GST evasion in India can create several liabilities from the same transaction: the unpaid tax, interest under section 50, a civil penalty, reversal of wrongly claimed input tax credit (ITC), and—where the conduct and amount qualify—confiscation or criminal prosecution. The outcome depends mainly on the tax period, whether the department alleges fraud or only an error, the amount involved, whether ITC was used, and how quickly you pay after a notice.
What GST evasion liability can include
“GST evasion” is not one single charge with one fixed fine. A short payment, an ineligible ITC claim, a fake-invoice arrangement, an unaccounted supply or a fraudulent refund can trigger different provisions of the Central Goods and Services Tax Act. The department may pursue more than one consequence for the same facts.
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| Exposure | What it covers | Typical legal route |
|---|---|---|
| Tax demand | GST that was not paid, or an erroneous refund that must be repaid | Section 73 for non-fraud periods; section 74 for fraud, wilful misstatement or suppression for periods up to financial year (FY) 2023–24; later periods require checking section 74A and the latest rules |
| Interest | Compensation for delayed payment, and in specified cases interest connected with undue or excess ITC | Section 50 |
| Civil penalty | A tax-linked or fixed minimum penalty for short payment, wrong ITC, invoices and other listed offences | Sections 73, 74 and 122 |
| ITC reversal | Credit that was not eligible, including credit affected by the payment condition for purchases | Section 16 conditions and related rules, with section 50 interest where applicable |
| Confiscation | Goods or a conveyance used in specified intentional contraventions | Section 130 |
| Prosecution | Criminal offences such as fake invoices, fraudulent ITC or refund, non-payment of collected tax and falsified records | Section 132 |
A civil demand does not automatically mean imprisonment. Conversely, paying the tax does not erase every possible offence if the evidence supports a prosecution allegation.
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Interest under section 50
Delayed GST attracts interest at a rate notified under the Act, subject to a statutory ceiling of 18% for delayed tax. The ceiling is not necessarily the rate used in every case; the applicable notification and the relevant period control the calculation.
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Section 50 also provides a separate statutory ceiling of 24% for undue or excess ITC claims or for an excess reduction of output-tax liability. The department must identify the relevant event and period rather than simply applying the delayed-tax rule to every ITC dispute.
ITC connected with the 180-day payment condition
Where a recipient has not paid the supplier the value of a supply plus the tax within the applicable 180-day condition, the related ITC must be reversed or added back to output liability under the rules. Interest runs from the date the credit was availed until the additional output liability is paid. A later payment to the supplier can allow re-availment subject to the statutory conditions, but it does not remove interest already due for the period of the reversal.
An ITC mistake can therefore produce reversal and interest even when the facts do not meet the legal standard for fraud. Deliberately fabricated invoices, records or transactions can add section 122 penalties and section 132 criminal exposure.
Section 73: non-fraud short payment, wrong ITC or erroneous refund
Section 73 is the non-fraud route. It applies where tax was not paid or was short-paid, an erroneous refund was made, or ITC was wrongly availed or utilised, without fraud, wilful misstatement or suppression being established.
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Paying after the show-cause notice
Section 73 gives a valuable settlement window. If the person pays the tax and the section 50 interest within 30 days of issue of the show-cause notice, no penalty is payable and proceedings for that notice are deemed concluded. The payment should be matched carefully to the tax period, demand and interest calculation, with proof submitted in the manner required by the notice.
If the case is adjudicated
If the matter is not closed through that payment route and an order determines the liability, the section 73 penalty is 10% of the tax or ₹10,000, whichever is higher. The ₹10,000 floor means a small tax amount can still produce a ₹10,000 penalty.
- Read the notice: identify the tax period, tax head, allegation, proposed tax, interest and the evidence relied upon.
- Reconcile the figures: compare returns, electronic ledgers, invoices, e-way bills, books and payments to suppliers.
- Check the 30-day deadline: if the liability is accepted, calculate tax and section 50 interest through the payment date.
