To,
The Office of Deputy Commissioner
Ward No. …, State GST
Room No. ….., … Floor
Sub: Reply to Show Cause Notice in case of M/s XYZ and Sons (GSTIN……)
Ref: Your Notice dated …. DIN: ……
Respected Sir,
Greetings!
1. We, M/s XYZ and Sons, trader of ……. Located at ……………. , are in receipt of above mentioned Notice through which we have been asked us to reply why penalty under subsection (3) of section 122 of GST Laws should not be imposed on us for non-generation of e-invoice with effect from 1st August’2023.
2. Relevant extract of Section 122 (3) of GST Laws:
Section 122. Penalty for certain offences.-
….
(3) Any person who-
(a) aids or abets any of the offences specified in clauses (i) to (xxi) of subsection (1);
(b) acquires possession of, or in any way concerns himself in transporting, removing, depositing, keeping, concealing, supplying, or purchasing or in any other manner deals with any goods which he knows or has reasons to believe are liable to confiscation under this Act or the rules made thereunder;
(c) receives or is in any way concerned with the supply of, or in any other manner deals with any supply of services which he knows or has reasons to believe are in contravention of any provisions of this Act or the rules made thereunder;
(d) fails to appear before the officer of central tax, when issued with a summon for appearance to give evidence or produce a document in an inquiry;
(e) fails to issue invoice in accordance with the provisions of this Act or the rules made thereunder or fails to account for an invoice in his books of account, shall be liable to a penalty which may extend to twenty-five thousand rupees.
Any person who commits the above specified offence shall be liable to a penalty which may extend to Rs. 50,000 (i.e., Rs. 25,000 under CGST and Rs. 25,000 under SGST).
3. Tax Invoice is defined in GST Laws in Section 31 as follows:
Section 31. Tax invoice.-
(1) A registered person supplying taxable goods shall, before or at the time of,-
(a) removal of goods for supply to the recipient, where the supply involves movement of goods; or
(b) delivery of goods or making available thereof to the recipient, in any other case, issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars as may be prescribed:
Provided that the Government may, on the recommendations of the Council, by notification, specify the categories of goods or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed.
(2) A registered person supplying taxable services shall, before or after the provision of service but within a prescribed period, issue a tax invoice, showing the description, value, tax charged thereon and such other particulars as may be prescribed:
Provided that the Government may, on the recommendations of the Council, by notification,-
(a) specify the categories of services or supplies in respect of which a tax invoice shall be issued, within such time and in such manner as may be prescribed;
(b) subject to the condition mentioned therein, specify the categories of services in respect of which-
(i) any other document issued in relation to the supply shall be deemed to be a tax invoice; or
(ii) tax invoice may not be issued.
(3) Notwithstanding anything contained in sub-sections (1) and (2)-
(a) a registered person may, within one month from the date of issuance of certificate of registration and in such manner as may be prescribed, issue a revised invoice against the invoice already issued during the period beginning with the effective date of registration till the date of issuance of certificate of registration to him;
(b) a registered person may not issue a tax invoice if the value of the goods or services or both supplied is less than two hundred rupees subject to such conditions and in such manner as may be prescribed;
(c) a registered person supplying exempted goods or services or both or paying tax under the provisions of section 10 shall issue, instead of a tax invoice, a bill of supply containing such particulars and in such manner as may be prescribed:
Provided that the registered person may not issue a bill of supply if the value of the goods or services or both supplied is less than two hundred rupees subject to such conditions and in such manner as may be prescribed;
(d) a registered person shall, on receipt of advance payment with respect to any supply of goods or services or both, issue a receipt voucher or any other document, containing such particulars as may be prescribed, evidencing receipt of such payment;
(e) where, on receipt of advance payment with respect to any supply of goods or services or both the registered person issues a receipt voucher, but subsequently no supply is made and no tax invoice is issued in pursuance thereof, the said registered person may issue to the person who had made the payment, a refund voucher against such payment;
(f) a registered person who is liable to pay tax under sub-section (3) or subsection (4) of section 9 shall issue an invoice in respect of goods or services or both received by him from the supplier who is not registered on the date of receipt of goods or services or both;
(g) a registered person who is liable to pay tax under sub-section (3) or subsection (4) of section 9 shall issue a payment voucher at the time of making payment to the supplier.
