulent intent or gross negligence.
- Penalty commensurate with the breach: The penalty imposed under the GST Act should depend on the facts and circumstances of each case and should be proportionate to the degree and severity of the breach.
- Opportunity of being heard: No penalty should be imposed on any person without giving them an opportunity of being heard.
- Voluntary disclosure as a mitigating factor: If a person voluntarily discloses the circumstances of a breach of the tax law, regulation, or procedural requirement before the discovery of the breach by the tax authorities, the proper officer may consider this fact as a mitigating factor while quantifying the penalty.
- Exceptions: The principles laid down in Section 126 do not apply to cases where the penalty specified under the GST Act is either a fixed sum or expressed as a fixed percentage.
High Court Judgements to Remove General Penalty
There have been instances where the High Courts in India have intervened and removed or reduced the general penalty imposed under Section 125 of the GST Act. Two notable judgments in this regard are as follows:
- Pallavi Gulati and Ors. vs. Puri Constructions Pvt. Ltd.: In this case, the National Anti-Profiteering Authority imposed a penalty on the respondent for not passing on the benefit of input tax credit (ITC) to the buyers of flats in their project. The respondent was held liable for a penalty under Section 122(1)(i) of the CGST Act. However, the High Court observed that the respondent had not acted deliberately in defiance of the law and that their conduct was neither dishonest nor in conscious disregard of their statutory obligation. Thus, the penalty was removed. [ Pallavi Gulati vs Puri Constructions Pvt. Ltd. (National Anti-Profiteering Authority) Case No. 30/2019, dated 08-May-2019; MANU/NT/0029/2019]
- Jaipur IPL Cricket Pvt. Ltd. and Ors. vs. Sp. Director Directorate of Enforcement: In this case, the Appellate Tribunal for FEMA observed that the imposition of penalty is discretionary in nature, and the exercise of such discretion must be guided by fair, objective, and relevant considerations. The tribunal further held that the exercise of discretion while imposing a penalty must not be based on arbitrary, vague, or fanciful considerations. [Jaipur IPL Cricket Pvt. Ltd. and Ors. vs. Sp. Director Directorate of Enforcement (Appellate Tribunal FEMA) Case No. FPA-FE-9/MUM/2013 dated 11-Jul-2019; (2019) 8 TMI 133 (ATFEMA)]
Displaying GST Registration Number: Rule 18 of GST Rules
Rule 18 of the GST Rules mandates that every registered person must display their GST registration certificate and Goods and Services Tax Identification Number (GSTIN) on the name board at their principal place of business. Non-compliance with this rule may attract a penalty under Section 125 of the CGST Act.
- The GST registration number must be displayed prominently at the place of business.
- Any business correspondence with customers, such as invoices and quotes, must include the GST registration number.
- Businesses with multiple branches must display the respective GST registration numbers at each location.
- The GST number must be printed on signboards or notices displayed at prominent locations within the business premises.
- If the business operates online, the GST registration number must be clearly displayed on the business website.
- Non-compliance with these rules may result in penalties as specified in the CGST Act.