HC holds penalty imposed under Section 122 is a civil liability

This Tax Alert summarizes recent ruling of the Allahabad High Court (HC) on whether the penalty leviable under Section 122 of the Central Goods and Services Tax Act, 2017 (CGST Act) is civil or criminal in nature. Further, whether dropping of proceedings under Section 74 of CGST Act will ipso facto abate the proceedings under Section 122.

The key observations of the HC are:

• Section 74 is a charging and a machinery provision for the recovery of tax assessed and imposition of penalty. Section 122 is a penal provision aimed at curbing evasion of taxes. Both the charging Sections are required to be interpreted strictly.

• Mens rea is essential in criminal law, but in civil matters like taxation, it is irrelevant for imposing civil liability.

• For imposition of penalty, a statute shall determine whether mens rea is required or not. For offences involving prosecution under a statute, mens rea or guilty intent is a sine qua non.

• Unlike Section 122, offences under Section 132 are far more serious in nature and therefore, the legislature has chosen to impose criminal punishment for the same.

Accordingly, penalty imposed under section 122 is a civil liability and the offences can be adjudicated by the proper officer or adjudicating officer.

Further, when SCN is issued both under Section 73/ 74 and also under Section 122 against the main person, dropping of proceedings under Section 73/ 74 would not automatically result in dropping of proceedings under Section 122 as the proceedings are with respect to contravention of two different offences.


Comments:

• CBIC issued Circular 171/03/2022-GST dated 6 July 2022 clarifying tax and penal implications for transactions involving fake invoices.

• Section 75(13) of CGST Act provides that where any penalty is imposed under section 73 or section 74 or section 74A, no penalty for the same act or omission shall be imposed on the same person under any other provision of the Act.