As per section 122(1), there are 21 offences, for which a taxable person may be held liable to penalty.

The word “penalty” has not been defined in the CGST Act, but judicial pronouncements and principles of jurisprudence have laid down the nature of a penalty as:

(i) a temporary punishment or a sum of money imposed by statute, to be paid as punishment for the commission of a certain offence

(ii) a punishment imposed by law or contract for doing or failing to do something that was the duty of a party to do.

‘Offence’ in general means a violation/breach of law that is punishable under law by way of penalties, fines, imprisonment, or other legal actions based on the severity of the violation.

Quantum of penalty to be levied depends upon the intention of person committing the offence.

A person with a fraudulent intention to evade payment of taxes will be subjected to higher amount of penalty whereas a relatively less amount of penalty will be levied for non-fraudulent offences.

It is important to note that in certain specified cases of levy of penalty, the presence of mens rea is a pre-requisite. The term "mens rea" is a Latin legal phrase that means "guilty mind" or culpable mental state.

"Mens" means "mind,"

"rea" means "guilty" or "crime".

It refers to a mental state, intention, or knowledge of a person when he commits an offence. While committing an act, a “culpable mental state” is a state of mind wherein-

(i) the act is intentional;

(ii) the act and its implications are understood and controllable;

(iii) the person committing the act was not coerced and even overcomes hurdles to the act committed;

(iv) the person believes or has reasons to believe that the act is contrary to law

Prosecution’ is the institution or commencement of legal proceeding; the process of exhibiting formal charges against the offender.

Section 198 of the Criminal Procedure Code defines “prosecution” as the institution and carrying on of the legal proceedings against a person.

Further, to institute the prosecution, offences are classified into

cognizable (serious category of offences) and

non-cognizable offences (relatively less serious category of offences).

Cognizable offences are non-bailable offences and non-cognizable offences are bailable offences.

Provisions of offences and penalties under CGST Act have also been made applicable to IGST Act vide section 20 of the IGST Act.

Penalties payable for the specified offences are with reference to the CGST Act only.

An equal amount of penalty would be payable by such person under the respective SGST/ UTGST Act as well.

Conveyance [Section 2(34)]

Person [Section 2(84)]

Taxable Person [Section 2(107)]

Registered person [Section 2(94)]

Section 122(1)

Section 122 starts with “Where a taxable person who”–

Penalty u/s 122(1) is leviable on a taxable person

Taxable person” [S-107] means a person who is registered or liable to be registered u/s 22 or 24

Section 122(1) provides following 21 offences which are punishable under gst laws if such offences are committed by taxable person

Section 122(1)(i)

(i) supplies any goods or services or both without issue of any invoice or

(ii) issues an incorrect or false invoice with regard to any such supply;

This clause shall apply where a taxable person supplies any goods or/and services but

(i) he does not issue any invoice with regard to such supply; or

(ii) he issues an incorrect or false invoice with regard to such supply.

It generally happens in B2C supplies.

Section 122(1)(ii)

issues any invoice or bill without supply of goods or services or both

in violation of the provisions of this Act or the rules made thereunder;

This clause shall apply where a taxable person issue an invoice or bill without supply of goods or/and services in contravention of provisions of GST Laws.

It generally happens in B2B supplies.

Section 122(1)(iii)

collects any tax

but fails to pay the same to the Government

beyond a period of 3 months from due date of payment of tax;

This clause shall apply where a taxable person

(i) collects any tax and

(ii) fails to pay the same to the Govt. beyond a period of 3 months from the due date of payment of tax.

Section 122(1)(iv)

collects any tax in contravention of the provisions of this Act

but fails to pay the same to the Govt.

beyond a period of 3 months from due date of payment of tax;

This clause shall apply where a taxable person

(i) collects any tax in contravention of the provisions of this Act and

(ii) fails to pay the same to the Govt. beyond a period of 3 months from the due date of payment of tax.

