In India, §122 of the Central Goods and Services Tax Act, 2017 (CGST Act) penalises 21 enumerated offences at ₹10,000 or the tax evaded, whichever is higher, with §125 supplying a residuary penalty up to ₹25,000. The same conduct turns criminal under §132 above three monetary slabs — ₹1 crore, ₹2 crore and ₹5 crore — with the top slab cognizable and non-bailable.
TL;DR for founders
Three separate consequences can follow one set of facts, and they escalate on different triggers. A money penalty attaches to the offence itself and is decided by a tax officer. A criminal case attaches only above a rupee threshold and only where the department can show you meant to do it — a confirmed tax demand alone is not enough, and CBIC's own manual says so. Arrest is narrower again, reserved for the top slab and hedged with written-reasons requirements courts have tightened twice in two years. The practical point is that the criminal track has an exit: most GST offences can be compounded, which buys immunity from prosecution — but only after the tax, interest and penalty are paid.
The penalty map: which provision the officer is actually using
Four provisions do the work, and identifying the right one changes both the quantum and the defence.
§122(1) — the enumerated offences. Twenty-one clauses, each penalised at ₹10,000 or the amount of tax evaded, credit wrongly availed or refund wrongly claimed, whichever is higher. The commercially significant ones are clause (i) supplying without an invoice, clause (ii) issuing an invoice without a supply, clause (iii) collecting tax and failing to remit it beyond three months, clause (vii) taking credit without receipt of goods or services, and clause (ix) obtaining a refund by fraud. §122(1A) reaches the person at whose instance a clause (i), (ii), (vii) or (ix) transaction was conducted and who retains the benefit of it, at a penalty equal to the tax evaded — the provision that follows the money past the shell entity.
§122(2) — short payment. A different scheme entirely: 10% of the tax or ₹10,000, whichever is higher, where tax is unpaid or short-paid for a reason other than fraud; 100% of the tax or ₹10,000 where fraud, wilful misstatement or suppression is established. §122(3) adds ₹25,000 for aiding and abetting, dealing in liable-to-confiscation goods, or failing to appear on summons.
§125 — the residuary. Up to ₹25,000 for any contravention with no separate penalty prescribed. CBIC has switched it off by notification where compliance infrastructure lagged — Notification 89/2020-Central Tax (CGST_89_2020) and Notification 28/2021-Central Tax (CGST_28_2021) waived it for dynamic-QR-code failures on business-to-consumer invoices from 1 December 2020 to 31 March 2021, conditional on compliance from 1 April 2021.
Two filters run over all of this. §126 bars penalty for minor breaches — including where the tax involved is under ₹5,000 — and for easily rectifiable documentation errors made without fraudulent intent. And Circular 76/50/2018-GST (CIR_76_2018) confirms the §73(11) penalty is not attracted merely because FORM GSTR-3B was filed late where the self-assessed tax is paid with interest; a general penalty under §125 is the department's only route there.
The §75(13) bar, and the fake-invoice matrix
§75(13) is the single most useful defensive provision in the chapter: where a penalty for the same act or omission has been imposed under §73 or §74, no penalty under any other provision may be imposed. It converts a two-headed demand into one.
Circular 171/03/2022-GST (CIR_171_2022) works this through three fake-invoice scenarios, starting from §7: mere issuance of a tax invoice without an underlying supply is not a supply, so there is no tax to demand from the bare issuer at all.
| Scenario | Demand under §73/§74 | Penalty |
|---|---|---|
| A issues an invoice to B without supply; B does nothing with it | None against A — no supply | §122(1)(ii) against A |
| A issues to B; B avails and utilises the credit for its own outward supplies | §74 against B, with §50 interest | §74 penalty on B; §75(13) bars a further §122 penalty |
| A issues to B; B passes the credit on by issuing further invoices to C without supply | None against B — B made no supply to C | Both §122(1)(ii) and §122(1)(vii) against B |
§132 prosecution remains available wherever the slabs are met.
