Section 122 to section 138 of the CGST Act, 2017 contain the provisions related to off offences, penalties prosecution & compounding. These provisions will be similarly applicable to UTGST Act & IGST Act. SGST laws to be passed by states should contain similar provisions for offence & penalties, prosecution & compounding.
Any law that casts an obligation to carry out a certain act or to refrain from doing something must also provide for penal action in the event of the violation of the statutory obligation otherwise it becomes difficult to administer or enforce the law. But the penal provisions can be invoked only after serving a notice to show cause and affording an opportunity of hearing to the person proceeded against. The levy of penalty is subject to a certain disciplinary regime which is based on jurisprudence, principles of natural justice and principles governing international trade and agreements. Such general discipline is enshrined in section 126 of the Act. Accordingly—
• no penalty is to be imposed without issuance of a show cause notice and proper hearing in the matter, affording an opportunity to the person proceeded against to rebut the allegations levelled against him,
• the penalty is to depend on the totality of the facts and circumstances of the case,
• the penalty imposed is to commensurate to the degree and severity of breach of the provisions of the law or the rules alleged,
• the nature of the breach is to be specified clearly in the order imposing the penalty,
• the provisions of the law under which the penalty has been imposed and the range or quantum of penalty specified in the law for the offence alleged to have been committed
Section 126 further specifies that, in particular, no substantial penalty is to be imposed for —
• any minor breach (minor breach has been defined as a violation of the provisions in a case where the tax involved is less thans. Rs. 5000), or
• a procedural requirement of the law, or
• an easily rectifiable mistake/omission in documents (explained in the law as an error apparent on record) that has been made without fraudulent intent or gross negligence.
Further, wherever penalty of a fixed amount or a fixed percentage has been provided in the Act, the provisions of this Chapter shall not apply.