Ex

Mr X supplies goods which are subject to 5% rates but he charges 12%

Section 122(1)(v)

(i) fails to deduct tax u/s 51(1) or

(ii) deducts short tax u/s 51(1), or

(iii) deducts tax but fails to pay to govt u/s 51(2);

Section 122(1)(vi)

(i) fails to collect tax u/s 52(1) or

(ii) collects short tax u/s 52(1) or

(iii) collects TCS but fails to pay to govt u/s 52(3)

Section 122(1)(vii)

takes or utilises ITC

without actual receipt of goods or services or both either fully or partially,

in contravention of the provisions of CGST laws;

Section 122(1)(viii)

fraudulently obtains refund of tax under this Act;

Section 122(1)(ix)

takes or distributes ITC in contravention of section 20, or the rules made thereunder

Section 122(1)(x)

(i) falsifies or substitutes financial records or

(ii) produces fake accounts or documents or

(iii) furnishes any false information or return

with an intention to evade payment of tax due under this Act;

Intention to evade payment of tax is must for applicability of this clause.

Section 122(1)(xi)

is liable to be registered under this Act

but fails to obtain registration

Section 122(1)(xii)

furnishes any false information with regard to registration particulars,

either at the time of applying for registration, or subsequently;

Section 122(1)(xiii)

obstructs or prevents any officer in discharge of his duties under this Act;

Section 122(1)(xiv)

transports any taxable goods without the cover of specified documents

Section 122(1)(xv)

suppresses his turnover

leading to evasion of tax under this Act;

Section 122(1)(xvi)

fails to keep, maintain or retain books of account and other documents

in accordance with the provisions of this Act or the rules made thereunder

Refer guide on section 35 & 36 for provisions related to books of accounts

Section 122(1)(xvii)

(i) fails to furnish information or documents called for by an officer in accordance with the provisions of this Act or the rules made thereunder or

(ii) furnishes false information or documents during any proceedings under this Act;

Section 122(1)(xviii)

supplies, transports or stores any goods

which he has reasons to believe are liable to confiscation under this Act

Section 122(1)(xix)

issues any invoice or document by using the registration number of another registered person

Section 122(1)(xx)

tampers with, or destroys any material evidence or document;

Section 122(1)(xxi)

disposes off or tampers with any goods that have been detained, seized, or attached under this Act’

Section 122(1)

For any offences specified u/s 122(1)

Taxable person shall be liable to pay a penalty of

Rs.10,000 or

an amount equivalent to

the tax evaded or

the tax not deducted u/s 51 or short deducted or deducted but not paid to the Government or

tax not collected u/s 52 or short collected or collected but not paid to the Government or

ITC availed of or passed on or distributed irregularly, or

refund claimed fraudulently,

whichever is higher.

[1][Section 122(1A)

Any person

who retains the benefit of a transaction covered u/c (i), (ii), (vii) or (ix) and

at whose instance such transaction is conducted,

shall be liable to a penalty of an amount equivalent to

the tax evaded or

ITC availed of or passed on.]

Offence covered u/s 122(1A)

(i) supplies any goods or services or both without issue of any invoice or issues an incorrect or false invoice with regard to any such supply;

(ii) issues any invoice or bill without supply of goods or services or both in violation of the provisions of this Act or the rules made thereunder;

(vii) takes or utilises input tax credit without actual receipt of goods or services or both either fully or partially, in contravention of the provisions of this Act or the rules made thereunder;

(ix) takes or distributes input tax credit in contravention of section 20, or the rules made thereunder;

Section 122[2][(1B)

Offences

[3][Any ECO, who is liable to collect TCS u/s 52,] -

(i) allows a supply of goods or services or both through it

by an URP other than a person exempted from registration by a notification to make such supply;

(ii) allows an inter-State supply of goods or services or both through it

by a person who is not eligible to make such inter-State supply; or

(iii) fails to furnish the correct details in the statement i.e. GTSR-8 to be furnished u/s 52(4)

of any outward supply of goods effected through it

by a person exempted from obtaining registration under this Act,

Penalty for above offence

He shall be liable to pay a penalty of

Rs.10,000, or

an amount equivalent to tax involved had such supply been made by a RP other than a person paying tax u/s 10,

whichever is higher.]

