GST Penalties & Appeals: What Every Business Should Know

To address tax corruption and evasion, the Goods and Services Tax Act has introduced several stringent provisions within this framework. 

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There can be penalties, arrests, appeals, or prosecution, entirely depending on the various offences by the registered and unregistered taxpayers.

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It is important to have a clear understanding of these offences and penalties, as even an unintentional mistake can raise severe consequences. 

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Besides, business owners must be well-informed about the process of GST appeals as provided under the Act. 

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It ensures accountability, transparency, and fairness in the tax system. So, go through this guide and be aware of the GST penalties & appeals applicable as of 2025.

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Offences and Penalties Under GST 

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Let us discuss all the offences and penalties determined by the authority:

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Offences

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Under the GST regime, there are 21 offences according to the CGST Section 122(1). We have listed the major offences in the following section:

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1. Faulty Invoices

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• Issue GST invoices without mentioning the actual supplies
• Generate invoices by a registered taxpayer using the GSTIN of another legitimate taxpayer
• Supply goods or services or both without issuing GST invoices or issuing false invoices

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2. Fraud

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• Providing wrong information while applying to get GST registration
• Providing fake financial records or data to escape tax liability
• Not entering the necessary information or providing inaccurate information during the process

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3. Tax Avoidance

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• Intentionally underreporting sales or turnover to avoid paying taxes
• Collects GST but does not pay it back to the government within the specified time limit from the invoice due date
• Claims Input Tax Credit without receiving the supplies
• Actively and intentionally suppress sales to avoid tax
• Getting SGST/CGST refund by deceiving

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3. Supply of Goods

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• Involved in transporting goods without proper documents
• Supply of goods, knowing authorities can seize them
• Destroying goods that have been taken hold of by authority

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4. Others

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• Not being registered under GST, despite being legally required
• Intentionally or unintentionally fails to deduct/collect TDS/TCS or deducts/collects but does not remit it to the government
• Applying to get registered under the composition scheme, even though the business is ineligible
• Get refunds for doing fraudulent activities
• Prevents an authorised person from carrying out their responsibilities
• Destroys key records or tampers with goods that have been lawfully seized or detained under GST provisions

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Learn all about GST on UPI payments.

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Penalties

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An individual liable to pay GST will have to pay a penalty if any of the above-mentioned offences are committed. The applicable GST penalties are detailed in the following section:

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1. Delayed Filing of GST Returns

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If you file GST returns late, you will attract a late fine and interest:

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Late Fee: It is ₹50 per day (equally distributed to the state and central government, ₹25 under CGST + ₹25 under SGST) for delayed GSTR-3B filing. There is no late fine on IGST.

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Interest: 18% per annum; the authority calculates it on the due tax from the due date until payment.

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Non-filing of GST Returns

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If you forget to file GST returns, you will have to face the following consequences:

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Late Fine: ₹20 per day (₹10 under CGST + ₹10 under SGST).

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No Return: If you fail to file the GST return, you can not submit subsequent returns as well. For instance, if you fail to file GSTR-3B for April and May 2025, submission of GSTR-1 for June 2025 will not be allowed. 

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Taxpayers who file returns quarterly will be prevented from filing GSTR-1 for the next quarter if they fail to submit GSTR-3B for one period.

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‍Cascading Effect: Late return filing leads to GST penalties and compliance issues.

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For the 21 Offences with No Intention to Evade Tax

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Penalty: In such cases, the penalty is 10% of the outstanding tax (minimum ₹10,000). For instance, if GST is unpaid or short-paid, the penalty will be 10% of the outstanding figure but not less than ₹10,000.

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For the 21 Offences to Evade Tax

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‍Penalty: An offender has to be charged a 100% penalty of the tax evaded, with a minimum penalty of ₹10,000. Additional GST penalties for higher tax evasion are:

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Offences Accountable for Non-Taxable Individuals

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Even if a person is not required to get registered under the GST framework, they can still be held accountable if they are involved in any of the following fraudulent or offensive activities: 

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• Intentionally violates GST regulations while obtaining goods or services
• Fails to generate accurate invoices against the goods or services that the business acquired
• Fails to verify or confirm the transactions recorded in their account books
• Could not appear before the authority's arrival when called by them

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GST Penalties Accountable for Non-taxable People

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According to GST law, even non-registered persons who get involved in the above-mentioned practices are subject to a penalty of ₹25,000. 

