Offences and Penalties – CA Final IDT Study Material is designed strictly as per the latest syllabus and exam pattern.
Offences and Penalties – CA Final IDT Study Material
Question 1.
Sagar, managing director of Telecom Solutions Ltd., is issued a summon to appear before the central tax officer to produce the books of account of Telecom Solutions Ltd. in an inquiry conducted on said company. Determine the amount of penalty, if any, that may be imposed on Sagar, if he fails to appear before the central tax officer. [MTP, May 19, 3 Marks]
Answer:
Statutory provision
As per Section 122(3)(d) of the CGST Act, 2017
- Any person who fails to appear before the officer of central tax
- when issued with a summon for appearance to give evidence or produce a document in an inquiry
- is liable to a penalty which may extend to Rs. 25,000.
In the given case
The penalty up to Rs. 25,000 can be imposed on Sagar, in the given case.
Question 2.
Mr. Pankaj, an unregistered person under GST purchases the goods supplied by Mr. Raman, who is a registered person without receiving a tax invoice from Mr. Raman and thus helps in tax evasion by Mr. Raman. What disciplinary action may be taken by tax authorities to curb such type of cases and on whom? [Nov 2019, 4 Marks]
Answer:
As per section 122(1) of CGST Act, 2017
Penalty
Statutory provision
If any registered person
Supplies the goods/services without Invoice or false invoice,
or
Bills issued without any supply of goods/services
Then penalty shall be imposed
- Rs. 10000 or
- an amount equivalent to the tax evaded
whichever is higher.
In the given case
Penalty on Raman
- Mr. Raman (who is a registered person)
- supplied goods to Mr. Pankaj
- without Tax Invoice
- Tax authority shall impose penalty
- on Mr. Rarnan
- of Rs. 10,000 or Tax evaded, whichever is higher.
Penalty on Pankaj
- Since Mr. Pankaj helped in tax evasion by Mr. Raman
- he is punishable with penalty up to Rs. 25,000.
Imprisonment
In case of first time offence, where
(a) tax evaded >Rs. 5 crore, imprisonment upto 5 years and fine
(b) Exceeds Rs. 2 crore tax evaded ≤ Rs. 5 crore, imprisonment upto 3 years and fine
(c) Exceeds Rs. 1 crore tax evaded ≤ Rs. 2 crore, imprisonment upto 1 years and fine
In case of subsequent offence,
- imprisonment up to 5 years and fine
Question 3.
Mr. X, an unregistered person under GST purchases the goods supplied by Mr. Y who is a registered person without receiving a tax invoice from Mr. Y and thus helps in tax evasion by Mr. Y. What disciplinary action may be taken by tax authorities to curb such type of cases and on whom?
Suppose, in the above case, a disciplinary action is taken against Mr. X and an ad hoc penalty of ₹ 20,000/- is imposed by issue of SCN without describing contravention for which penalty is going to be imposed and without mentioning the provisions under which penalty is going to be imposed. Should Mr. X proceed to pay for penalty or challenge SCN issued by department? [MTP, Nov. 19, 5 Marks]
Answer:
Both Mr. X and Mr. Y will be offender and will be liable to penalty as under:
| Mr. X | Mr. Y |
| Penalty under section 122(3) which may extend to Rs. 25,000/- | Penalty under section 122(1), which will be higher of following, namely (i) Rs. 10,000/- or (ii) 100% of tax evaded. |
SCN issued by department
Provision
The levy of penalty is subject to a certain disciplinary regime which is based on jurisprudence, principles of natural justice and principles governing international trade and agreements. Such general discipline is enshrined in section 126 of the Act. Accordingly-
- no penalty is to be imposed without issuance of a show cause notice and proper hearing in the matter, affording an opportunity to the person proceeded against to rebut the allegations levelled against him,
- the penalty is to depend on the totality of the facts and circumstances of the case, the penalty imposed is to be commensurate with the degree and severity of breach of the provisions of the law or the rules alleged,
- the nature of the breach is to be specified clearly in the order imposing the penalty,
- the provisions of the law under which the penalty has been imposed is to be specified.
In the given case
Since SCN issued to Mr. X suffers from lack of clarity
- about nature of breach which has taken place and
- about provision of law under which penalty has been imposed SCN issued b department may be challenged.