Notifications which exempt person from obtaining registration who is making of supply of goods or services through ECO are as follows:

(i) Persons making supplies of services, other than supplies specified u/s 9(5) through an ECO and whose AT < Rs.20/10 lacs is exempt from registration – N No. 65/2017-CT

(ii) Persons making supplies of goods through an ECO is exempt from registration with conditions – N No.34/2023-CT

Section 122(2)

Any RP who supplies any goods or services or both

on which any tax

has not been paid or

short-paid or

erroneously refunded, or

where the ITC has been wrongly availed or utilised

shall be liable to following penalty

Reason of offences

Penalty shall be higher of

(a) for any reason, other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty of

Rs.10,000 or

10% of the tax due from such person,

(b) for reason of fraud or any wilful misstatement or suppression of facts to evade tax, shall be liable to a penalty equal to

Rs.10,000 or

the tax due from such person,

It may be noted that as per section 75(13) of the CGST Act, where any penalty is imposed u/s 73 or 74, no penalty for the same act or omission shall be imposed on the same person under any other provision of this Act.

Section 122(3)

Any person who––

(a) aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1);

(b) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under CGST laws;

(c) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;

(d) 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;

(e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account,

shall be liable to a penalty which may extend to Rs.25,000.

Refer Circular No. 171/03/2022-GST dated 06.07.2022

1.

In case where RP “A” has issued tax invoice to another RP “B” without supply of goods or services or both,

(i) Whether such transaction will be covered as “supply” u/s 7 of CGST Act?

(ii) Whether any demand and recovery can be made from ‘A’ in respect of the said transaction u/s 73 or 74 of CGST Act.

(iii) Whether any penal action can be taken against registered person ‘A’ in such cases.

C

(i) Issue of fake invoice without supply of goods or services is not supply

Since there is only been an issuance of tax invoice by RP ‘A’ to RP ‘B’ without the underlying supply of goods or services or both, therefore, such an activity does not satisfy the criteria of “supply”, as defined u/s 7 of the CGST Act.

(ii) As there is no supply, hence no tax liability arises on person issuing fake invoice

As there is no supply by ‘A’ to ‘B’ in respect of such tax invoice as per section 7 of CGST Act, no tax liability arises against ‘A’ for the said transaction, and accordingly, no demand and recovery is required to be made against ‘A’ u/s 73 or 74 of CGST Act in respect of the same.

(iii) No penal action can be taken u/s 73 or 74 on person issuing fake invoice

Besides, no penal action u/s 73 or 74 is required to be taken against ‘A’ in respect of the said transaction.

T

(iv) Penal action can be taken u/s 122(ii) on person issuing fake invoice

he registered person ‘A’ shall, however, be liable for penal action under section 122 (1)(ii) of the CGST Act for issuing tax invoices without actual supply of goods or services or both.

2.

RP “A” has issued tax invoice to another RP “B” without any underlying supply of goods or services or both.

‘B’ avails ITC on the basis of the said tax invoice.

B further issues invoice along with underlying supply of goods or services or both to his buyers and utilizes ITC availed on the basis of the above mentioned invoices issued by ‘A’, for payment of his tax liability in respect of his said outward supplies.

Whether ‘B’ will be liable for the demand and recovery of the said ITC, along with penal action, u/s 73 or 74 or any other provisions of the CGST Act.

C

Since the RP ‘B’ has availed and utilized fraudulent ITC on the basis of the said tax invoice, without receiving the goods or services or both, in contravention of the provisions of section 16(2)(b) of CGST Act, he shall be liable for the demand and recovery of the said ITC, along with penal action, u/s 74 of the CGST Act, along with applicable interest u/s 50 of the said Act.