Veritect Legal AI
The costliest error in penalty defence is arguing quantum before arguing provision. A §74 demand and a §122(1)(vii) penalty on the same credit are mutually exclusive under §75(13); a §122(2)(a) short-payment penalty at 10% and a §122(1) penalty at 100% of tax describe different conduct and cannot both be right on one set of facts; and a §125 residuary penalty is unsustainable wherever a specific penalty exists. Separately, §128A — with payment deadlines notified by Notification 21/2024-Central Tax (
CGST_21_2024) at 31 March 2025 for the FY 2017-18 to 2019-20 demand periods — waives interest and penalty entirely on qualifying §73 demands, reordering the defence strategy for legacy years. Veritect Legal AI holds the penalty and offence provisions alongside the binding CBIC circulars and instructions, so a query such as "can the department impose §122(1)(vii) where a §74 order has already levied penalty on the same credit" resolves against §75(13) and Circular 171/03/2022-GST rather than general commentary.
Prosecution: slabs, mens rea and the CBIC gate
Section 132 sets three slabs by the amount of tax evaded, credit wrongly availed or refund wrongly taken:
| Amount involved | Maximum imprisonment | Cognizability |
|---|---|---|
| Above ₹5 crore | 5 years and fine | Cognizable and non-bailable under §132(5) |
| ₹2 crore to ₹5 crore | 3 years and fine | Non-cognizable and bailable under §132(4) |
| ₹1 crore to ₹2 crore | 1 year and fine | Non-cognizable and bailable under §132(4) |
A second or subsequent conviction attracts up to five years regardless of slab, and prosecution requires Commissioner sanction under §132(6).
CBIC Instruction 04/2022-23 [GST-Investigation] dated 17 August 2022 (INS_04_2022) is the operative gate, and it is materially narrower than the statute. It requires evidence of mens rea — a confirmed demand is not enough — and sets a ₹5 crore threshold for launching prosecution, waived only for habitual evaders and cases where arrest has been made. The investigation report must be filed within one month of the adjudication order and the complaint within 60 days of sanction. For companies, §137 liability attaches only to persons who directed or connived in the evasion — not to every director on the board, which answers the routine practice of arraying an entire board. Adjudication and prosecution are independent, following the Supreme Court in Radheshyam Kejriwal (2011). The instruction also directs that §138 compounding be offered, and that §159 publication of convicts' names be pursued in deserving cases.
Arrest: a last resort, twice tightened
CBIC Instruction 02/2022-23 [GST-Investigation] of the same date (INS_02_2022) frames arrest under §69 as a last resort. The Commissioner must record reasons, establish mens rea under §132 and assess five specified factors before authorising. The arrest memo must comply with Circular 128/47/2019-GST and the D.K. Basu directions, and a Document Identification Number is mandatory. Post-arrest: a person arrested for a bailable §132(4) offence gets bail at the Commissionerate level; a §132(5) arrestee must be produced before a Magistrate within 24 hours. Prosecution should be filed within 60 days of arrest where bail is not granted.
Instruction 01/2025-GST (INS_01_2025), issued 13 January 2025, amended paragraph 4.2.1 to require that the grounds of arrest be explained and furnished in writing as an annexure to the arrest memo, with acknowledgement taken. It follows the Delhi High Court in Kshitij Ghildiyal (16 December 2024), which applied the Supreme Court's distinction in Prabir Purkayastha between generic "reasons for arrest" and case-specific "grounds of arrest", building on Pankaj Bansal. Any §69 arrest after 13 January 2025 without that written annexure is vulnerable. The earlier instructions in this line — INS_01_2019 and INS_02_2019, on the Supreme Court caveat and directions addressing divergent High Court views on the arrest power — mark how contested this jurisdiction has been from the outset.
Compounding, and the department's own appeal thresholds
Compounding. Section 138 permits an offence to be compounded on payment of a compounding amount fixed within a statutory band calculated on the tax involved, and Rule 162 of the CGST Rules — inserted with the enforcement chapters by Notification 15/2017-Central Tax (CGST_15_2017) — supplies the machinery. The applicant files FORM GST CPD-01; the Commissioner passes an order in FORM GST CPD-02 within 90 days after a hearing, either allowing compounding with immunity from prosecution or rejecting it. Two hard conditions apply: compounding cannot be allowed unless the tax, interest and penalty involved have been paid, and the compounding amount must be paid within 30 days of the order, failing which the order is void. Immunity is withdrawable on concealment or false evidence, and the provisos to §138(1) exclude defined categories including repeat beneficiaries and persons already convicted under the Act.