Question 4.
Discuss the penalty for failure to furnish information return, under section 123 of the CGST Act, 2017. [MTP, May 18, 3 Marks]
Answer:
If a person who is required to furnish an information return under section 150 fails to do so within the period specified in the notice issued under sub-section (3) thereof, the proper officer may direct that such person shall be liable to pay a penalty of Rs. 100 for each day of the period during which the failure to furnish such return continues.
However, the penalty imposed under this section shall not exceed Rs. 5,000 [Section 123 of the CGST Act].
Question 5.
Tripathi, registered under the CGST Act, 2017 has made a breach in payment of tax amounting to ₹ 6,100. Assessing Authority has imposed a penalty as per law applicable to the breach. Invoking the provisions of section 126, Tripathi argues that it is a minor breach and therefore, no penalty is imposable.
In another instance, Tripathi has omitted certain details in documentation that is not easily rectifiable. This has occurred due to the gross negligence of his accountant and he makes a plea that he was unaware of it and therefore no penalty should be levied.
Tripathi voluntarily writes accepting a major procedural lapse from his side and requests the officer to condone the lapse as the loss caused to the revenue was not significant.
Also a lapse on the part of Tripathi has no specific penalty provision under the CGST Act, 2017. He is very confident that no penalty should be levied without a specific provision under the Act.
Discuss, what action may be taken by the Assessing Authority under law for each of the above breaches. [May 2018 (Old), 6 Marks]/[MTP, Nov. 18, 6 Marks]
Answer:
Provision
- As per section 126(1) of the CGST Act, 2017 : No penalty shall be levia bic under the Act form in or breaches of tax regulations.
- In terms of Explanation (a) to section 126(1), a breach shall be considered as “minor breach”, if tax involved is less than ₹ 5,000.
- Any omission or mistake in documentation which is easily rectifiable and
- made without fraudulent intent/gross negligence
- is not liable for penalty in terms of section 126(1) of the CGST Act, 2017.
As per section 126(5) of the CGSTAct, 2017:
- Where there is a voluntary disclosure of breach
- prior to its discovery by the of beer
- the proper officer may consider this fact
- as a mitigating factor when quantifying the penalty.
As per section 125 of the CGST Act, 2017:
- When no specific penalty has been specified for contravention of any of the provisions of the Act or any rules made there under
- it shall be liable to a penalty which may extend to ₹ 25,000.
In the given case
- Breach made by Tripathi is not a minor breach’ since the amount involved is not less than ₹ 5,000.
- So, penalty is imposable.
- Penalty is imposable in the present case
- since the omission in the documentation is not easily rectifiable and
- has occurred due to gross negligence.
- Since Tripathi has voluntarily disclosed the breach of procedural requirement to the officer, the proper officer may consider this fact as a mitigating factor when quantifying the penalty.
- Therefore, the quantum of penalty will depend on the facts and circumstances of the case.
- Therefore, general penalty upto ₹ 25,000 may be imposed on Tripathi as when no specific penalty is provided for any contravention, a general penalty may be imposed.
Examiner’s Comment
Largely, examinees got confused in respect of levy of penalty for different breaches under law and thus, answered merely on the basis of guess work rather than supported by legal provisions, which is sections 125 and 126 of CGST Act, 2017 in this case.
Question 6.
Raghuraman is a registered supplier in Madhya Pradesh. He failed to pay the GST amounting to ₹ 7,400 for the month of January, 20XX. The proper officer imposed a penalty on Raghuraman for failure to pay tax. Raghuraman believes that it is a minor breach and in accordance with the provisions of section 126 of the CGST Act, 2017, no penalty is imposable for minor breaches of tax regulations. Examine the correctness of Raghuraman’s claim. [RTP, Nov. 18]
Answer:
Statutory Provision
- Section 126(1) of the CGST Act, 2017 provides that no officer shall impose any penalty under CGST Act, 2017, inter alia, for minor breaches of tax regulations or procedural requirements.
- Explanation to section 126(1) of the CGST Act, 2017 stipulates that a breach shall be considered a ‘minor breach’ if the amount of tax involved is less than Rs. 5,000.
In the given case
- In the given case, breach made by Raghuraman’s is NOT a ‘minor breach’ since the amount involved is not less than Rs. 5,000.
