Penalty under Section 122 for taking ITC without an invoice or without receipt of supply
The penalty provision that reaches beyond the taxpayer, to the person who benefits and to the officer who signed.
Section 122(1)(vii) imposes a penalty on a person who takes or utilises input tax credit without actual receipt of goods or services, either fully or partially, in contravention of the Act or the rules. The penalty is ten thousand rupees or an amount equivalent to the tax involved, whichever is higher. Section 122(1A) extends liability to a person who retains the benefit of specified transactions and at whose instance they are conducted. Section 122(2) deals with penalty on short payment, at ten percent where there is no fraud and equal to the tax where there is.
The distinction that decides the quantum
Section 122(2)(a) imposes a penalty of ten percent of the tax, subject to a minimum, where tax is short paid for any reason other than fraud or wilful misstatement or suppression of facts.
Section 122(2)(b) imposes a penalty equal to the tax where those ingredients are present. The difference is the entire fight in most files.
Section 122(1)(vii) is different again. It is a specific offence penalty, not tied to a Section 73 or 74 determination, and it attaches to the act of taking credit without receipt of the supply. It is the provision used in invoice trading cases.
Section 75(13) prevents double penalty: where penalty is imposed under Section 73 or 74, no penalty for the same act is imposable under any other provision. Orders that stack Section 122 on top of a Section 74 penalty should be challenged on that ground.
Personal liability, and how to resist it
Section 122(1A) makes a person who retains the benefit of a transaction covered by specified clauses, and at whose instance the transaction is conducted, liable to a penalty equivalent to the tax. It is aimed at the beneficial owner behind a paper entity.
Section 122(3) imposes penalty up to twenty five thousand rupees on a person who aids or abets, or who acquires goods knowing them to be liable to confiscation, among other situations.
Section 137 provides for the liability of officers of a company for offences, with the defence that the offence was committed without their knowledge or that they exercised due diligence.
Each of these requires findings specific to the person named. A single order that imposes penalty on the company, the director and the accountant without separate findings is defective, and the point should be taken for each individual separately.
The mitigation that is actually available
Voluntary payment before notice, under Section 73(5), attracts no penalty. Payment within thirty days of the notice under Section 73(8) also attracts no penalty. Under Section 74 the graded reductions apply — fifteen percent before notice, twenty five percent within thirty days of the notice, and fifty percent within thirty days of the order.
Section 128A waived interest and penalty for the covered years where tax was paid in the window, and the arithmetic there was often decisive.
Section 126 requires that no penalty be imposed for a minor breach or a procedural requirement, or for an omission easily rectifiable and made without fraudulent intent, and requires the officer to give reasons. It is under used and should be pleaded expressly.
What to do on Monday
Check every penalty order against Section 75(13) for stacking, and against Section 126 for a minor breach.
Where a penalty is proposed on an individual, file a separate reply for that individual dealing with knowledge and diligence.
Compute the Section 73(5), 73(8) and 74 graded reduction figures before deciding whether to contest.
Record the voluntary nature of any pre notice payment in a covering letter so that the no penalty consequence is documented.
This page states the general position. A reader with a specific question on their own facts may write to the GST practice at AMLEGALS.
Write to the GST practiceQuestions we are asked on this
Can penalty be imposed under both Section 74 and Section 122?
Section 75(13) bars a second penalty for the same act. Where an order does both, take the point specifically.
Is penalty automatic once credit is denied?
No. The ingredient must be established, and Section 126 requires a minor or rectifiable breach to attract no penalty at all.
Can our director be penalised personally?
Only on findings specific to him under Section 122(1A), Section 122(3) or Section 137. Insist that the order record them.
Does paying before the notice help?
Materially. Section 73(5) and the graded reductions under Section 74 are the cheapest exits available, and they close the penalty question.
Is penalty appealable separately?
It forms part of the order and is carried in the appeal. Pre deposit for a penalty only demand is dealt with separately in the appeals cluster.
In this cluster
- Input tax credit under GST: the complete 2026 position
- Section 16(2)(c): can your ITC be denied because the supplier did not pay tax?
- Section 16(4) time limit for claiming ITC: what survives after the amnesty
- GSTR-2A and 2B mismatch notices: how to answer without conceding
- Blocked credits under Section 17(5): the clause by clause map
- Safari Retreats: what the Supreme Court decided on ITC for construction, and what Parliament then undid
- ITC on canteen, transport, insurance and other employee benefits
- ITC reversal under Rules 42 and 43: working the formula correctly
- Rule 37: ITC reversal when you do not pay your supplier within 180 days
- Rule 37A: reversal where your supplier did not file its GSTR-3B
GST Insights is published by AMLEGALS for general information. Law stated as on 3 September 2026. Not advice on any particular set of facts; not an advertisement or a solicitation under Rule 36 of the Bar Council of India Rules. Readers with a question on their own facts may write to the GST practice of their own accord.