The department's own filing floor. Circular 207/1/2024-GST (CIR_207_2024) fixes monetary limits under §120 below which Central Tax officers shall not file departmental appeals: ₹20 lakh before the GST Appellate Tribunal, ₹1 crore before a High Court and ₹2 crore before the Supreme Court. Tax-only computation aggregates CGST, SGST, IGST and cess; a composite order is tested on the total. Four exclusions override the floor — a provision held ultra vires, a recurring issue such as valuation, classification, refund or place of supply, adverse strictures or costs, or a Board direction. Two cautions: the threshold is a floor, not a trigger, so an appeal above it still requires a merits decision; and §120(3) bars any inference of acquiescence from non-filing, so a below-threshold win does not settle the point for future periods.
FAQ
Q: What penalty does §122 of the CGST Act impose?
A: Section 122(1) of the Central Goods and Services Tax Act, 2017 (CGST Act) lists 21 offences — supplying without invoice, issuing an invoice without supply, collecting tax and failing to remit it beyond three months, taking or utilising input tax credit without receipt of goods or services, and obtaining a refund by fraud among them — and penalises each at ₹10,000 or the amount of tax evaded, credit wrongly availed or refund wrongly claimed, whichever is higher. Section 122(1A) reaches the person at whose instance such a transaction was conducted and who retains its benefit. Section 122(2) covers short payment separately: 10% of tax or ₹10,000 for non-fraud cases, and 100% of tax or ₹10,000 where fraud or wilful misstatement is established.
Q: When does a penalty under §125 apply instead?
A: Section 125 of the CGST Act is the residuary penalty — up to ₹25,000 for any contravention of the Act or rules for which no separate penalty is prescribed. It is the provision the department falls back on for procedural failures, and CBIC has used notifications to switch it off where compliance infrastructure lagged: Notification 89/2020-Central Tax (CGST_89_2020) and Notification 28/2021-Central Tax (CGST_28_2021) waived the §125 penalty for failure to comply with the dynamic QR code requirement on business-to-consumer invoices under Notification 14/2020-Central Tax for the period 1 December 2020 to 31 March 2021, conditional on compliance from 1 April 2021. Section 126 separately bars penalty for minor breaches, including where the tax involved is less than ₹5,000.
Q: Can the department impose both a §74 penalty and a §122 penalty for the same act?
A: No. Section 75(13) of the CGST Act bars a penalty under any other provision where a penalty for the same act or omission has been imposed under §73 or §74. Circular 171/03/2022-GST (CIR_171_2022) applies this directly in the fake-invoice context: where a recipient has availed and utilised credit on an invoice without underlying supply, the demand runs under §74 with interest under §50 and the §74 penalty, and §75(13) then bars a further §122 penalty on the same act. The bar does not help where no §73 or §74 demand lies at all — a bare invoice-issuer who made no supply faces §122(1)(ii) precisely because §7 means there is nothing to demand tax on.
Q: At what amount does a GST offence become prosecutable under §132?
A: Section 132 of the CGST Act sets three slabs by amount of tax evaded, credit wrongly availed or refund wrongly taken. Above ₹5 crore the offence carries imprisonment up to five years with fine, and is cognizable and non-bailable under §132(5). Between ₹2 crore and ₹5 crore the maximum is three years with fine. Between ₹1 crore and ₹2 crore it is one year with fine. Every offence other than those in §132(5) is non-cognizable and bailable under §132(4). A second or subsequent conviction attracts up to five years regardless of slab. Prosecution requires the sanction of the Commissioner under §132(6).
Q: What does CBIC require before launching a prosecution?