(4) In case of continuous supply of goods, where successive statements of accounts or successive payments are involved, the invoice shall be issued before or at the time each such statement is issued or, as the case may be, each such payment is received.
(5) Subject to the provisions of clause (d) of sub-section (3), in case of continuous supply of services,-
(a) where the due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment;
(b) where the due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment;
(c) where the payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event.
(6) In a case where the supply of services ceases under a contract before the completion of the supply, the invoice shall be issued at the time when the supply ceases and such invoice shall be issued to the extent of the supply made before such cessation.
(7) Notwithstanding anything contained in sub-section (1), where the goods being sent or taken on approval for sale or return are removed before the supply takes place, the invoice shall be issued before or at the time of supply or six months from the date of removal, whichever is earlier.
Explanation.-For the purposes of this section, the expression “tax invoice” shall include any revised invoice issued by the supplier in respect of a supply made earlier.
4. How an invoice should be issued is prescribed under Rule 48.
Rule 48. Manner of issuing invoice.-
(1) The invoice shall be prepared in triplicate, in the case of supply of goods, in the following manner, namely,-
(a) the original copy being marked as ORIGINAL FOR RECIPIENT;
(b) the duplicate copy being marked as DUPLICATE FOR TRANSPORTER; and
(c) the triplicate copy being marked as TRIPLICATE FOR SUPPLIER.
(2) The invoice shall be prepared in duplicate, in the case of the supply of services, in the following manner, namely,-
(a) the original copy being marked as ORIGINAL FOR RECIPIENT; and
(b) the duplicate copy being marked as DUPLICATE FOR SUPPLIER.
(3) The serial number of invoices issued during a tax period shall be furnished electronically through the common portal in FORM GSTR-1
(4) The invoice shall be prepared by such class of registered persons as may be notified by the Government, on the recommendations of the Council, by including such particulars contained in FORM GST INV-01 after obtaining an Invoice Reference Number by uploading information contained therein on the Common Goods and Services Tax Electronic Portal in such manner and subject to such conditions and restrictions as may be specified in the notification.
Provided that the Commissioner may, on the recommendations of the Council, by notification, exempt a person or a class of registered persons from issuance of invoice under this sub-rule for a specified period, subject to such conditions and restrictions as may be specified in the said notification.
(5) Every invoice issued by a person to whom sub-rule (4) applies in any manner other than the manner specified in the said sub-rule shall not be treated as an invoice.
(6) The provisions of sub-rules (1) and (2) shall not apply to an invoice prepared in the manner specified in sub-rule (4).
Rule 48 (4), (5) and (6) were inserted vide Notification No. 68/2019-CT, dated 13-Dec-2019 and Proviso to Rule (4) was inserted vide Notification No. 72/2020-CT, dated 30-Sep-2020.
5. The e-invoice was always subject to threshold limit as prescribed. The Government has implemented the provisions of e-invoicing under GST in a phased manner. W.e.f. 1st August’2023 the law requires that the registered person whose aggregate turnover in any preceding financial year from 2017-18 onwards exceeds Rs. 5 crores would be required to comply with the e-invoicing provisions.
| Notification No. | Notification Date | Turnover in any preceding Financial Year | Effective From |
| 61/2020 | 30-July-2020 | 500 Cr | 01-Oct-2020 |
| 88/2020 | 10-Nov-2020 | 100 Cr | 01-Jan-2021 |
| 05/2021 | 08-Mar-2021 | 50 Cr | 01-April-2021 |
| 01/2022 | 24-Feb-2022 | 20 Cr | 01-April-2022 |
| 17/2022 | 01-Aug-2022 | 10 Cr | 01-Oct-2022 |
| 10/2023 | 10-May-2023 | 05 Cr | 01- Aug-2023 |
6. Time limit for generating e-Invoice:
The law does not provide any time limit for generating the e-invoices.