- So, penalty is imposable under the CGST Act, 2017.
- Thus, Raghuraman’s claim is not tenable in law.
Question 7.
XYZ carries goods from Vadodara to Pune. The value of the goods is ₹ 80,000 which are chargeable to tax @ 18% IGST and in transit, proper officer intercepted the same under section 68 of the CGST Act, and found contravention.
Calculate the penalty payable under section 129 of CGST Act, 2017:
– If XYZ comes forward for payment of tax and penalty,
– If XYZ does not come forward for payment of tax and penalty. [May 2019, 4 Marks]
Answer:
Statutory Provision
The penalty payable under section 129 of the CGST Act, 2017 is
(a) 100% of the tax payable on goods detained or seized where the owner of the goods comes forward for payment of tax and penalty;
(b) 50% of the value of the goods reduced by the tax amount paid thereon where the owner of the goods does not come forward for payment of tax and penalty.
The penalty payable under IGST Act, 2017 is double the penalty payable under section 129 of the CGST Act, 2017.
In the given case
The penalty payable will be computed as under:
If XYZ (It has been assumed that XYZ is the owner of the goods.) comes forward for payment of tax and penalty –
= Rs. 80,000 × 18% × 100%
(9% CGST and 9% SGST/UTGST) × 100%
= Rs. 14,400
If XYZ does not come forward for payment of tax and penalty
= [Rs. 80,000 × 100% (50% under CGST plus 50% under SGST/UTGST)] – [Rs. 80,000 ×18%] (It has been assumed that tax has been paid on the goods)
= Rs. 80,000-Rs. 14,400
= Rs. 65,600
Note: In the above answer, the penalty payable has been computed in accordance with the provisions of the IGST Act, 2017 as tax chargeable on the goods is IGST. However, the question can also be answered on the basis of the provisions of section 129 of the CGST Act, 2017.
Question 8.
From the following details, calculate the amount to be paid, for release of goods detained or seized under section 129 of the CGST Act, 2017, if owner of the goods does not come forward for payment of applicable tax and penalty
Details are as follows:
| Particulars | Amount (₹) |
| Value of goods | 30,00,000 |
| Applicable GST on such goods | 5,40,000 |
| GST already paid on such goods | 3,60,000 |
Would your answer be different If goods were exempted from GST and value remains the same namely ₹ 30,00,000? [May 2019 (Old), 5 Marks]
Answer:
Statutory Provision
- If owner of the goods does not come forward for payment of applicable tax and penalty
- the amount to be paid for release of goods detained or seized under section 129 of the CGST Act, 2017 is
- applicable GST and
- penalty equal to 50% of the value of the goods reduced by the tax amount paid thereon.
In case of exempted goods
- amount to be paid for rclcase of goods detained is equal to
- 5% of the value of goods or
- Rs. 25,000
whichever is less
In the given case
The amount payable
= [₹ 5,40,000 + 50% of ₹ 30,00,000] – ₹ 3,60,000
= ₹ 16,80,000
The amount payable
= 5% of ₹ 30,00,000 or ₹ 25,000
whichever is less
= ₹ 1,50,000 or ₹ 25,000, whichever is less
= ₹ 25,000
Question 9.
Whether action can be taken for transportation of goods without valid documents or if goods are attempted to be removed without proper record in books? If yes, explain the related provisions under the CGST Act, 2017. [MTP, May 2018, 5 Marks]
Answer:
Yes, action can be taken for transportation of goods without valid documents or if goods are attempted to be removed without proper record in books. If any person transports any goods or stores any such goods while in transit without the documents prescribed under the Act (i.e. invoice and a declaration) or supplies or stores any goods that have not been recorded in the books or accounts maintained by him, then such goods shall be liable for detention along with any vehicle on which they are being transported [Section 129 of CGST Act].
Where owner COMES forward
- Such goods shall be released on payment of
- the applicable tax and
- penalty equal to 100 of the tax payable on such goods or upon furnishing of security equivalent to thc said amount.
- In case of exempted goods, penalty is
- 2% of value of goods or
- 25,000/-
whichever is less.