A: CBIC Instruction 04/2022-23 [GST-Investigation] dated 17 August 2022 (INS_04_2022) is the operative prosecution manual. It requires evidence of mens rea — a confirmed demand alone is not enough — and sets a ₹5 crore monetary threshold for launching prosecution, waived for habitual evaders and for cases where arrest has been made. Sanction by the Commissioner or Principal Commissioner is mandatory. The investigation report must be filed within one month of the adjudication order and the prosecution complaint within 60 days of sanction. For companies, §137 liability attaches only to persons who directed or connived in the evasion, not to every director. Adjudication and prosecution are independent, so prosecution may precede or run parallel to adjudication.
Q: What are the current requirements for an arrest under §69?
A: CBIC Instruction 02/2022-23 [GST-Investigation] dated 17 August 2022 (INS_02_2022) frames arrest as a last resort: the Commissioner must record reasons, establish mens rea under §132 of the CGST Act, and assess five specified factors before authorising. The arrest memo must comply with Circular 128/47/2019-GST and the D.K. Basu directions, and a Document Identification Number is mandatory. Instruction 01/2025-GST (INS_01_2025), issued 13 January 2025, amended paragraph 4.2.1 to require that the grounds of arrest be explained and furnished in writing as an annexure to the arrest memo with acknowledgement — following the Delhi High Court in Kshitij Ghildiyal, which applied the Supreme Court rulings in Pankaj Bansal and Prabir Purkayastha.
Q: How does compounding under §138 work?
A: Section 138 of the CGST Act allows an offence to be compounded on payment of a compounding amount, and Rule 162 of the CGST Rules, 2017, inserted by Notification 15/2017-Central Tax (CGST_15_2017), supplies the machinery. The applicant files FORM GST CPD-01; the Commissioner passes an order in FORM GST CPD-02 within 90 days after a hearing, either allowing compounding with immunity from prosecution or rejecting it. Compounding cannot be allowed unless the tax, interest and penalty involved have been paid, and the compounding amount must be paid within 30 days of the order failing which the order becomes void. Immunity may be withdrawn where material particulars were concealed or false evidence given. CBIC Instruction 04/2022-23 (INS_04_2022) directs that compounding be offered in appropriate cases.
Related on Veritect: §73 vs §74 show cause notice — fraud or oversight · Section 128A amnesty — interest and penalty waiver framework · Detention, release and confiscation under §§129 and 130
Sources
Primary CBIC and Government of India sources relied on for this explainer:
- CBIC Tax Information Portal — instruction, circular and notification text: taxinformation.cbic.gov.in
- CBIC GST portal (archival instruments, 2017–2022): cbic-gst.gov.in
- GST Council — 53rd meeting recommendations underlying the §120 monetary limits: gstcouncil.gov.in
- CGST Act, 2017 — §§69, 73, 74, 75, 120, 122, 125, 126, 132, 137, 138: indiacode.nic.in
- Gazette of India — notification publication: egazette.gov.in
Corpus anchors: CGST_15_2017, CGST_89_2020, CGST_28_2021, CGST_21_2024, CIR_76_2018, CIR_171_2022, CIR_207_2024, INS_01_2019, INS_02_2019, INS_02_2022, INS_04_2022, INS_01_2025.
This explainer is general information on Indian central GST law and is not legal or tax advice. Verify the operative statutory text, monetary slabs and instruction paragraphs applicable to the period in question before acting.
Beyond this brief Preview
This article covers the framework. The full picture includes the verbatim text of §122 with all 21 clauses and sub-sections (1A), (2) and (3), §125 to §128 in sequence, §132's full offence list with the slab table and the §132(4) and (5) cognizability split, §137's officer-of-company provisions with the due-diligence defence, §138 with its provisos and the compounding-amount band, Rule 162's procedure and the CPD-01 and CPD-02 form set, the five arrest factors and the amended paragraph 4.2.1 of Instruction 02/2022-23 with its grounds-of-arrest annexure, and the three-scenario penalty matrix of Circular 171/03/2022-GST in full. Veritect Legal AI holds all twelve anchor instruments cited above in full text, supersession-tracked, so practitioners can resolve queries such as "does §75(13) bar a §122(1A) penalty on a promoter where §74 penalty was levied on the company" or "what is the prosecution exposure where credit of ₹2.4 crore was availed but never utilised" against the operative sources rather than secondary summaries. Access through veritect.ai.