Further, as per section 75(13) of CGST Act, if penal action for fraudulent availment or utilization of ITC is taken against ‘B’ u/s 74 of CGST Act, no penalty for the same act, i.e. for the said fraudulent availment or utilization of ITC, can be imposed on ‘B’ under any other provisions of CGST Act, including u/s 122.

3.

RP ‘A’ has issued tax invoice to another RP ‘B’ without any underlying supply of goods or services or both.

‘B’ avails ITC on the basis of the said tax invoice and further passes on the said ITC to another RP ‘C’ by issuing invoices without underlying supply of goods or services or both.

Whether ‘B’ will be liable for the demand and recovery and penal action, u/s 73 or 74 or any other provisions of the CGST Act.

C

In this case, ITC availed by ‘B’ in his e-credit ledger on the basis of tax invoice issued by ‘A’, without actual receipt of goods or services or both, has been utilized by ‘B’ for passing on of ITC by issuing tax invoice to ‘C’ without any underlying supply of goods or services or both.

As there was no supply of goods or services or both by ‘B’ to ‘C’ in respect of the said transaction, no tax was required to be paid by ‘B’ in respect of the same.

ITC availed by ‘B’ in his e-credit ledger on the basis of tax invoice issued by ‘A’, without actual receipt of goods or services or both, is ineligible in terms of section 16(2)(b) of the CGST Act.

In this case, there was no supply of goods or services or both by ‘B’ to ‘C’ in respect of the said transaction and also no tax was required to be paid in respect of the said transaction. Therefore, in these specific cases, no demand and recovery of either ITC wrongly/ fraudulently availed by ‘B’ in such case or tax liability in respect of the said outward transaction by ‘B’ to ‘C’ is required to be made from ‘B’ u/s 73 or 74 of CGST Act.

However, in such cases, ‘B’ shall be liable for penal action both u/s 122(1)((ii) and section 122(1)(vii) of the CGST Act, for issuing invoices without any actual supply of goods and/or services as also for taking/ utilizing ITC without actual receipt of goods and/or services.

2.

The fundamental principles that have been delineated in the above scenarios may be adopted to decide the nature of demand and penal action to be taken against a person for such unscrupulous activity.

Actual action to be taken against a person will depend upon the specific facts and circumstances of the case which may involve complex mixture of above scenarios or even may not be covered by any of the above scenarios.

Any person who has retained the benefit of transactions specified u/s 122(1A) of CGST Act, and at whose instance such transactions are conducted, shall also be liable for penal action under the said sub-section.

It may also be noted that in such cases of wrongful/ fraudulent availment or utilization of ITC, or in cases of issuance of invoices without supply of goods or services or both, leading to wrongful availment or utilization of ITC or refund of tax, provisions of section 132 of the CGST Act may also be invokable, subject to conditions specified therein, based on facts and circumstances of each case

Shantanu Sanjay Hundekari vs. Union of India [Bombay High Court dated 28 Mar, 2024]

1.

Significance of the Judgment

1. Protects Employees from Unjust Tax Liabilities

• Employees cannot be held responsible for a company’s tax evasion unless they personally benefit from it.
• - Tax authorities cannot impose penalties on individuals merely because they handled GST compliance.

2. Prevents Misuse of GST Provisions

• Sections 122(1A) and 137 must be applied only in appropriate cases where the accused had actual control over tax evasion.
• Authorities cannot arbitrarily use show cause notices to harass employees.

3. Strengthens Judicial Oversight on Tax Enforcement

• The judgment reinforces the principle that tax enforcement must be fair and reasonable.
• Revenue officials cannot misuse laws to threaten individuals.

2.

Conclusion of Judgement

This landmark ruling clarifies that employees cannot be penalized for corporate tax liabilities unless they directly benefit from evasion. The court's decision protects employees from unfair enforcement actions and prevents the misuse of show cause notices as intimidation tactics.