Penalty under Section 122 of GST

Penalty under Section 122 of GST:

Before diving into the details, here’s a quick overview: Section 122 of the CGST Act, 2017 enumerates 21 distinct offences ranging from issuing false invoices to obstructing tax officers, and prescribes a penalty of ₹10,000 or the equivalent tax evaded, whichever is higher, with escalated penalties up to ₹25,000 for aiding such offences . The section has been amended via Finance Acts (2020, 2023) and corresponding notifications (No. 9/2017-CT, 92/2020-CT, 28/2023-CT, 17/2024-CT) to introduce sub-sections 1A and 1B, expand liability to beneficiaries and e-commerce operators, and updated effective dates . Taxpayers can seek waiver of penalties under Section 128 and the newly inserted Section 128A for interest/penalty relief relating to demands under Section 73 for specified periods via Rule 164 and prescribed forms (GST DRC-03, SPL-01/SPL-02), as clarified by CBIC Circulars and Notifications in late 2024 and early 2025 . The latest update in Union Budget 2025 proposes insertion of Section 122B to penalize contraventions of the Track and Trace Mechanism .

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Understanding “Penalty under Section 122 of GST”

“Penalty under Section 122 of GST” refers to the monetary punishment prescribed by Section 122 of the Central Goods and Services Tax Act, 2017, imposed on specified offences aimed at deterring tax evasion and ensuring compliance . Unlike interest, which is compensatory, these penalties are punitive, set to either ₹10,000 or an amount equivalent to the tax evaded, whichever is higher, for primary offences, and up to ₹25,000 for ancillary misconduct .

Offences Covered under Section 122

Section 122(1) lists 21 primary offences. Key categories include:

False/Incorrect Invoicing: Supplying goods/services without issuing an invoice, or issuing a false one .
Phantom Invoicing: Issuing invoices without any actual supply, leading to wrongful ITC claims .
Tax Collection Failures: Collecting tax but not remitting it within 3 months, or under-collecting/under-deducting under Sections 51/52 .
ITC Misuse: Availing or distributing input tax credit without actual receipt of goods/services or in contravention of the Act .
Fraudulent Refunds: Falsely obtaining or utilising refund under the Act .
Registration Defaults: Failing to register when liable, or furnishing false registration particulars .
Obstruction & Concealment: Obstructing officers, tampering with evidence, transporting taxable goods without proper documents, or suppressing turnover .

Additional liabilities under sub-sections:

1A: Persons retaining benefits of transactions outlined in clauses (i), (ii), (vii), (ix) are equally liable .
1B: E-commerce operators collecting tax at source but failing to furnish statements or allowing unregistered/inter-state supplies, liable to ₹10,000 or equivalent tax involved .
Section 122(2): Non-fraud cases attract ₹10,000 or 10% of tax due; fraud cases ₹10,000 or full tax due .
Section 122(3): Aiding or abetting offences, wrongful dealing in confiscated or liable goods, or failing to appear on summons — penalty up to ₹25,000 .

Quantum of Penalty

Primary Penalty (s. 122(1)): ₹10,000 or the tax amount involved (evaded, short-paid, mis-utilised ITC, or fraudulently claimed refund) — whichever is higher .
Retention Liability (s. 122(1A)): Equivalent to the tax evaded or ITC mis-utilised .
E-commerce Operators (s. 122(1B)): ₹10,000 or equivalent tax, whichever is higher.

Non-Fraud vs Fraud (s. 122(2)):

Non-fraud: ₹10,000 or 10% of tax due .
Fraud: ₹10,000 or full tax due .
Ancillary Conduct (s. 122(3)): Up to ₹25,000 .

Key Amendments & Effective Dates

Notification 9/2017-CT (28-06-2017): Section 122 made effective from 01-07-2017 .
Finance Act 2020: Inserted sub-section 1A, effective 01-01-2021 by Notification No. 92/2020-CT (22-12-2020) .
Finance Act 2023: Inserted sub-section 1B, effective 01-10-2023 by Notification No. 28/2023-CT (31-07-2023) .
Finance (No. 2) Act 2024: Substituted e-commerce liability clause via Notification No. 17/2024-CT .
Budget 2025 Proposal: Introduction of Section 122B to penalize Track & Trace contraventions .

Rules, Waivers & Forms

-Power to Waive Penalty (Section 128)

Under Section 128, “The Government may, by notification, waive in part or full, any penalty referred to in Section 122…” for specified classes of taxpayers and mitigating circumstances on Council recommendations .

-Waiver of Interest/Penalty (Section 128A & Rule 164)

Section 128A (inserted by Finance (No. 2) Act, 2024): Waiver for demands under Section 73 for periods 01-07-2017 to 31-03-2020 .
Notification 21/2024-CT (08-10-2024): Specifies payment deadlines (e.g., 31-03-2025 for notices/statements) .
Rule 164: Prescribes procedure and forms (GST SPL-01/SPL-02 applications by 30-06-2025; payment via DRC-03/DRC-03A) .
CBIC Circular 02/2025-GST (07-02-2025): Clarifies coverage for cases where tax is paid but penalty/interest disputed, and department appeals .
Sub-rule (17), Rule 164: Voids waiver if specified payments not made within three months .

Notifications & Circulars – Clarifications

Circular 171/03/2022-GST: Clarifies liability under s. 122(1)(ii) for invoice-only offences .
Circular 238/32/2024-GST: Details procedural aspects of Section 128A applications under Rule 164 .

Judicial & Practical Insights

Recent High Court rulings highlight frequent misapplication of Section 122 penalties—courts have often set aside penalties where no intent to evade tax is established, emphasizing the necessity of cognizable intent and proper procedure . Taxpayers should ensure accurate documentation, timely compliance, and consider waiver routes under Sections 128/128A where eligible.

Conclusion

Staying abreast of “Penalty under Section 122 of GST” is vital for all stakeholders. With evolving amendments, notifications, and procedural clarifications, businesses must align their invoicing, ITC claims, and remittance processes meticulously. Leverage Section 128 and 128A waivers where applicable, and monitor the enactment of Section 122B post-Budget 2025 for Track & Trace compliance. Proper understanding and proactive measures will minimize disruption and safeguard against punitive actions.

Penalty under Section 122 of GST