Where owner DOES NOT COME forward
- Such goods shall be released on payment of
- the applicable tax and
- penalty equal to 50% of value of goods reduced by the tax amount paid thereon or upon furnishing of security equivalent to the said amount.
- In case of exempted goods, penalty is
- 5% of value of goods or
- Rs. 25000/-
whichever is lesser.
Question 10.
From the details given below determine the maximum amount of fine in lieu of confiscation leviable under section 130 of CGST Act, 2017 on:
(i) The goods liable for confiscation.
(ii) On the conveyance used for carriage of such goods.
Details are as follows:
| Cost of the goods for owner before GST | 15,00,000 |
| Market Value of Goods | 20,00,000 |
| GST on such goods | 3,60,000 |
You are also required to explain relevant legal provisions in brief. [May 2018, 5 Marks]
Answer:
As per section 130(2) of the CGST Act, 2017, the fine shall be :
Statutory Provision
Fine on goods cannot exceed, ‘market value-tax’:
- In case of goods liable for confiscation
- the maximum amount of fine leviable in lieu of confiscation is
- the market value of the goods confiscated less
- the tax chargeable thereon.
Fine in lieu of confiscation of conveyance:
- In case of conveyance used for carriage of such goods and liable for confiscation
- the maximum amount of fine leviable in lieu of confiscation is equal to
- tax payable on the goods being transported thereon.
In the given case
The fine leviable
= Rs. 20,00,000 – Rs. 3,60,000 = Rs. 16,40,000
The aggregate of fine and penalty shall not be less than the amount of penalty leviable under section 129(1).
The fine leviable = Rs. 3,60,000.
Question 11.
Neurological Systems Private Limited has been subject to confiscation of goods on the ground that it has not accounted for the goods that are liable to tax under the CGST Act, 2017. The directors would like to know from you as to how such goods are to be got released from the Department. You are required to advise the directors the provisions of law on this matter. [Nov. 2019, 5 Marks]
Answer:
Statutory Provision:
As per section 130 of CGST Act, 2017:
In case of Confiscation of Goods or Conveyances
Redemption Fine: Whenever confiscation of any goods or conveyance is authorized by this Act, the officer adjudging it shall give to the owner of the goods an option to pay in lieu of confiscation, such fine as the said officer thinks fit.
- Maximum amount of Redemption fine such fine leviable shall not exceed the market value of the goods confiscated, less the tax chargeable thereon.
- The aggregate amount of fine and penalty – Cannot be less than penalty under section 129(1).
- Redemption fine option equal to tax payable on goods being transported can be given in case of conveyance used for the carriage of goods or the passengers for hire.
Statutory:
Neurological Systems Private Limited can get its confiscated goods released on payment of such redemption fine plus the tax, penalty and charges payable in respect of such goods.
Question 12.
Radhaswamy owns and supplies certain goods costing ₹ 30,00,000 in a conveyance hired from Manikaran Transporters. Market value of said goods is ₹ 40,00,000 and tax chargeable thereon is ₹ 4,80,000.
The goods supplied by Radhaswamy and the conveyance [owned by Manikaran Transporters] used for carriage of such goods are confiscated since Radhaswamy has supplied said goods in contravention of the provisions of the CGST Act, 2017 with an intent to evade payment of tax.
However, the proper officer intends to give an option to Radhaswamy and Manikaran Trans-porters to pay in lieu of confiscation, a fine leviable under section 130 of the CGST Act, 2017.
Determine the maximum amount of the fine in lieu of confiscation on:
(a) the goods liable for confiscation.
(b) the conveyance used for carriage of such goods. [RTP, Nov. 2018]
Answer:
| Statutory Provision | In the given case |
| (a) In case of goods liable for confiscation, the maximum amount of fine leviable in lieu of confiscation in terms of first proviso to section 130(2) of the CGST Act, 2017 is the market value of the goods confiscated, less the tax chargeable thereon. | The maximum fine leviable will be equal to = ₹ 40,00,000 – ₹ 4,80,000 = ₹ 35,20,000 |
| (b) In case where conveyance used for carriage of such goods is liable for confiscation, the maximum amount of fine leviable in lieu of confiscation in terms of third proviso to section 130(2) of the CGST Act, 2017 is equal to tax payable on the goods being transported thereon. | The maximum fine leviable is will be equal to = ₹ 4,80,000 |
Question 13.
