What are the penalties for not registering under GST?

Penalties for Not Registering Under GST

Under the Goods and Services Tax (GST) regime, businesses are required to register for GST if their aggregate turnover exceeds a prescribed threshold limit. Failure to register for GST when required can result in various penalties, interest, and legal consequences. These penalties are laid out under the Central Goods and Services Tax Act, 2017 (CGST Act) and relevant provisions.

Penalties for Not Registering Under GST

1. Penalty for Failure to Register (Section 122):
   • According to Section 122(1) of the CGST Act, if a person who is required to be registered under GST fails to obtain registration, they will be liable for a penalty of ₹10,000 or an amount equal to the tax payable (whichever is higher).
   • This penalty applies to any business that has a turnover above the threshold limit and fails to register for GST within the specified time frame.
2. Tax Payable for Unregistered Period:
   • In addition to the penalty, the business will also be required to pay the tax that should have been paid during the period they operated without registration, along with any applicable interest for late payment.
   • The tax liability will be calculated based on the sales made during the period when the business was operating without GST registration.
3. Interest on Late Payment:
   • Under Section 50 of the CGST Act, if any tax is due, interest at the rate of 18% per annum will be charged for the period of delay in payment of tax.
   • The interest is applicable from the due date of payment until the date of actual payment.
4. Prosecution for Failure to Register (Section 69):
   • If a person willfully fails to obtain GST registration when required, they could face criminal prosecution under Section 69 of the CGST Act.
   • If the amount of tax evaded exceeds ₹5 crore, the person could face imprisonment ranging from 6 months to 5 years, along with a fine.
   • For cases where the tax evaded is less than ₹5 crore, the penalty may be less severe, but still, prosecution can lead to fines or imprisonment.
5. Detention of Goods (Section 129):
   • If goods are found being transported or stored without proper GST registration and the necessary documents (like invoices), the authorities have the power to detain or seize the goods under Section 129.
   • The detained goods will be released only after the tax, penalty, and other dues are paid.
6. Additional Penalties for Non-Compliance:
   • Section 122(3) of the CGST Act provides that any person who contravenes provisions of the CGST Act, such as failing to register when required, can face a penalty for every instance of contravention.
   • The penalty can also apply to situations where a business fails to maintain records or submit returns.

Constitutional Provisions

The Constitution of India (particularly the 101st Amendment) and the CGST Act, 2017 lay the groundwork for the imposition of taxes and penalties under GST.

1. Constitutional Provisions (101st Amendment)

The 101st Amendment to the Constitution of India (2016) introduced GST, giving the central and state governments the authority to levy and collect GST. The constitutional provisions relevant to GST registration and penalties include:

• Article 246A: Provides that Parliament and State Legislatures have the authority to enact laws governing GST. This includes making provisions for registration, penalties, and tax collection under GST. The GST framework and its penalties are based on this constitutional authority.
• Article 279A: This article establishes the GST Council, which has the power to recommend measures regarding GST penalties, including the provisions related to penalty for non-registration.

2. Central Goods and Services Tax Act, 2017 (CGST Act)

The CGST Act, which is the primary statute for implementing GST in India, lays down the detailed provisions for registration and penalties. Key provisions related to penalties for failure to register include:

• Section 22 – Persons Liable for Registration:
  • Specifies that any person whose aggregate turnover exceeds the prescribed limit (₹40 lakhs for goods, ₹20 lakhs for services) must apply for GST registration.
• Section 23 – Exemption from Registration:
  • Lists categories of persons who are exempt from registering under GST, such as those dealing in exempt goods or services.
• Section 69 – Power to Arrest:
  • Provides for arrest and prosecution in cases of wilful failure to obtain registration or tax evasion of significant amounts. The penalty for such violations may include both imprisonment and a fine.
• Section 122 – Penalty for Offenses:
  • Subsection (1) of Section 122 deals specifically with penalties for failure to obtain registration and other contraventions of GST provisions. It states that the penalty could be ₹10,000 or an amount equal to the tax payable, whichever is higher.
• Section 50 – Interest for Late Payment of Tax:
  • Specifies the rate of interest (18%) charged on tax that is not paid on time. This section is relevant if the taxpayer has failed to pay tax due to non-registration.
• Section 129 – Detention, Seizure, and Release of Goods and Conveyances:
  • If goods are found to be transported without proper documentation or GST registration, authorities can detain or seize the goods until the tax, penalty, and interest are paid.

Landmark Cases Related to GST Registration and Penalties

Several landmark cases have clarified aspects related to GST registration and penalties under the CGST Act. Here are a few:

1. M/s. K. P. S. Sachdeva v. Union of India (2020):

• Case Summary: This case dealt with a taxpayer who had failed to obtain GST registration and was charged a penalty under Section 122 for non-registration.
• Outcome: The court ruled that the taxpayer’s failure to register when required could lead to penalty and interest. The court upheld the constitutional validity of penalties under the CGST Act and emphasized that registration is mandatory for businesses above the prescribed turnover limits.

2. State of Rajasthan v. M/s. Shree Cements Ltd. (2019):

• Case Summary: This case involved penalties levied for failure to register under GST when the business exceeded the prescribed turnover limit.
• Outcome: The court clarified that failure to register when the turnover exceeds the prescribed threshold would attract penalties under Section 122 of the CGST Act. The court also emphasized that businesses are liable to pay taxes even for the past period during which they failed to register.

3. M/s. Bharti Airtel Limited v. Union of India (2018):

• Case Summary: In this case, the petitioner had failed to obtain registration under GST despite being liable to do so due to their turnover.
• Outcome: The court upheld the penalty provisions under the CGST Act, affirming that businesses that fail to comply with GST registration requirements can be penalized under Section 122.

4. M/s. Tata Motors Ltd. v. GST Council (2021):

• Case Summary: Tata Motors was involved in a legal dispute regarding GST registration under the CGST Act after they had been penalized for non-registration during an audit.
• Outcome: The court ruled in favor of the GST Council’s powers to impose penalties under Section 122 and emphasized that businesses that fail to register or comply with GST provisions are subject to penalties, including fines and interest.

Summary of Penalties for Non-Registration

Conclusion

Not registering for GST when required can lead to serious consequences under Indian law, including penalties, interest, and even prosecution in cases of willful non-compliance. The CGST Act clearly outlines the penalties for failure to register and other related offenses, with Section 122 imposing