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With this fixed amount, other penalty provisions determined by the tax authority are:

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GST Appeals Rules and Regulations: Process Explained

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As per the GST Act, there is a process for registered taxpayers who are dissatisfied with a penalty-related decision made by the authority. This procedure applies to all types of offences and penalties.

Appeal Levels Under GST 

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If a person is dissatisfied with any decision or order made under GST, they have the right to file an appeal. The first level of appeal is to the First Appellate Authority, which reviews decisions made by the adjudicating authority. 

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Let us take a look at the different levels of appeals that can be made under GST:

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First Appellate Authority

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A person dissatisfied with the penalty order passed against him can appeal to the First Appellate Authority under Section 107 of the Act.

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Appellate Tribunal

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If the First Appellate Authority's first-level appeal decision is unsatisfactory, the Appellate Tribunal can be appealed to. 

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High Court

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The person can appeal against decisions made by the Appellate Tribunal to the State High Court under Section 117 of the Act.

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Supreme Court

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The Supreme Court acts as the final authority when considering GST penalties or other tax-related matters under Section 118 of the Act.

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The accused person needs to make their appeal, utilizing the specified format and submitting the fees beforehand. 

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The fee comprises the total tax amount, interest, fine, fee, and penalty, with a sum of 10% on the disputed amount.

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Note that the GST Commissioner or other officer can make an appeal completely free of cost.

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Inspection When Suspect Tax Evasion

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If a registered taxpayer is found involved in fraudulent activities such as suppressing sales or claiming surplus input tax credit, the Joint Commissioner of SGST/CGST can issue an order of inspection. 

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Along with this, they authorize another officer to inspect the business premises of the suspected taxpayer.

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Search and Seizure Rules Under GST

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The Joint Commissioner of SGST/CGST may issue an order of search if they find:

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• Goods liable to seizure are present.
• Crucial documents, books, or financial records that are relevant to tax proceedings are hidden intentionally.

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Mandatory Documents During Goods Transit

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At the time of goods transportation valued above ₹50,000, the individual administering the task must carry:

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• Accurate invoice or delivery challan
• A copy of the electronic waybill 
• E-invoice, if applicable

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The tax authorities may appear to inspect the goods transportation. If they find a rule violation, they have the authority to seize everything (goods, documents, and the vehicle). 

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Compounding of Offences 

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Compounding of offences enables an accused taxpayer to settle an offence without appearing before a magistrate. 

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The accused individual gets a chance to pay a compounding fee, which would not exceed the maximum applicable penalty amount. 

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This process is introduced to save time and money but is only available for cases where the tax evasion amount does not exceed ₹1 crore.

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Arrest Under GST

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The Joint Commissioner of CGST/SGST can issue an order to arrest registered persons found violating serious GST rules. 

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The arrested individual must appear before the magistrate within 24 hours if it is a cognisable offence (such as counterfeiting and fraud).

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Final Word 

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The main objective behind implementing GST penalties & appeals is to eliminate tax evasion and corruption and to facilitate stupendous revenue generation that can ultimately help in infrastructure development and developing world-class public services. 

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Being a responsible taxpayer, it is always advisable to adhere to GST compliance. You may hire a Chartered Accountant (CA) or other experienced professionals to file GST returns and deal with other legal issues. 

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If you receive a notice from a GST officer regarding a tax-related matter, there are many opportunities to raise your grievance. 

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Frequently Asked Questions

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1. What are the most common GST penalties faced by taxpayers?

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Under GST, the most common penalty involves paying a late fee and interest for delayed return filing. 

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In cases of tax avoidance without fraudulent intent, a penalty of 10% of the unpaid tax is imposed, subject to a minimum of ₹10,000.

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2. What will happen if the GST return is not filed for 1 year?

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If an individual does not file a GST return for an entire financial year, they get a chance to submit it by November of the following calendar year or the filing date of the annual return. 

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However, one can not file a GST return more than 3 years after the original tax payment date.

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3. Are taxpayers able to challenge GST penalties?

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Yes, taxpayers are able to challenge GST penalties. They need to file the first appeal to the First Appellate Authority. 

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If they are not satisfied with the decision, they can further appeal to the National Appellate Tribunal, then to the High Court, and finally to the Supreme Court.

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4. How much will the penalty be for filing GST returns late?

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According to GST rules, the penalty for late filing of GST returns is ₹50 per day, divided equally between CGST and SGST (₹25 each) and is capped at a maximum of ₹5,000.

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5. What is the GST appeals time limit under the GST Act?

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An applicant can file an appeal before the Appellate Authority within 3 months from the date the disputed order is communicated.