Examine the implications as regards the bailability and quantum of punishment on prosecution, in respect of the following cases pertaining to the period December, 2017 under CGST Act, 2017.
‘X’ collects ₹ 245 lakh as tax from its clients and deposits ₹ 241 lakh with the Central Government. It is found that he has falsified financial records and has not maintained proper records.
‘Y’ collects ₹ 550 lakh as tax from its clients but deposits only ₹ 30 lakh with the Central Gov-ernment.
What will be the implications with regard to punishment on prosecution of ‘X’ and ‘Y’ for the offences? What would be the position, if ‘X’ and ‘Y’ repeat the offences?
It may be assumed that offences are proved in the court. [May 2018, 5 Marks]
Answer:
| Offence | Falsification or Substitution of Financial Records | Tax Collected but not Paid [Assuming dues are pending for more than 3 months] |
| Amount Involved | 4 lakh (245 lakh – 241 Lakh) | 520 lakh (more than 5 crores) (550 lakh – 30 lakh) |
| Bailable/Non-Bailable Offence | Bailable | Non-Bailable |
| Cognizable Offence or Non-Cognizable Offence | Non-Cognizable | Cognizable |
| Punishment | Imprisonment for up to 6 months or with fine or both | Imprisonment for up to 5 years and with fine |
| Punishment for Repeat Offence | Imprisonment for a term which may extend to 5 years and with fine. | Imprisonment for a term which may extent to 5 years and with fine. |
Question 14.
Examine whether the offences committed in each of the following independent cases are bailable. Further, determine the quantum of punishment on prosecution under the CGST Act, 2017, in each of these cases:
(i) ‘Homi Gabha’ collects ₹ 240 lakh as tax from its clients and deposits ₹ 150 lakh with the Central Government. Balance amount of tax is not paid to the Central Government. It is found that he has falsified financial records and has not maintained proper records, to evade the tax.
(ii) ‘Datukeshwar Dutt’ collects ₹ 630 lakh as tax from its clients, but deposits only ₹ 120 lakh with the Central Government. Balance amount of tax is not paid to the Central Government.
(iii) What would be the Implications in above cases If ‘Homi Gabha’ and ‘Datukeshwar Dutt’ repeat the offences? Note – It may be assumed that offences are proved In the Court. [RTP Nov. 2019]
Answer:
Statutory Provision
(i) As per section 132(1)(d)(iii) of the CGST Act, 2017, failure to pay any amount collected as tax beyond 3 months from due date of payment is punishable with specified imprisonment and fine provided the amount of tax evaded exceeds at least ₹ 100 lakh.
(ii) Failure to pay an amount collected as tax beyond 3 months from due date is punishable with imprisonment upto 5 years and with fine, if the amount of tax evaded exceeds ₹ 500 lakh in terms of section 132(1)(d)(i) of the CGST Act, 2017.
In the given case
(i) Failure to deposit Rs. 90 lakh (Rs. 240 lakh – Rs. 150 lakh) collected as tax by ‘Homi Gabha’ will not be punishable with imprisonment.
However, falsification of financial records by ‘Homi Gabha’ is punishable with imprisonment up to 6 months or with fine or both vide section 132(1 )(f)(iv) of the CGST Act, 2017 and the said offence is bailable in terms of section 132(4) of the CGST Act, 2017.
(ii) Since the amount of tax evaded by ‘Datukeshwar Dun’ exceeds Rs. 500 lakh (Rs. 630 lakh – Rs. 120 lakh = Rs. 510 lakh), ‘Datukeshwar Dutt’ is liable to imprisonment upto 5 years and with fine.
Further, the imprisonment shall be minimum 6 months in the absence of special and adequate reasons to the contrary to be recorded in the judgment [Section 132(3) of the CGST Act, 2017]. Such offence is non-bailable in terms of section 132(5) of the CGST Act, 2017.
(iii) If ‘Homi Gabha’ and ‘Datukeshwar Dutt’ repeat the offence, they shall be punishable for second and for every subsequent offence with imprisonment upto 5 years and with fine in terms of section 132(2) of the CGST Act, 2017. Such imprisonment shall also be for minimum 6 months in the absence of special and adequate reasons to the contrary to be recorded in the judgment.
