What would be the quantum of penalty leviable under Section 122(1)(xvi)
This query is : Resolved
11 September 2025
A taxpayer has been issued a Show Cause Notice on the following grounds:
Wrongful availment of Input Tax Credit of ₹10,00,000/- in contravention of Section 16 of the CGST Act, 2017, proposed to be disallowed, demanded, and recovered under Section 74(1) of the CGST/GGST Act, 2017 read with Section 20 of the IGST Act, 2017.
Recovery of interest at the applicable rate under Section 50 of the CGST/GGST Act, 2017 read with Section 20 of the IGST Act, 2017.
Imposition of penalty under Section 74(1) of the CGST/GGST Act, 2017 read with Sections 122(1)(vii), 122(1)(x), and 122(2)(b) of the CGST/GGST Act, 2017 read with Section 20 of the IGST Act, 2017.
Imposition of separate penalty under Section 122(1)(xvi) of the CGST/GGST Act, 2017 for failure to maintain prescribed records at the principal place of business declared in GST registration.
Findings (charges proved):
Demand of ineligible ITC of ₹10,00,000/- confirmed.
Interest on the above demand confirmed under Section 50.
Penalty of ₹10,00,000/- imposed under Section 74(1).
Issue for Determination:
What should be the separate penalty under Section 122(1)(xvi)? Should it be ₹20,000/- (fixed penalty for non-maintenance of records) or ₹10,00,000/- (linked with tax evasion amount)?
If the penalty is quantified as ₹10,00,000/-, why should it not be restricted in terms of Section 75(13) of the CGST Act, 2017?
Alternatively, can the penalty under Section 122(1)(xvi) be limited to ₹20,000/- considering that the offence of non-maintenance of records is of a non-quantifiable nature?
Thank you in advance.
Wrongful availment of Input Tax Credit of ₹10,00,000/- in contravention of Section 16 of the CGST Act, 2017, proposed to be disallowed, demanded, and recovered under Section 74(1) of the CGST/GGST Act, 2017 read with Section 20 of the IGST Act, 2017.
Recovery of interest at the applicable rate under Section 50 of the CGST/GGST Act, 2017 read with Section 20 of the IGST Act, 2017.
Imposition of penalty under Section 74(1) of the CGST/GGST Act, 2017 read with Sections 122(1)(vii), 122(1)(x), and 122(2)(b) of the CGST/GGST Act, 2017 read with Section 20 of the IGST Act, 2017.
Imposition of separate penalty under Section 122(1)(xvi) of the CGST/GGST Act, 2017 for failure to maintain prescribed records at the principal place of business declared in GST registration.
Findings (charges proved):
Demand of ineligible ITC of ₹10,00,000/- confirmed.
Interest on the above demand confirmed under Section 50.
Penalty of ₹10,00,000/- imposed under Section 74(1).
Issue for Determination:
What should be the separate penalty under Section 122(1)(xvi)? Should it be ₹20,000/- (fixed penalty for non-maintenance of records) or ₹10,00,000/- (linked with tax evasion amount)?
If the penalty is quantified as ₹10,00,000/-, why should it not be restricted in terms of Section 75(13) of the CGST Act, 2017?
Alternatively, can the penalty under Section 122(1)(xvi) be limited to ₹20,000/- considering that the offence of non-maintenance of records is of a non-quantifiable nature?
Thank you in advance.
16 September 2025
The separate penalty under Section 122(1)(xvi) of the CGST Act, 2017 for failure to maintain prescribed records should ordinarily be a fixed penalty of ₹10,000, not ₹10,00,000, as the provision is not linked to the quantum of tax evasion. When the offence is only non-maintenance of records, and there is no directly quantifiable tax evasion solely due to this lapse, courts and authorities have generally held the penalty to be the fixed amount specified by law.
16 September 2025
Section 122(1)(xvi): Penalty Nature
Section 122(1)(xvi) prescribes a fixed penalty which may extend to ₹10,000 for non-maintenance of books or records, and not an amount equivalent to tax evaded.
Higher quantum penalties (linked to the tax amount) under Section 122(1) apply for specific fraudulent activities, but non-maintenance of records is considered a procedural lapse unless it directly leads to tax evasion.
Section 122(1)(xvi) prescribes a fixed penalty which may extend to ₹10,000 for non-maintenance of books or records, and not an amount equivalent to tax evaded.
Higher quantum penalties (linked to the tax amount) under Section 122(1) apply for specific fraudulent activities, but non-maintenance of records is considered a procedural lapse unless it directly leads to tax evasion.
16 September 2025
Section 75(13): Prohibition on Double Penalty
Section 75(13) of the CGST Act, 2017 prohibits the imposition of any penalty for the same act or omission where a penalty has already been imposed under Section 73 or Section 74.
If the primary act (wrongful availment of ITC) is already penalized under Section 74(1), no further penalty for the same act can be imposed under another provision. However, if non-maintenance of records is established as a separate act (not the same as availing ineligible ITC), only the fixed penalty for that specific lapse applies.
Section 75(13) of the CGST Act, 2017 prohibits the imposition of any penalty for the same act or omission where a penalty has already been imposed under Section 73 or Section 74.
If the primary act (wrongful availment of ITC) is already penalized under Section 74(1), no further penalty for the same act can be imposed under another provision. However, if non-maintenance of records is established as a separate act (not the same as availing ineligible ITC), only the fixed penalty for that specific lapse applies.
16 September 2025
Quantum of Penalty: Fixed or Variable?
For non-maintenance of records, the penalty is not quantifiable by the amount of tax availed or evaded; thus, it should be limited to ₹10,000 as a fixed penalty, rather than ₹10,00,000.
Penalties linked to the tax amount (like ITC wrongly availed or tax evaded) are explicitly provided under different clauses and do not extend to record-keeping violations.
For non-maintenance of records, the penalty is not quantifiable by the amount of tax availed or evaded; thus, it should be limited to ₹10,000 as a fixed penalty, rather than ₹10,00,000.
Penalties linked to the tax amount (like ITC wrongly availed or tax evaded) are explicitly provided under different clauses and do not extend to record-keeping violations.
16 September 2025
Judicial and Administrative Clarification
Courts have specifically clarified that where the offence is simply non-maintenance of records, the penalty cannot be increased to match the tax demand in the absence of direct linkage, and should be restricted to the statutory fixed maximum.
The penalty under Section 122(1)(xvi) should be limited to ₹10,000 for non-maintenance of records, not ₹10,00,000. Imposing a penalty linked to tax evasion for this particular procedural lapse is not supported by the statutory scheme or judicial interpretations. Where a penalty under Section 74(1) is already imposed for the main offence, the penalty for the separate maintenance offence must not be duplicated or inflated under Section 75(13).
Courts have specifically clarified that where the offence is simply non-maintenance of records, the penalty cannot be increased to match the tax demand in the absence of direct linkage, and should be restricted to the statutory fixed maximum.
The penalty under Section 122(1)(xvi) should be limited to ₹10,000 for non-maintenance of records, not ₹10,00,000. Imposing a penalty linked to tax evasion for this particular procedural lapse is not supported by the statutory scheme or judicial interpretations. Where a penalty under Section 74(1) is already imposed for the main offence, the penalty for the separate maintenance offence must not be duplicated or inflated under Section 75(13).
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17 September 2025
thankyou so much for you opinion.
17 September 2025
You are welcome...
19 September 2025
Good Luck...
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