- Pay and document: use the prescribed GST payment process and file the required intimation or response so the closure is recorded.
- Contest where necessary: if the demand is wrong, submit a reasoned reply with reconciliations and supporting documents instead of making an unexplained partial payment.
Section 74: fraud route for periods up to FY 2023–24
For tax periods up to FY 2023–24, section 74 applies where the department alleges fraud, wilful misstatement or suppression of facts. The section 74 penalty is equal to the tax specified in the notice, in addition to the tax and interest.
Staged payment options
The Act provides different penalty percentages depending on when the person pays:
| When payment is made | Penalty under the section 74 settlement route | What must also be paid |
|---|---|---|
| Before issue of the show-cause notice | 15% of the tax | Tax and applicable interest |
| Within 30 days of the show-cause notice | 25% of the tax | Tax and applicable interest |
| Within 30 days of the order | 50% of the tax | Tax and applicable interest |
| After those statutory windows, or where the route is not satisfied | Penalty can be equal to the tax | Tax and applicable interest |
These percentages are not discounts that convert a fraudulent transaction into a non-fraud case. They are statutory settlement consequences available only when the conditions and timing in section 74 are met.
Later tax periods and section 74A
The Finance Act 2024 introduced section 74A for later periods. The section 74 extract currently used by the Central Board of Indirect Taxes and Customs (CBIC) is expressly for determinations up to FY 2023–24. For a notice concerning a later period, check the latest consolidated Act, notified rules, limitation provisions and settlement mechanics before deciding which payment option applies.
Section 122: separate penalties for listed offences
Section 122 covers a broad list of conduct, including issuing invoices without supply, failing to register, collecting tax and not paying it, transporting or storing goods contrary to the Act, suppressing supplies, taking or distributing irregular ITC, and obtaining a fraudulent refund.
The general penalty floor is ₹10,000 or the amount of tax evaded, irregular ITC, or fraudulent refund, whichever is higher. For a registered person under section 122(2), the stated structure is:
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| Conduct | Penalty for a registered person |
|---|---|
| Short payment, non-payment, erroneous refund or irregular ITC without fraud or suppression | 10% of the tax due or ₹10,000, whichever is higher |
| Fraud or wilful suppression | The tax due or ₹10,000, whichever is higher |
Section 122 can operate alongside a section 73 or section 74 demand. It is therefore important to identify whether the notice is proposing only a determination of tax and interest or also a separate offence penalty.
When GST evasion can lead to imprisonment
Section 132 creates criminal offences. Examples include supplying without issuing an invoice, issuing invoices without a supply to enable wrongful ITC or refund, using such invoices, collecting tax and not paying it to the government for more than three months, fraudulently obtaining or using ITC or a refund, falsifying financial records or producing false information, obstructing an officer, and dealing with goods or services known to contravene the Act.
| Amount involved | Maximum imprisonment | Other consequence |
|---|---|---|
| More than ₹5 crore of evaded tax, wrongly availed or utilised ITC, or fraudulent refund | Five years | Fine |
| More than ₹2 crore and up to ₹5 crore | Three years | Fine |
| More than ₹1 crore and up to ₹2 crore | One year | Fine |
| Specified falsification, obstruction or evidence-tampering offences | Up to six months | Fine, imprisonment, or both, as the provision permits |
The statutory bands are maximum sentences, not automatic jail terms. The case still depends on the ingredients of the particular offence, the evidence, prosecution sanction and the criminal process.
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CBIC prosecution instructions state that prosecution should normally be launched where the amount exceeds ₹5 crore and identify habitual evasion as a factor. “Normally” is administrative guidance, not a statutory rule that makes ₹5 crore an automatic prosecution threshold. Section 132 can apply where its offence elements are established even if an internal guidance threshold is not met.
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Confiscation of goods or vehicles under section 130
Section 130 makes goods or conveyances liable to confiscation when listed contraventions are committed with intent to evade tax. Examples include unaccounted goods, taxable supplies made without registration where registration is required, and a vehicle used in a contravening movement. The person is also liable to the section 122 penalty.
