Penalties for Fake Invoices and False Entries

The Finance minister has announced certain new provisions in GST. According to Clause 124 of the Finance Bill 2020

Section 122 of the CGST Act, 2007 is being amended by inserting a new subsection 122(1A) to make the beneficiary of the transactions of passing on or availing fraudulent Input Tax Credit liable for penalty similar to the penalty levy on the person who commits such specified offenses so, According to Section 122 (1A) of CGST Act 2017 for certain offenses.

Any person who holds the benefit of a transaction covered under clauses (i), (ii), (vii) or clause (ix) of sub-section (1) and at whose instance such transaction is conducted, shall be liable to a penalty of an amount equivalent to the tax evaded or input tax credit availed of or passed on.

Mainly, section 122 of CGST ACT 2017, is divided into three subsections:

As per the first subsection 122(1) prescribes that 21 types of offenses, any one of which, if committed, can attract a penalty of 10,000 or equal to the amount of tax involved, whichever is higher.

Second subsection 122(2) deals with two situations, 

  • Firstly, where certain offenses committed are not due to either fraud or wilful misstatement or suppression of facts. In such a case, the penalty will get reduced to 10% of the tax involved, subject to a minimum of 10,000.
  • Secondly, where the offense committed is due to either fraud or any wilful misstatement or suppression of facts to evade tax will result in a penalty equal to tax involved subject to a minimum of 10,000.

Third subsection 122(3) deals with offenses where the person is not directly involved in any evasion but may aid or assist or maybe a party to evasion or if he does not attend summons or produce documents. A penalty in such a case would be up to 25,000. 

Following changes have been made effective from April 01, 2020

Analysis of Section 122 (1A)

with respect to clause (i), (ii), (vii) or clause (ix) of sub-section (1) of Sec 122

SITUATIONSection 122(1A) of GST Act’2017.
(i)Supplies any goods or services or both without the issue of any invoiceThe person can be held as a beneficiary of a transaction covered under Clause (i) of Section 122(1) and hence liable for a penalty equivalent to the amount of tax evaded u/s 122(1A) 
(ii) Invoice in respect of supply or receipt of goods or services or both issued by the person or any other person without actual supply/receipt of such goods or services or both.The person can be held as a beneficiary of a  transaction covered under Clause (ii) of Section 122(1) and hence liable for  a penalty equivalent to the amount of tax evaded u/s 122(1A)
(iii)Takes/utilizes 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;The person can be held as a beneficiary of a transaction covered under Clause (vii) of Section 122(1) and hence liable for a penalty equivalent to the amount of ITC availed u/s 122(1A).
(iv) Forged/falsified documents such as a false invoice or, in general, a false piece of documentary evidenceThe person can be held as a beneficiary of a transaction covered under Clause (i) of Section 122(1) and hence liable for a penalty equivalent to the amount of tax evaded u/s 122(1A)

The main objective of this amendment is to penalize the beneficiary and the offender of the transactions specified in clause (i),(ii),(vii), or clause (ix) of sec 122(1) liable for a penalty.

GST awareness and accounting information are very important to the accountants of the organization. Proper reconciliation of books with GSTR-2A, GSTR1, and GS TR3B is very essential, to avoid any disputes in the future. Any mistake or negligence on the part of the assessee can expose him to penalties as per Section 122 of GST.

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