GST Penalty Order: How to Challenge a Penalty-Only Order Under Sections 122 to 127

Not every GST dispute involves unpaid tax. Officers sometimes issue orders that impose only a penalty, for reasons such as issuing invoices without supply, failing to maintain records, or technical breaches. A penalty-only order can be challenged, and many have been set aside by courts. This guide explains how.

Which Provisions Allow GST Penalties?

• Section 122 lists offences that attract penalty, such as invoicing without supply
• Section 125 provides a general penalty for contraventions where no specific penalty is provided
• Section 126 requires the officer to consider the facts and not impose a penalty for minor breaches and procedural lapses
• Section 127 allows a penalty order after a hearing, where no other proceeding covers it

What Is a Penalty-Only Order?

A penalty-only order is an order under which the officer imposes a penalty, but does not confirm a demand of tax. For example, an officer may penalise a taxpayer for issuing an invoice without a supply, or for non-compliance with record-keeping rules. The law requires a notice that sets out the contravention, a reasonable chance to reply, and a reasoned order.

What Are the Usual Grounds to Challenge It?

• No show cause notice, or a notice that does not state the contravention and the penalty proposed
• No personal hearing, or a hearing given only on paper
• No reasons in the order, or reasons unrelated to the notice
• Penalty imposed for a technical or minor breach, contrary to Section 126
• Penalty without any finding on intent, where the provision requires it
• Wrong section invoked, or the officer has no jurisdiction
• Order passed beyond the time limit

What Role Does Intention Play?

Penalty provisions that are based on fraud, wilful misstatement or suppression need proof of that intention. Courts have long held that a penalty should not ordinarily be imposed for a technical or venial breach, where the breach was a bona fide one and not a deliberate defiance of the law. This principle, laid down by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa (1970), is frequently relied on in GST penalty matters. Check how the provision in your notice is worded, as some penalties are not dependent on intent.

How Should You Reply to the Notice?

Deal with each alleged contravention separately. Show that the document or return entry was correct, or that any lapse was clerical and has been corrected. Attach evidence, such as invoices, transport records, payment proofs and correspondence. Ask for a hearing. Our article on replying to a GST show cause notice contains a template structure.

How Do You Appeal a Penalty Order?

An appeal can be filed under Section 107 before the first appellate authority within three months of the order. The appeal needs a statement of facts, grounds and a copy of the order, and a pre-deposit may apply. Our guide to GST appeal pre-deposit explains the amounts, and the article on the appellate path shows what follows.

What Are the Grounds for a Writ Petition?

The High Court normally expects you to use the appeal remedy. In Commissioner of Customs v. Radha Krishan Industries (2021), the Supreme Court explained that the High Court can entertain a writ in cases such as breach of natural justice, absence of jurisdiction, or where the order is arbitrary or in violation of the statute. If the order was passed without notice or hearing, a writ before the Madras High Court may be a faster route than an appeal.

What About Penalty on Goods in Transit?

A penalty imposed when goods are detained in transit is dealt with under Section 129, a separate procedure. See our guide to e-way bill rules for what is permitted. The grounds of challenge are similar, but the timelines are shorter and release of goods can be urgent.

What Should You Do Immediately?

• Note the date of the order, since limitation runs from it
• Collect the notice, reply, hearing record and the order
• Check whether tax, interest or penalty has also been demanded elsewhere
• Decide quickly between appeal and writ
• Avoid paying under pressure without legal advice, since payment does not prevent an appeal if paid with protest

Need Help Challenging a GST Penalty?

Our GST and Tax practice drafts replies, files appeals and appears before the Madras High Court in GST matters. Book a consultation through our website and bring the notice, reply and order. This article is general information and not legal advice. Please verify the current text of each section and the time limits before you act.