An officer may allow the owner or person in charge up to three months to pay a fine in lieu of confiscation. The amount is case-specific and does not replace the underlying tax, interest or other penalty unless the applicable order expressly deals with each liability.
How the facts change the outcome
| Decision factor | Why it matters |
|---|---|
| Fraud versus non-fraud | It can move the case from section 73 to section 74 (or the provision applicable to a later period), greatly changing the penalty and prosecution risk. |
| Tax, ITC or refund amount | The amount determines tax-linked penalties and the section 132 imprisonment band. |
| ITC merely availed versus availed and utilised | The notice may calculate different liabilities and may allege a more serious offence where credit was actually used to reduce output tax. |
| Timing of voluntary payment | Payment before notice, within 30 days of notice, or within 30 days of an order can determine the section 73 or section 74 penalty route. |
| Invoices and records | Fake invoices, invoices without supply, fabricated books or obstruction can support separate section 122 or section 132 allegations. |
| Goods or vehicle involvement | Intentional movement, storage or supply contraventions can create section 130 confiscation exposure. |
| Tax period | Section 74 is stated for periods up to FY 2023–24; later periods require checking section 74A and current notifications. |
Section 128A waiver: a narrow relief
Section 128A provides a targeted waiver of interest or penalty for qualifying section 73 demands for FY 2017–18, FY 2018–19 and FY 2019–20, subject to the statutory conditions and payment deadlines. It is not a general waiver for fraudulent evasion, section 74 demands or later periods. Eligibility should be checked against the exact order, demand and payment history rather than assumed from the financial year alone.
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- Mark every date: note the tax period, notice date, reply deadline, order date and any 30-day settlement window.
- Classify the allegation: determine whether the notice invokes section 73, section 74, section 122, section 130 or section 132, and whether it alleges fraud, wilful misstatement or suppression.
- Separate the components: prepare independent figures for tax, section 50 interest, ITC reversal, civil penalty and any proposed confiscation or prosecution.
- Test the ITC trail: match purchase invoices, supplier payments, returns, goods receipt and the date credit was availed. Check the 180-day payment condition.
- Preserve evidence: retain ledgers, e-invoices, e-way bills, contracts, bank statements, stock records, correspondence and explanations for discrepancies.
- Choose payment or contest strategy: if paying, use the statutory window and obtain acknowledgment; if disputing, answer each allegation and calculation with documents.
- Obtain specialist advice: a qualified GST professional should review the tax period, notice wording, amount, ITC utilisation and latest amendments before a response or payment is filed.
Worked penalty illustrations
Non-fraud example
Suppose an adjudicated section 73 order determines ₹1,00,000 of non-fraud tax. The 10% calculation is ₹10,000, so the penalty is ₹10,000 because that is the statutory minimum. If the person instead pays the ₹1,00,000 tax plus applicable section 50 interest within 30 days of the show-cause notice, the section 73 penalty is not payable and proceedings for that notice are deemed concluded.
Fraud-route example
For a section 74 notice specifying ₹1,00,000 tax for a period up to FY 2023–24, the staged penalty figures are ₹15,000 if paid before notice, ₹25,000 if paid within 30 days of notice, and ₹50,000 if paid within 30 days of the order, in each case together with tax and applicable interest. Outside the statutory settlement conditions, the penalty can equal the tax.
These illustrations do not calculate interest, which depends on the notified rate, the exact due date, the date of availing or utilising credit where relevant, and the payment date.
Limits of a general answer
The same invoice discrepancy may be treated as an accounting error in one case and as deliberate suppression or a fake-invoice offence in another, depending on documents and conduct. The decisive details are the tax period, allegation, amount, ITC utilisation, notice date, payment timing, records and involvement of goods or a conveyance. Because section 74A, waiver deadlines and prosecution practice can change through amendments or notifications, verify the current consolidated law and obtain professional advice before responding to an actual notice.
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