However, the GSTN has issued an advisory dated 13-09-2023 to provide that w.e.f. 01-11-2023, the taxpayers having AATO of greater than Rs. 100 crores will not be allowed to report invoices older than 30 days on the date of reporting. The GSTN advisory further clarifies that there will be no such reporting restriction on taxpayers with AATO less than Rs. 100 crores, as of now. Further, it is provided that the restriction will apply to all document types for which IRN is to be generated, i.e. invoices, debit notes and credit notes.
Example If an invoice has a date of November 1, 2023, it cannot be reported after November 30, 2023. The validation built into the invoice registration portals will disallow the user from reporting the invoice after the 30 days window.
Earlier, GSTN advisory dated 12-04-2023 had provided a time limit of 7 days to report documents on IRP portal. The said restriction was not made effective earlier and its implementation was deferred by GSTN advisory dated 06-05-2023. Now, the advisory dated 13-09-2023 prescribes time limit of 30 days, effective from 01-11-2023.
This means that for taxpayer having AATO less than Rs. 100 crores there is no statutory time limit.
7. CBIC has issued Instruction No. CBIC- 20006/15/2023-GST dated 18-Oct-2023 titled “Action in respect of non-issuance of e-invoices by notified class of taxpayers who are mandatorily required to issue e-invoice as per legal provisions-reg.” that penalty should be imposed on taxpayers having turnover in excess of Rs. 50 Crores. Relevant extract of the same:
Para 4. In this regard, a list of such taxpayers who are mandatorily required to issue e-invoices through electronic invoicing under sub-rule (4) of Rule 48 of the CGST Rules but are not issuing the same will be shared by the GSTN. Accordingly, the field formations are advised to take the following action on the list provided by GSTN:
1. The tax authorities may find the reasons for non-issuance of B2B and export invoices through e-invoicing by such taxpayers. If it is reported by the taxpayers that they have not exceeded the prescribed threshold limit under sub-rule (4) of Rule 48 of the CGST Rules or are exempted from issuance of e-invoice under relevant legal provisions/notifications, they may be advised to declare their exempted category on the functionality on the portal by using the functionality recently provided by GSTN. If the reasons are not in accordance with the provisions of the Rules and the relevant notifications, the taxpayers may be nudged and advised to immediately start issuing invoices through e-invoicing.
1. The tax authorities may also inform the taxpayers (who have exceeded annual aggregate turnover and are mandatorily required to issue invoices through e-invoicing) about the provisions of sub-rule (5) of Rule 48 of CGST Rules providing that any invoice issued by such taxpayers, in the manner other than the manner prescribed under sub-rule (4) of Rule 48 of the CGST Rules, i.e. other than e-invoicing, shall not be treated as valid invoice. They may also be informed that they will be liable to penalty under Clause (c) of sub-section (3) of Section 122 of CGST Act, in case of their failure to issue invoices through e-invoicing system.
iii. In case of continuous non-compliance of the provisions of Rule 48(4) of CGST Rules by the taxpayers, who are otherwise required to issue invoices for B2B and export transactions through e-invoicing, appropriate penal action, as mentioned in sub-para (ii) above, may be initiated under the CGST Act and Rules made thereunder. To begin with, emphasis should be laid on the taxpayers who have exceeded aggregate turnover of more than Rupees Fifty Crore, as sufficient time has elapsed since e-invoicing has been made mandatory for these taxpayers from April, 2021.
Para (ii) of the instruction clearly cast the burden of communication on the department to notify/inform to the taxpayer who are mandatorily required to issue invoices through e-invoicing. Further the person may also be informed that they will be liable to penalty under section 122 (3)(c) for failure to issue invoices through e-invoicing system. We would like to bring this on record that till date we have not received any communication from the department that we were supposed to issue e-invoice or failure to do so we would be subject to penalty. We have directly received this notice for penalty.
