Tax evasion and fake invoicing are the most serious offences under the GST regime. They attract penalties under Section 122, prosecution under Section 132, and can lead to imprisonment. The Allahabad High Court has clarified that penalty proceedings under Section 122 are independent of demand proceedings under Section 74, and can be initiated even where no tax evasion is established.
This article examines the penalty framework for tax evasion and fake invoicing under GST.
Section 122: Civil Penalties
Section 122 of the CGST Act prescribes penalties for specific offences. The key provisions for tax evasion and fake invoicing are:
- Section 122(1)(i): Supplying goods or services without issue of invoice — penalty of 100% of tax or ₹10,000, whichever is higher.
- Section 122(1)(ii): Issuing an invoice without actual supply of goods or services — penalty of 100% of tax or ₹10,000.
- Section 122(1)(vii): Wrongly availing or utilising input tax credit — penalty of 100% of tax or ₹10,000.
- Section 122(1)(viii): Fraudulently availing or utilising ITC — penalty of 150% of tax or ₹10,000.
The Allahabad High Court Ruling
The Allahabad High Court has held that penalty under Section 122 is a civil penalty and is independent of the demand proceedings under Section 74. The court distinguished civil penalties (adjudicated administratively under Section 122) from criminal prosecution (under Sections 132–138). The court emphasised that Section 122 penalises acts that are per se unlawful — such as issuing fake invoices — irrespective of whether tax evasion is established.
This means that a person who issues a fake invoice can be penalised under Section 122 even if the department cannot prove that any tax was evaded.
Section 132: Criminal Prosecution
Section 132 provides for prosecution for serious offences. The key provisions include:
- Section 132(1)(a): Making a supply without invoice or with false invoice — imprisonment up to 5 years and fine.
- Section 132(1)(b): Issuing invoice without supply — imprisonment up to 5 years and fine.
- Section 132(1)(c): Availing fraudulent ITC — imprisonment up to 5 years and fine.
The offence is cognizable and non-bailable where the amount exceeds ₹5 crore. For amounts below ₹5 crore, the offence is bailable.
Practical Defence Considerations
- Distinguish civil penalty from criminal prosecution: Section 122 penalty is civil and can be challenged on the basis of procedural violations and jurisdictional errors.
- Challenge the mens rea: For prosecution under Section 132, the department must prove intent to evade tax. Lack of intent is a valid defence.
- Establish actual receipt of goods: In fake invoice cases, proof that goods were actually received is the strongest defence.
- Document everything: Maintain purchase orders, transport documents, payment records, and stock registers.
Conclusion
Tax evasion and fake invoicing attract severe penalties under both Section 122 and Section 132. The Allahabad High Court’s ruling confirms that Section 122 proceedings are independent of demand proceedings. Taxpayers must build a strong factual defence with documentary evidence.
At Anuj Desai & Associates, we provide expert representation services for tax evasion and fake invoicing cases. Our team can help you challenge penalties and protect your business.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.