Section 122 of CGST Act- Penalty for Certain Offences

Section 122 of CGST Act is crucial for every business owner. This will help them to be aware of penalties for specific offences. It includes the penalty of improper invoicing, wrongful input tax credit claims, or non-registration. So, this section acts as a vital part of the GST framework in India. Businesses will be able to avoid penalties and follow the GST rules. In this blog, you will get a guidance on Section 122 of the CGST Act.

What is Section 122 of CGST Act?

Section 122 of CGST Act, 2017, is generally outlines the penalties for 21 specific taxable offenses. This mainly consists of:

a) Fake Invoicing

b) Tax evasion

c) Improper or wrong Input Tax Credit

d) Non-registration

e) Other incorrect document-related offenses.

The registered business must have to pay the penalties of Rs. 10, 000 or 100% of tax amount evaded, whichever is higher.

Purpose and Objectives of Section 122 of CGST Act

Here are the key purposes and objectives of Section 122 of CGST Act:

a) Combating Fake Invoicing and Fraud

This is considered as the core focus of Section 122 of the CGST Act. It penalizes issuing invoices without receiving goods or services. The penalty means a fine of Rs. 10,000 or the amount of tax involved, whichever is higher. This will help to reduce fraudulent ITC claims.

b) Protecting Government Revenue

Heavy penalties applies to collecting tax without paying within three months or for wrongful ITC/refunds. This helps to protect the revenue of the government.

c) Regulating E-commerce Operations (Section 122(1B))

This is a clause that is effective from October 1, 2023. E-commerce operators will get punished. They will get punished for allowing unregistered or ineligible persons to make inter-state supplies through their platforms. This means, it punishes Electronic Commerce Operators (ECOs). This applies if the unregistered persons are not exempted.

d) Targeting Beneficiaries/Masterminds (Section 122(1A))

According to Section 122 (1A), it focuses on "masterminds" or individuals that deals with fake invoicing scams. This is mainly clarified through recent rulings. So, it targets any person who are involved in the benefit of fraudulent transactions. This does not focus on the company or person issuing the invoice.

e) Ensuring Compliance and Documentation

You can face penalties for not keeping good records, giving wrong information, or not registering when required.

f) Distinguishing Fraud from Errors (Section 122(2) (a) and 122(2) (b))

The law makes a difference between tax evasion with intent (fraud or willful misstatement) and non-fraudulent errors. Each category has different penalty structures. Penalty under Section 122 may be initiated separately from demand proceedings under Sections 73 or 74, subject to legal safeguards.

Sub-sections of Section 122 of CGST Act

Listed below are the sub-sections of Section 122 of CGST Act:

1) Section 122(1) - Offences by Taxable Persons

This mainly covers the 21 specific offenses. The offenses can include the following:

• The supply of goods or services without an invoice or using fake invoices.

• Issuing invoice without actually providing goods or services.

• Collecting tax but not giving it to the government within three months.

• According to Section 51, failure to deduct or paying tax.

• A person who fails to collect or pay tax under Section 52.

• Not collecting or paying tax as required by Section 52.

• Claiming an input tax credit without getting goods or services.

• Wrongly getting tax refunds.

• Misusing or sharing tax credits.

• Giving false financial records or documents to avoid paying tax.

• Not registering for GST when required.

• Providing false registration information.

• Stopping tax officers from doing their jobs.

• Moving taxable goods without the right papers.

• Suppression of taxable turnover / value.

• Not keeping the necessary records and documents.

• Giving improper information or required documents.

• Supplying or storing goods that can be taken away.

• Using someone else's registration number on invoices.

• Changing or destroying evidence or documents.

• Tampering with goods that have been taken or held.

Thus, the penalty is charged to Rs. 10, 000 or the amount of tax evaded, whichever is higher.

2) Section 122(1A) - Penalty on Beneficiaries

There is a punishment who causes, benefits from, or keeps the benefits of the transactions listed in 122(1)(i), (ii), (vii), or (ix). Here are the clauses:

Clause (i)

Supplies goods or services without an invoice, or with a false/incorrect invoice.

Clause (ii)

Issues an invoice/bill without actual supply of goods/services (fake invoicing).

Clause (vii)

It utilizes Input Tax Credit (ITC) without receiving goods or services.

Clause (ix)

Takes or distributes ITC in contravention of Section 20 (Input Service Distributor rules).

3) Section 122(1B) - E-commerce Operators

This section mainly targets an e-commerce operator through its platform. Thus,

An e-commerce operator u/s 52 of the CGST Act, through its platform:

• It allows an unregistered or unauthorized persons to trade under the GST Act.

• This applies to inter-state supply of goods by persons who are not eligible for it.

• A person who fails to report correct details for such trades.

The penalty is Rs. 10, 000 or the tax liability in case the supplier done with registered persons, whichever is higher.

4) Section 122(2) - Short Payment/Wrongful ITC

This generally covers:

• Non-Fraud Cases

The penalty is Rs. 10,000 or 10% of the tax owed, whichever amount is bigger.

• Fraud or Willful Misstatement Cases

There is a penalty of Rs. 10, 000 or the full tax due, whichever is more

5) Section 122(3) - Aiding or Abetting

This charges a penalty of up to Rs. 25, 000 on anyone who aids, abets, or is involved in the transportation or concealment of goods liable for confiscation.

Conclusion

It is essential to know Section 122 of CGST Act for business purpose. This section helps to reduce tax evasion, fake invoicing, fraudulent input tax credit (ITC) claims, and so on. It also help businesses to avoid penalties. So, businesses must maintain accurate records, reconcile ITC, and manage timely tax payments.

FAQ

Q1. What is Section 122 of CGST Act?

Section 122 of CGST Act is defined as the primary legal provision. This outlines the penalties for certain offenses which is made by the taxpayer. It focuses on the financial penalties. This includes tax evasion, fake invoicing, wrong Input Tax Credit (ITC), etc. It will help people to follow GST laws.

Q2. What are the key offences under Section 122 of CGST Act?

The key offences under Section 122 of CGST Act are:

1. The issuance of fake invoices or supplying goods/services without an invoice.
2. Collecting tax but failing to deposit it with the government within three months.
3. Claiming Input Tax Credit (ITC) without receiving goods or services.
4. Fraudulently obtaining a refund.
5. Failing to register when liable or providing false registration details.
6. Obstruction of officers or tampering with seized goods.

Q3. What is the penalty amount under Section 122 of the CGST Act?

In case of violations of Section 122 of the CGST Act, the penalty is Rs. 10, 000. It can also be the amount of tax avoided or wrongfully claimed. The fine is usually 10% of the tax owed when the offence is not done with fraud. If fraud is involved, it can be 100% of the tax due.

Q4. Does Section 122 of the CGST Act apply to E-commerce Operators?

Yes, Section 122 of the CGST Act apply to E-commerce Operators. It is specifically for Section 122(1B) of the CGST Act for penalties Electronic Commerce Operators (ECOs).

Q5. Who are the "beneficiaries" targeted under Section 122(1A) of the CGST Act?

The “masterminds” or individuals who makes the fake invoicing, ITC fraud, or fraudulent refunds are considered as the beneficiaries. They are mainly targeted as per the Section 122(1A) of the CGST Act. The beneficiary needs to pay a penalty similar to the tax evaded or ITC wrongly passed on.

Disclaimer

This article is for informational purposes only and does not constitute legal advice. Online Legal India is a digital platform. If you require legal assistance, we strongly recommend consulting a qualified lawyer or law firm.