In depth analysis of Section 125 of the CGST/SGST Act, 2017.

This section reads as “125. Any person, who contravenes any of the provisions of this Act or any rules made thereunder for which no penalty is separately provided for in this Act, shall be liable to a penalty which may extend to twenty five thousand rupees”. It is after careful thought that this section has been enacted by the legislature in order to cover abnormal situations where there is no specified penalty or late fee on a particular contravention.  Accordingly, the section is not uniformly applicable every where but only for contravention of any section or rule for which no penalty is separately provided. This gives the meaning that late fee as well as Section 125 penalty are mutually  exclusive and whenever late fee is leviable, Section 125 is not applicable.

The penalty amount specified is only the maximum amount and not the specified amount of 25,000 itself.  The words may extend to twenty five thousand rupees convey the meaning that for minor contraventions or inadvertent errors the penalty may be as low as Rs.1,000/- as per the discretion of the adjudication officer. However, I have not come across even a single case where the penalty is less than Rs.25,000/-. The worst part is when there is only one contravention by the taxpayer, the maximum penalty must be Rs.25,000/- only and not Rs.50,000/- as almost all officers all over India impose uniformly by invoking both CGST as well as SGST separately, though the contravention is only once but not twice.

This aspect has come to light due to the fact that a taxpayer was aggrieved by this dual penalty and preferred a writ before the jurisdictional high court, though the cost involved is much higher than the relief got amount of Rs.25,000/-. This aspect on penalty requires wide spread publication so that the tax officials stop levying impermissible penalty and the taxpayer ends up paying only a maximum of Rs.25,000/- and not Rs.50,000/-.

A taxpayer in Faizabad city was issued with demand order on 28/12/2022 imposing a penalty of 25,000 each under CGST as well as SGST acts simultaneously. The taxpayer preferred the first appeal which was rejected on limitation  ground on 15/10/2025. The taxpayer then  preferred the writ before the Allahabad High court.

In one of their finest judgements, the Allahabad High Court on 02/04/2026 passed an order in the matter of Shri Vinayak Enterprises, Faizabad Vs. State of U P and two others as reported in 2026 (5) TMI 1573 where the high court held that maximum penalty is Rs.25,000/- only. The operative portion in para 4 reads as “4. Considering the mandate of provisions of Section 125 of the Act, the imposition of penalty of Rs. 25,000/- under the CGST as well as under the SGST is wholly unjustified, as such, the order dated 28.12.2022 is set aside. As the main order has been set aside, consequential appellate order dated 15.10.2025 is also set aside”.

Any section, in any statue is enacted only after careful thought and each and every word used in the section signifies how it has to be interpreted. At the time of drafting this section, the legislature has considered the quantum of offence in to consideration and gave a loud and clear message that for minor offences or where the offences are due to lack of awareness only but not with any intention to violate any provisions, the penalty may be lower than Rs.25,000/- as the words used are may extend to. However, keeping only the collection as the sole objective, officers across all states levy only the maximum stipulated amount in all cases even for minor and procedural lapses which have no bearing on tax or ITC. This penalty is levied in many cases over and above late fee which is impermissible. The taxpayer have no choice to avoid this payment as the issue is likely to be settled only at GSTAT level in the taxpayer’s favour for which cost of litigation is much higher than the stipulated penalty.

The High Court has remanded the matter for fresh consideration of penalty in line with the above observations of the high court.

The tax officers all over India must come forward to start imposing only one penalty under section 125 and also the penalty need not be the maximum stipulated amount uniformly in all  cases. The penalty may depend up on the nature of contravention.  Awareness is a must amongst all tax professionals on excessive and undue imposition of penalty under section 125 so as to help the taxpayer to pay only the required amount as stipulated in law. Let us hope that we do not come across cases of imposition of penalty which is more than the permissible amount as correctly observed by the Allahabad High court.