Penalty amount u/s 122 (1) (ii)- 10000 or higher of 10K/100%, Goods and Services Tax - GST

[SUSHIL BANSAL]

Dear Friends,

Penal provisions u/s 122 (1) (ii) are for issuing invoice without supply. My querry is whether the penalty amount will be 10000/- or higher of 10000 or 100% of tax evaded.As per my understanding in issuing invoice without supply there is no tax evasion as tax already paid by our client on such supplies. Further if the penalty amount to be Rs. 10000 only then whether this will be 10000 per such invoice or total 10000.Plz guide.

Posts / Replies

[KALLESHAMURTHY MURTHY]

Dear Sir,

Query No. 118830 is related to a bogus transaction. Issue of a tax invoice without the supply of goods is an offence under the law, which invokes the penalty sec. 122(1)(ii).

In the case of the supplier who issues tax invoice without the supply of goods is not required to pay tax or interest but is liable to pay a penalty of Rs.10000-00 or equivalent to tax whichever is higher as per Sec. 122(1)(ii) of the CGST Act. No. of invoices issued is immaterial but the total amount of tax evaded is counted.

In the case of the person who utilised ITC fraudulently on bill trading is liable to pay tax along with interest as applicable u/s 50. If he paid tax on his own, he is required to pay a penalty equal to 15% of tax evaded. In case receives a notice from the department and discharges the tax and interest within 30 days from the issuance of the notice, he is to pay a penalty equal to 25%. After the due date, the penalty is payable at 50%. Even order is passed, if the dues are paid within 30 days, the penalty is payable at 50% or otherwise 100% is payable.

[Padmanathan Kollengode]

In my opinion the penalty can be only Rs.10,000 (per Act). On plain reading of section 122(1) - the liability is on person/ his act and not on the transaction. so in my opinion, penalty is not per invoice and thus, total 10,000/- per Act can be levied. (That is to say, Rs.10,000 under CGST Act, Rs.10,000 under SGST Act or/and Rs.20,000 under IGST Act). So, it will Rs.20,000/- if only CGST and SGST or only IGST is involved, or Rs.40,000 if CGST and SGST, and IGST are involved.

[Amit Agrawal]

There are multiple facets of legal issue involved here. And evolvement of jurisprudence in GST law/s is at nascent stage. Let's know these limitations before hand while discussing these legal facets.

And of course, my views are subject to reading of entire allegations of the SCN as a whole as well as noticee's stand thereon.

Relevant portion of Section 122((1)(ii) reads as follows:

"122. (1) Where a taxable person who––

........................

(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;

...............................................

he shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded or the tax not deducted under section 51 or short deducted or deducted but not paid to the Government or tax not collected under section 52 or short collected or collected but not paid to the Government or input tax credit availed of or passed on or distributed irregularly, or the refund claimed fraudulently, whichever is higher."

Such cases, there cannot be tax-evasion as there is no supply involved. However, penalty u/s 122(1)(ii) is Rs. 10,000/- OR ITC passed on 'irregularly', whichever is higher.

However, ITC as per Section 2(62) means as follows: '“input tax” in relation to a registered person, means the central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him ....................

Here, real question is, to my mind, whether can it be said that "ITC gets passed on 'irregularly'" when there is no underlying supply involved?

These are ex facie views of mine and the same should not be construed as professional advice / suggestion.

[KALLESHAMURTHY MURTHY]

Issue ID 118830

Dear Padmanathan,

Sir,

The issue of invoice without the supply of goods or services or both is an offence for which penalty attracts u/s 122(1)(ii) @10% or equivalent to tax involved, whichever is higher and not Rs. 10000-00 only (under each head CGST and SGST. In the case of IGST, it is the sum of CGST and SGST as enumerated u/s 20 of the IGST Act.). He raised invoice/s with the intent of facilitating the recipient of the tax invoice to utilise ITC illegally, that is to say, bill trading.

He didn't pay tax on the invoice/s raised by him. Non-payment of tax does not amount to tax evasion on his part because there was no movement of goods or supply of service.

The issue is to be dealt with in the legal aspects meticulously.

These are my personal views only. Anything more may please be illuminated.