Para (iii) of the instruction further clarifies and instructs the department to levy penalty U/s 122 on the taxpayers having turnover more than Rs. 50 Crores on the basis that sufficient time has elapsed since e-invoicing has been made mandatory for these taxpayers from April, 2021. The intention of the instruction is clear that more than 2 years has passed since the e-invoice was made mandatory for taxpayers having turnover more than Rs. 50 crores and still if they are not following then penalty should be levied on those. But in our case the requirement for e-invoice was implemented on 01-Aug-2023 and even 6 months have not been completed for this new requirement. Therefore, penalty on us should not be levied considering the instruction and spirit of the instruction.
8. Penalty under section 122 is governed by Section 126 general principles of Penalty and it states that no penalty to be imposed in case of any minor procedural reequipments for documentation.
9. There are general guidelines for imposing penalties under GST and “mens rea”* is one of the pre-condition for levy of penalty. We would like to place our reliance of few judgments which are as follows:
- The Supreme Court has held that “mens rea” is an essential ingredient in every offence for imposition of penalty. [Commissioner of Sales Tax, Uttar Pradesh vs Sanjiv Fabrics (Civil Appeal Nos. 2344-2347 of 2004 with C. A. Nos. 6382-6383 of 2004, dated 10-Sep-2010)] cited in 2016 Taxo.online 43
- The Supreme Court in a landmark judgment held that penalty will not ordinarily be imposed unless a person acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of his obligations. Penalty will not be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be exercised judicially and on a consideration of the relevant circumstances. Penalty will not be imposed when there is a technical or venial breach of the provisions of the Act or where the breach follows from the bonafide belief that the person was not liable to act in the manner prescribed by the statute. [Hindustan Steel Limited vs State of Orissa (Civil Appeal No. 883 to 892; dated 04-Aug-1969) cited in 1969 Taxo.online 1]. This judgment was well reported and its citations are: [1972] 83 ITR 26, [1970] 25 STC 211 (SC), 1970 AIR 253, 1970 (1) SCR 753, 1969 (2) SCC 627, 1978 (2) E.L.T. (J 159) (SC), 1969 (8) TMI 31 – Supreme Court
* “Mens rea” refers to the guilty state of mind and thus, as per the said principle, penalties are imposed when a violation is intentional.
10. We would like to hereby submit that failure to generate e-invoices was not intentional but an oversight or was because we were not updated or we were not informed by the Department. After realising the oversight, we have taken immediate steps to comply with the provisions of e-invoice as applicable to us. It is important to note that there has been no loss of revenue to the government as our tax liabilities have been duly cleared. We have consistently adhered to GST regulations and have a clean compliance record, with no previous instances of evasion or deliberate non-compliance. This demonstrates our commitment to adhering to tax laws.
11. In conclusion, while we acknowledge our inadvertent oversight in not generating e-invoices as per the revised GST norms, we have demonstrated our commitment to compliance through immediate corrective action and a consistent history of adherence to GST regulations. Our case is significantly bolstered by the CBIC clarification dated 18-10-2023, which advises a moderated approach towards businesses like ours with turnovers considerably lower than INR 50 crores.
12. Therefore, we humbly request your esteemed office to consider the following:
Waiver of Penalty: Given the unintentional nature of our oversight, our swift response to rectify the error, and the lack of any revenue loss to the government, we respectfully request a waiver of the penalty imposed under Section 122 of the GST Act.
Consideration of CBIC Clarification: We kindly ask that the principles laid out in the CBIC clarification dated 18-Oct-2023 be applied to our case, acknowledging the scale of our business and our prompt compliance efforts.
We believe that waiving the penalty in our case would not only be in line with the spirit of fair and equitable enforcement as per the CBIC's guidelines but also encourage a positive compliance culture among small and medium enterprises.
13. At last we request for opportunity of being heard i.e. personal hearing before passing of any adverse order in our case.
Thanks and Regards
For XYZ Sons
XYZ
Authorised Signatory
