IGST Penalty Computation Under Section 73: Interplay Between CGST Act and IGST Act

Integrated Goods and Services Tax (IGST) demand proceedings under Section 73 (i.e., non-fraud cases) frequently run into disputes on how the associated penalty should be calculated. A recurring question in audits and adjudication is:

  • Is the penalty on IGST demands 10% of IGST,
  • or 20% of IGST, on the basis that 10% is applied separately as if under CGST and SGST,
  • or something even higher?

The text of Section 73(9) of the Central Goods and Services Tax Act, 2017 clearly prescribes a penalty of ten per cent of the tax determined or ₹10,000, whichever is higher. There is no language authorising a penalty equal to the entire tax or multiple times the tax in non-fraud cases.

Yet, confusion has arisen because Section 20 of the Integrated Goods and Services Tax Act, 2017 imports the demand and penalty provisions of the CGST Act mutatis mutandis, and its fourth proviso states that, where penalty is leviable under both CGST and SGST/UTGST, the penalty under the IGST Act shall be “the sum total of the said penalties.”

Certain field formations have interpreted this as justifying a 20% penalty on IGST, by notionally applying 10% twice to the same IGST base. A more legally consistent approach—now also set out in Kerala SGST Circular No. 12/2024 dated 13 August 2024—is that the penalty amounts, not the rates, are to be added. When correctly worked, this generally leads to a penalty of 10% of IGST, subject to the ₹10,000 minimum for each “component”.

This article systematically examines:

  • The statutory framework (Section 73(9) and Section 20)
  • The interpretative issues surrounding “sum total of the said penalties”
  • Competing computational methods and their implications
  • The reasoning and illustrations in Kerala SGST Circular No. 12/2024
  • Practical conclusions for assessee facing IGST demands in non-fraud cases

Statutory Framework

Penalty Mechanism Under Section 73(9) of the CGST Act

Section 73 governs:

  • Tax not paid or short paid
  • Tax erroneously refunded
  • Input tax credit wrongly availed or utilised

in situations other than those involving fraud, wilful misstatement or suppression of facts with intent to evade tax.

Under Section 73(9):

The proper officer, after considering the assessee’s representation, is required to determine the tax and interest and impose “a penalty equivalent to ten per cent of tax or ten thousand rupees, whichever is higher.”

Two distinct limbs exist:

  1. Percentage limb – 10% of the “tax” determined; and
  2. Minimum amount limb – ₹10,000, whichever is higher.

So, for each relevant tax component:

  • If 10% of the tax exceeds ₹10,000 → percentage figure is adopted.
  • If 10% of the tax is below ₹10,000 → the minimum of ₹10,000 is adopted.

The difficulty arises when the tax determined is IGST, because the IGST Act does not contain a standalone penalty provision mirroring Section 73(9). Instead, it relies on a system of cross-application through Section 20.

Cross-Application of CGST Provisions Via Section 20 of the IGST Act

The IGST Act does not replicate the entire machinery of adjudication, recovery, interest and penalties. Instead, Section 20 provides that specific provisions of the CGST Act, including those relating to:

  • demands and recovery,
  • offences and penalties, and
  • imposition of interest and penalties

shall apply mutatis mutandis to IGST.

Thus, Section 73(9) is attracted to IGST through Section 20.

The crucial fourth proviso to Section 20 states:

“Provided also that in cases where the penalty is leviable under the Central Goods and Services Tax Act and the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, the penalty leviable under this Act shall be the sum total of the said penalties.”

This is where the interpretive divergence starts:

  • Does “sum total of the said penalties” refer to adding two penalty rates, each levied on the same IGST figure (leading to 20%)?
  • Or does it require determining two hypothetical penalty amounts corresponding to notional CGST and SGST components within IGST, and then adding those amounts?

Key Reference: Kerala SGST Circular No. 12/2024

To ensure consistency in the application of this proviso, the Commissioner of SGST, Kerala issued Circular No. 12/2024 dated 13 August 2024 under Section 168(1) of the Kerala SGST Act. The Circular addresses computation and levy of penalty under:

  • the fourth proviso to Section 20 of the IGST Act,
  • in cases where tax is demanded under Section 73(1) or Section 74(1).

The Circular emphasises, in substance, that:

  • The IGST Act does not independently quantify penalty;
  • The quantum of IGST penalty is to be drawn from the penalties “leviable” under CGST and SGST;
  • Under the fourth proviso to Section 20, the penalty under the IGST Act equals the sum total of the quantum of penalty that would be leviable under the CGST Act and SGST Act.