With regards,

[Padmanathan Kollengode]

Learned Amit Ji,

Thank you for highlighting issue of "ITC passed on irregularly". But as rightly pointed out by you, certainly an argument can be made that without underlying supply, there is no ITC itself to be passed on irregularly.

However, one legal challenge to the above arguments may be interpretation of "an amount equivalent to", which signifies only a measure for quantification thereof and does not necessitate actual supply ( and as a corollary ITC).

This may be differentiated from Section 122(2)(i) which says "penalty of ten thousand rupees or ten per cent. of the tax due from such person".

[SUSHIL BANSAL]

Dear friends,

1. tax has been paid on the supply

2. In this case recepient of the supply aslo got SCN for penalty u/s 122(1)(vii).

Looking to this there is happening double taxation (supplier paid tax but recepient not getting ITC & hence the recepient will have to pay tax again) & duplication of penalty (supplier & recepient both facing penalty notice for the same transaction).

plz guide

[Padmanathan Kollengode]

Dear querist,

First and foremost, I think the same query is being repeated by you in multiple posts/ replies but each time the facts given by you are different and contradictory to each other. For example;-

1. tax has been paid on the supply

In your original query, you have mentioned "invoice without supply". Now you the fact being presented by you is "tax has been paid on the supply". This appears to be contradictory.

Therefore, even the fundamental premise of the entire issue in your query is ambiguous, at least to me.

Coming to the issue posed by you, without any specific comments on the facts of your case:

1. Any amount cannot be simply availed purporting it to be Input tax credit unless it falls within the definition under section 2(62)/2(63), confirms to section 16(1), 16(2), 16(3), 16(4), section 17 and the rules thereunder. All these facets has to be verified in the hands of the recipient as burden of proof is on the recipient to prove such claim u/s 155. In this case, there may be various challenges such as:

1. conformity to definition of "input tax"

2. No actual receipt of goods etc

Further, the penalty is levied on two different person here for two different acts/ offences though it may be in the course of same transaction.

Also from the facts, it is not known whether there is any collusion between the supplier and the recipient.

I think in the previous queries raised by you such as issue id 118804 and this particular query, the contributors have given their views in this aspect. As explained by Ld Amit Ji, there are multiple facets involved in this particular issue and without knowing the exact facts of your case, none of the contributors in this forum will be able to give a proper reply to your satisfaction. My humble suggestion to you is to consult an expert by presenting her/him with the full facts of the case including SCN, and get an expert opinion.

[KALLESHAMURTHY MURTHY]

Dear Querist,

Sir,

It seems that you have raised the issues without actually happening incidences. That is why there is some ambiguity between the earlier query and the present one.

There was a tax invoice issued without supply but you stated in 2nd query that the tax had been paid even if the tax paid without supply is also offensive u/s 122(1)(ii). That attracts a penalty of Rs. 10000-00 or equivalent to the tax whichever is higher which was stipulated very clearly in the said section. There was no double taxation. The tax was paid once only by the person who issued the tax invoice. Penalty is not a tax. The penalty levied for commitment of the offence where there was no supply of goods or services or both, the recipient is not entitled to ITC. The SCN received by the recipient is for the wrong availment/utilisation of ITC without receiving the goods.

It is pertinent to note that any tax collected as per invoice is the property of the Government. He cannot keep the amount of tax shown in the invoice. It happens to be claimed ITC by the recipient only when the tax element is mentioned in the invoice. However, he is not liable to pay tax since goods or services are not actually supplied.

Though the SCN was received by the recipient, he need not pay the penalty, even if there was availment of ITC but did not utilise it or not passed on to another person.

With regard to the penalty provisions, you can refer to Circular No. 171/03/2022-GST [F.No. CBIC-20001/2/2022-GST] dated 06-07-2022.

These are my personal opinions not to be construed as professional suggestions.

[SUSHIL BANSAL]

Dear Padamanathan ji,

I am much impressed with your views and expertise on the gst law and the time you spare for the resolution of queries.

In regard to my query : In both the original query and in counter query I said that invoice issued and tax paid."invoice without supply" is allegation by the department on the basis of survey conducted at recepient.