Question 15.
What are cognizable and non-cognizable offences under section 132 of CGST Act, 2017? [May 2018 (Old), 4 Marks]
Answer:
Cognizable Offence:
As per section 132(5) of CGST Act, 2017: If any amount of tax evaded or input tax credit wrongly availed/utilised or refund wrongly taken is more than ₹ 5 crores, in following offences are cognizable offences:
(a) Supply without issuance of invoice with the intention to evade tax
(b) Issuance of any invoice/bill without supply leading to wrongful availment/utilisation of ITC or refund of tax
(c) Availment of ITC using invoice/bill against which no supplies have been made
(d) Failure to pay the amount collected as tax to the Government beyond a period of 3 months from the due date of payment.
Non-Cognizable Offence :
As per, section 132(4) of CGST Act, 2017:All offences specified under section 132 are non-cognizable offences except the cognizable offences.
Question 16.
Where an offence under the GST law is committed by a taxable person being a trust, who are deemed to be guilty of the offence and under what circumstances? When do the relevant provisions become inapplicable in respect of individuals concerned with the trust? [Nov. 2018 (Old), 4 Marks]
Answer:
Section 137 of the CGST Act, 2017: Where an offence under the GST law is committed by a taxable person being a trust, the managing trustee shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Further, where it is proved that the offence committed by the trust has been committed –
- with the consent or connivance of, or
- is attributable to any negligence on the part of any other individual concerned with the trust,
he shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
The relevant provisions will become inapplicable in respect of individuals concerned with the trust, if they prove that the offence was committed without their knowledge or that they had exercised all due diligence to prevent the commission of such offence.
Question 17.
Department initiated prosecution proceedings against a taxable person who had evaded GST of ₹ 4.2 crores. He has approached the Commissioner with a request for compounding the offence. After considering the request, the Commissioner has directed him to pay an amount of ₹ 2.5 crores as compounding amount.
Indicate the minimum and maximum limits for compounding amount. Is the amount fixed by the Commissioner in this case within the limits prescribed under the law? What is the consequence of the decision of the commissioner allowing the request for compounding the offence? [Nov. 2018 (Old), 4 Marks]
Answer:
Statutory Provision
As per section 138 of the CGST Act, 2017:
The minimum limit for compounding amount is higher of the following amounts:
- 50% of tax involved, or
- Rs. 10,000, and
the upper limit for compounding amount is higher of the following amounts:
- 150% of tax involved or
- Rs. 30,000
In the given case
- The minimum limit for compounding is Rs. 2.10 crores. [Rs. 2.10 crores (50% × Rs. 4.2 crores) or Rs. 10,000, whichever is higher],
- The maximum limit for compounding in this case is Rs. 6.3 crores [Rs. 6.3 crore (150% × Rs. 4.2 crores) or Rs. 30,000, whichever is higher],
- Thus, the amount fixed by the Commissioner at Rs. 2.5 crores is within the limits prescribed under the law.
If the taxable person pays the compounding amount decided by the Commissioner, no further proceedings shall be initiated under GST law against the accused person in respect of the same offence and any criminal proceedings, if already initiated in respect of the said offence, shall stand abated.
Question 18.
Ganesh Enterprises, a registered supplier under the GST Law, has committed an offence that is compoundable. The Department has instituted prosecution against the proprietor of Ganesh Enterprises and he is of the opinion that he shall not be able to apply for compounding the offence as the prosecution has been launched. He seeks your advice whether he has the oppor-tunity to apply for compounding the offence and the consequences arising therefrom. [Nov 2019, 4 Marks]
Answer:
A person accused of an offence is permitted to make an application for compounding of an offence even after the institution of prosecution against him.
Therefore, in the given case, Ganesh Enterprises can apply for compounding of offence even though prosecution has been instituted/launched against him.
On payment of compounding amount determined by the Commissioner, the criminal proceedings which have been initiated against Ganesh Enterprises in respect of the said offence, shall stand abated.
- The lower limit for compounding amount is to be the greater of the following amounts: –
- 50% of tax involved, or
- Rs. 10,000.
- The upper limit for compounding amount is to be greater of the following amounts: –
- 150% of tax involved or
- Rs. 30,000.