The Madras High Court ruled that penalties for circular trading must equal the ineligible ITC availed, emphasizing adherence to statutory definitions in penalty assessments.
GST Circular Trading: Penalty Equal to Full ITC Passed On
The Madras High Court has ruled that penalties imposed under Section 122 of the Central Goods and Services Tax (CGST) Act for cases involving circular trading must correspond to the full amount of ineligible Input Tax Credit (ITC) that has been availed or passed on. The ruling clarifies that the statutory cap of ₹10,000 does not apply in circumstances where the phrase 'whichever is higher' is used.
This decision emphasizes that penalties must reflect the severity of the violation and not be limited by arbitrary caps. The Court's interpretation ensures that tax authorities assess penalties based on the total ineligible ITC rather than imposing standard minimum fines that do not account for the particulars of each case.
Legal practitioners must be aware of this significant judgment, as it alters the landscape for penalties in GST compliance and reinforces the necessity for compliance with tax regulations. This ruling can influence how tax advisors approach penalty assessments and mitigation strategies in cases of non-compliance.
Citations
- Madras High Court (2026) WP No. XXX
