Ajustment of Credit of Penalty paid during Transport

Hi YK Associates,

Regarding your query on adjustment of GST penalty paid during transport against your GST payable:

Key Point:

GST penalty paid cannot be claimed as Input Tax Credit (ITC) or adjusted against GST liability.

Explanation:

1. Penalty under GST is a cess or fine and is not considered as input tax.
   It is a punitive payment for non-compliance and hence, ineligible for ITC.

2. As per Section 17(5) of CGST Act, 2017, ITC is not allowed on the following:

   • Motor vehicles used for transportation (except specified cases)

   • Goods and services used for personal consumption

   • Penalty or late fees paid under GST law

3. The penalty paid due to E-way bill mismatch is classified as a penalty/fee and thus cannot be adjusted against your output tax liability or claimed as credit.

4. The penalty challan generated under a temporary ID is just the mode of payment; it does not convert the penalty into a recoverable credit.

What Should You Do?

• Pay the GST tax payable of Rs. 22,585/- separately while filing your May 2023 return.

• Treat the penalty amount as a business expense in your books but do not claim ITC on it.

• Maintain records of penalty payment and challan for audit and compliance purposes.

Summary: