Indirect Tax Laws · Offences and Penalties and Ethical Aspects under GST

Offences and Penalties under GST (Sections 122-138) for CA Final

Updated 5 October 2026

Sections 122 to 138 of the CGST Act list the offences, penalties, prosecution and compounding rules. To solve a question, spot the act, match it to the section (122 specified offences, 125 general penalty, 129 detention, 130 confiscation), apply the penalty formula, then check for waiver, minor-breach relief or compounding.

Understand Offences and Penalties under GST (Section 122-138)

GST law punishes non-compliance at three levels. The first is penalty, a money amount imposed by the tax officer. The second is detention or confiscation of goods. The third is prosecution, which means imprisonment and fine through a court. Sections 122 to 138 of the CGST Act cover all three, plus the safeguards around them.

Section 122 is the core. Section 122(1) lists specified offences by a taxable person, such as supplying without an invoice, issuing an invoice without a supply, taking ITC without a valid document, not paying collected tax, or claiming a fraudulent refund. For these, the penalty is the higher of ₹10,000 or the tax evaded (or ITC wrongly availed, refund wrongly taken, and so on). A receiver of fake invoices who avails ITC without a supply is penalised under section 122(1), not under 122(3). Section 122(1A) reaches the person who retains the benefit of certain of these transactions and at whose instance they are conducted. That person is liable to a penalty equal to the tax evaded or ITC wrongly availed or passed on. Section 122(2) deals with tax not paid, short paid or wrongly refunded, with different rates for non-fraud and fraud cases. Section 122(3) deals with abettors, aiders, persons who acquire or deal with goods liable to confiscation, and persons who fail to appear on summons. For them, the penalty is up to ₹25,000.

Section 125 is the residual penalty: up to ₹25,000 for any contravention where no specific penalty is given. Other sections around it set the discipline. Section 126 says the penalty must fit the breach, that minor, easily rectifiable breaches should not be penalised, and that no penalty is imposed without a hearing. Section 127 empowers the proper officer to issue an order levying penalty after a hearing where he has power to adjudge tax under section 73 or 74 but has not imposed a penalty under those sections. Section 128 allows the Government, on the Council's recommendation, to waive penalty or late fee (fully or partly) by notification.

Sections 129 and 130 deal with goods. Section 129 is about detention and seizure of goods or conveyances in transit, or stock in trade, in contravention of the Act, and the release of those goods on payment. Section 130 is about confiscation where the contravention is of the kind that makes goods liable to confiscation, such as supply without a tax invoice or a fraudulent act to evade tax. In 130 the owner can still redeem the goods by paying a fine in lieu of confiscation. Section 131 says confiscation or penalty under the Act does not prevent the infliction of any other punishment under the Act or any other law.

Sections 132 to 138 cover the criminal side: punishment (132), punishment for disclosure of information by a public servant or others engaged in GST work, in contravention of the Act (133), which is imprisonment up to six months, fine up to ₹25,000, or both, cognizance of offences (134), presumption of culpable mental state (135), relevancy of statements (136), offences by companies (137) and compounding (138). The prosecution thresholds depend on the tax amount involved, so always link the facts to the amount.

Key rules to remember

Specified offences (section 122(1)): Penalty = higher of ₹10,000 or the amount of tax evaded / ITC wrongly availed or utilised / refund wrongly claimed / tax not deducted or collected or short deducted or collected; Applies to the listed offences by a taxable person. Pick the head that matches the offence, then compare with ₹10,000.
Person who retains the benefit (section 122(1A)): Penalty = amount equal to the tax evaded or ITC wrongly availed or passed on; Applies to a person who retains the benefit of certain transactions listed in section 122(1) and at whose instance they are conducted. There is no ₹10,000 floor in this sub-section.
Tax not paid or short paid, no fraud (section 122(2)(a)): Penalty = higher of 10% of tax due or ₹10,000; Applies where the default is for any reason other than fraud, wilful misstatement or suppression of facts.
Tax not paid or short paid, fraud (section 122(2)(b)): Penalty = 100% of tax due; Applies where the default is by reason of fraud, wilful misstatement or suppression of facts to evade tax.
Abettors and others (section 122(3)): Penalty up to ₹25,000; Covers persons who aid or abet an offence, acquire or deal with goods liable to confiscation, or fail to appear on summons. A receiver of fake invoices who avails ITC without a supply is penalised under section 122(1), not 122(3).
General penalty (section 125): Penalty up to ₹25,000; A residual penalty. It applies only where no other penalty is specified for the contravention.
Minor breaches (section 126): No penalty for minor breaches: tax involved less than ₹5,000, or an easily rectifiable error made without fraudulent intention; Any penalty imposed must be proportionate to the degree and severity of the breach. No penalty is imposed without giving the person an opportunity of being heard.
Section 129 vs 130: 129 = detention or seizure of goods or conveyance in transit, or stock in trade, in contravention of the Act, released on payment | 130 = confiscation, with option to pay fine in lieu; Section 129(1) release rates. If the owner comes forward: for taxable goods, a penalty equal to 200% of the tax payable on the goods; for exempt goods, 2% of value or ₹25,000, whichever is less. If the owner does not come forward: for taxable goods, the higher of 50% of value or 200% of tax; for exempt goods, 5% of value or ₹25,000, whichever is less. Section 130 applies to goods liable to confiscation for the listed contraventions.
Prosecution (section 132): Punishment depends on the tax involved, with higher tax attracting longer imprisonment plus fine; Check the exact slabs in the latest text. Prosecution is only after the proper sanction and under the cognizance rules in section 134.

How to solve Offences and Penalties under GST (Section 122-138) questions

Use this method for any case question on GST offences and penalties. It keeps your answer in provision, facts and conclusion form.

1Identify the act or omission in the facts: no invoice, fake invoice, ITC without goods, short payment, goods moved without documents, non-appearance, or a general lapse.
2Decide who committed it: the taxable person, an abettor or receiver, a transporter, an officer, or a company with persons in charge.
3Match it to the section: specified offence (122(1)), tax short paid (122(2)), abettor or receiver (122(3)), general contravention (125), goods in transit (129), goods liable to confiscation (130).
4Check whether the offence is specifically listed. If not, the residual penalty in section 125 applies. Never apply 125 where a specific penalty exists.
5Compute the penalty using the correct head: compare ₹10,000 with the tax evaded or ITC wrongly availed, or apply the 10% or 100% rate for section 122(2).
6Test for relief: is it a minor breach under section 126, is there a waiver, or can the offence be compounded under section 138 (compounding is not for all offences)?
7Check the criminal angle: does the tax amount cross a prosecution slab in section 132, and is the offence cognizable or bailable?
8Write the conclusion clearly: state the section, the amount of penalty and any other consequence such as confiscation, fine in lieu or prosecution.

Quickest way: Section-first, amount-second shortcut

When to use it: Use it for 2 to 4 mark questions and for case-scenario MCQs where you have under two minutes.

Read the facts and write the one-word offence in the margin: fake invoice, short payment, transit, confiscation or general.
Pick the section from the offence: 122(1), 122(2), 122(3), 125, 129 or 130.
For 122(1) always compare ₹10,000 with the tax or ITC figure and take the higher.
For 122(2) ask one question: is there fraud? No means 10% or ₹10,000 higher. Yes means 100% of tax.
Check whether the person is a mere abettor, or deals in goods liable to confiscation, or ignores a summons. If so, section 122(3) applies and the penalty is up to ₹25,000. A buyer who avails ITC without a supply is under 122(1): the higher of ₹10,000 or the ITC.
Close with one line on any extra consequence, such as prosecution or redemption fine.

Common mistakes in Offences and Penalties under GST (Section 122-138)

Applying section 125 to an offence that is already listed in section 122.
Students remember 125 as the easy ₹25,000 penalty and use it for every lapse.
Fix: Treat 125 as the last resort. First check whether any section gives a specific penalty. Use 125 only when none does.
Writing a flat penalty of ₹10,000 for section 122(1) offences.
Students forget the amount is the higher of ₹10,000 or the tax or ITC involved.
Fix: Always compute both figures and write the higher one. State the comparison in your answer.
Confusing section 129 with section 130.
Both deal with goods and both involve release on payment.
Fix: Link 129 to goods in transit that are detained or seized and released on payment. Link 130 to confiscation, where the owner pays a fine in lieu. Look for the words transit, e-way bill or invoice in the facts.
Using the 10% rate in section 122(2) even when fraud is clear.
Students read only the numbers and miss words like suppression or wilful misstatement.
Fix: Scan the facts for fraud, wilful misstatement or suppression. If present, penalty is 100% of tax due. Otherwise it is the higher of 10% or ₹10,000.
Missing penalties on the receiver, buyer or abettor.
Students focus on the main supplier and forget that the person who knowingly takes part is also liable.
Fix: For every fake invoice or ITC fraud case, separately test the buyer and any person who helped. Apply section 122(3) or the ITC head of 122(1), as the facts require.
Ignoring section 126 and treating every small error as penalisable.
Students learn the penalty amounts and overlook the relief provisions.
Fix: Before concluding, ask if the breach is minor, easily rectifiable and without fraudulent intent. If yes, say that no penalty is imposed, citing the minor breach rule.

Worked examples

Example 1

Alpha Traders, a registered dealer, issued tax invoices to Beta Enterprises showing a supply of goods. No goods were actually moved. The invoices carried GST of ₹4,50,000, which Beta used as ITC. The department detects this. State the penalty on Alpha and the position of Beta.

Show the solution

Offence: Alpha issued invoices without any actual supply. This is a specified offence under section 122(1), and it also leads to wrong ITC being passed on.
Penalty on Alpha: the higher of ₹10,000 or the tax or ITC involved. The amount involved is ₹4,50,000, which is higher than ₹10,000.
Position of Beta: Beta took ITC without receiving any goods. This is a separate specified offence under section 122(1) for the person availing ITC without a supply. Section 122(3) does not apply to Beta as a receiver of the invoices.
Penalty on Beta: the higher of ₹10,000 or the ITC wrongly availed. The ITC is ₹4,50,000, which is higher than ₹10,000.
Overlap with section 74: because the facts show fraud, the tax or ITC can be recovered through proceedings under section 74 (section 74A for periods from FY 2024-25). Alpha is the person chargeable with the tax and Beta is the person who wrongly availed the ITC, so each is covered. If the person does not pay before the order, the penalty under section 74 is equal to the tax, which is 100% of ₹4,50,000 = ₹4,50,000. If the person pays within the time allowed, the penalty is reduced to 25% (₹1,12,500) or 50% (₹2,25,000), depending on the stage at which payment is made. A separate section 122 penalty is not levied again on the same matter. If section 74 is not invoked, the penalty under section 122(1) is ₹4,50,000 on each person. Without early payment, each person therefore bears ₹4,50,000 once.
Section 122(1A): this applies only if a separate person is identified who retains the benefit of these transactions and at whose instance they were conducted. On the given facts, no such person is identified, so no section 122(1A) penalty arises.
Additional exposure: recovery of ITC with interest is separate, and the tax amount may cross a prosecution slab under section 132. The officers can consider prosecution subject to the cognizance rules.

Answer: Alpha is liable to a penalty of ₹4,50,000 and Beta is liable to a penalty of ₹4,50,000 for ITC availed without a supply. If proceedings are under section 74, the penalty on each person equals the tax, ₹4,50,000, where there is no payment before the order. It is reduced to 25% (₹1,12,500) or 50% (₹2,25,000) if paid within the stated time. A separate section 122 penalty is not levied again on the same matter. If section 74 is not invoked, the penalty is ₹4,50,000 each under section 122(1). No section 122(1A) penalty arises, as no separate beneficiary is identified. Interest and prosecution are separate exposures, depending on the tax amount and sanction.

Exam tips

Write the section number first and the amount second. Examiners award marks for the correct provision before the computation.
In case-scenario MCQs, look for trigger words: fraud, suppression, transit, e-way bill, fake invoice, summons. They decide the section.
Always show the comparison for section 122(1) and the 10% test for section 122(2). A bare final figure loses working marks.
When asked for the difference between 129 and 130, answer in a short two-column style using bullets: stage, trigger, consequence and release option.
Link penalty questions to related topics such as demand under sections 73 and 74, detention in e-way bill cases and compounding. Mixed questions are common.

Practice questions from Offences and Penalties and Ethical Aspects under GST

Offences and Penalties under GST (Section 122-138): frequently asked questions

What is the penalty under section 122 of the CGST Act?

For the specified offences by a taxable person, the penalty is the higher of ₹10,000 or the tax evaded, ITC wrongly availed, refund wrongly taken or tax not collected or deducted. A person who retains the benefit of certain of these transactions and at whose instance they are conducted pays a penalty equal to the tax evaded or ITC wrongly availed or passed on (section 122(1A)). For tax short paid without fraud, it is the higher of 10% of tax or ₹10,000. With fraud, it is 100% of the tax due.

What is the general penalty under section 125?

Section 125 provides a residual penalty of up to ₹25,000. It applies only when the Act does not specify a penalty for the contravention. If a specific penalty exists, you should use that section instead.

What is the difference between section 129 and section 130?

Section 129 covers detention and seizure of goods or conveyances in transit, or stock in trade, in contravention of the Act. Release is on payment of penalty. If the owner comes forward, it is 200% of tax for taxable goods, or 2% of value (maximum ₹25,000) for exempt goods. If the owner does not come forward, it is the higher of 50% of value or 200% of tax for taxable goods, or 5% of value (maximum ₹25,000) for exempt goods. Section 130 covers confiscation of goods liable to it, with the owner allowed to pay a fine in lieu, and it deals with serious contraventions such as fraud or supply without invoice.

Can a minor mistake attract GST penalty?

Section 126 says no penalty is imposed for minor breaches, meaning tax involved of less than ₹5,000 or an easily rectifiable error made without fraudulent intention. Any penalty that is imposed must be proportionate to the breach. No penalty can be imposed without giving the person an opportunity of being heard.