Section 122B of the Central Goods and Services Tax Act, 2017 deals with the penalty for failure to comply with the track and trace mechanism prescribed for certain goods.
This is a relatively new provision introduced through the Finance Act, 2025 and brought into force from 1 October 2025. It is connected with the newly inserted Section 148A, which provides the legal framework for implementing a track and trace mechanism for specified goods.
The basic purpose of Section 122B is to ensure compliance with the tracking and tracing requirements applicable to notified goods and the persons dealing with those goods. Where a person covered by Section 148A fails to comply with the applicable requirements, the section provides a specific monetary penalty.
The penalty is ₹1 lakh or 10% of the tax payable on the goods, whichever is higher. This penalty is in addition to any other penalty that may be payable under Chapter XV or other provisions of Chapter XIX of the CGST Act.
What Is Section 122B of the CGST Act?
Section 122B is titled “Penalty for failure to comply with track and trace mechanism.”
The provision states that, notwithstanding anything contained in the CGST Act, where a person referred to in clause (b) of Section 148A(1) acts in contravention of the provisions of Section 148A, that person is liable to pay:
- ₹1,00,000, or
- 10% of the tax payable on such goods,
whichever is higher.
The penalty is in addition to any penalty payable under Chapter XV or any other provision of Chapter XIX of the CGST Act.
Therefore, Section 122B is a specific penalty provision linked directly to the compliance obligations created by Section 148A.
When Was Section 122B Introduced?
Section 122B was inserted into the CGST Act through the Finance Act, 2025.
The Central Government subsequently issued Notification No. 16/2025-Central Tax dated 17 September 2025, bringing the relevant provisions, including Sections 122 to 124 and Sections 126 to 134 of the Finance Act, 2025, into force from 1 October 2025.
Accordingly, Section 122B applies as a current provision from 1 October 2025.
Why Was Section 122B Introduced?
Section 122B was introduced along with Section 148A as part of the legal framework for a track and trace mechanism for specified goods.
The GST Council’s 55th Meeting agenda records that the Group of Ministers had recommended measures for tracking and tracing specified, particularly evasion-prone, commodities. The proposed system was intended to help monitor the movement of specified goods through the supply chain using unique identification markings and related information.
The Council’s material explains that a track and trace system can use a unique identifier on products or packages, with relevant information recorded and made available for verification. The system is intended to improve monitoring and control of the supply chain of specified products.
Section 122B provides the corresponding penalty mechanism for non-compliance.
Relationship Between Section 122B and Section 148A
Section 122B cannot be properly understood without Section 148A.
Section 148A
Section 148A creates the legal framework for the track and trace mechanism.
It allows the Government, on the recommendations of the GST Council, to notify:
- the goods to which the mechanism applies; and
- the persons or class of persons who are in possession of or deal with those goods.
The Government may also provide or prescribe the system for unique identification marking and electronic storage and access of information.
Section 122B
Section 122B provides the penalty where a person covered by Section 148A(1)(b) contravenes the applicable requirements.
In simple terms:
Section 148A = Track and trace compliance framework
Section 122B = Penalty for non-compliance with that framework
Who Can Be Penalised Under Section 122B?
Section 122B specifically refers to a person covered by clause (b) of Section 148A(1).
Section 148A(1)(b) refers to persons or classes of persons who are in possession of or deal with the specified goods notified under Section 148A.
Therefore, Section 122B is not a general penalty applicable automatically to every registered person under GST.
Its application depends on:
- the goods being covered by a notification under Section 148A;
- the person being within the notified category of persons dealing with or possessing those goods; and
- the person contravening the applicable Section 148A requirements.
This is an important limitation when understanding the scope of Section 122B.
What Is the Track and Trace Mechanism?
The track and trace mechanism is designed to make it possible to identify and follow specified goods through the supply chain.
Section 148A provides for a unique identification marking for specified goods.
The current CGST Act also defines “unique identification marking” in Section 2(116A). It means the unique identification marking referred to in Section 148A(2)(b) and includes a digital stamp, digital mark or other similar marking that is unique, secure and non-removable.
The exact marking, information and procedure depend on the statutory framework and prescriptions applicable to the specified goods.
What Is a Unique Identification Marking?
A unique identification marking is the identifying mark prescribed for goods covered by the track and trace mechanism.
The definition under Section 2(116A) includes:
- a digital stamp;
- a digital mark; or
- another similar marking,
provided it is unique, secure and non-removable.
The Government can prescribe the unique identification marking and the information to be recorded in it under Section 148A(2)(b).
The purpose is to create an identifiable connection between the goods and the information associated with their manufacture or movement.
Compliance Requirements Under Section 148A
Section 148A(3) sets out important obligations for persons covered by the provision.
These include:
Affixing the Unique Identification Marking
Covered persons must affix the prescribed unique identification marking on the specified goods or packages thereof, containing the required information and in the prescribed manner.
Furnishing Information and Maintaining Records
Covered persons must furnish the required information and details within the prescribed time and maintain records or documents in the prescribed form and manner.
Providing Machinery Details
Covered persons may also be required to furnish details of machinery installed at the place of business where the specified goods are manufactured.
These details can include:
- identification of machinery;
- capacity;
- duration of operation; and
- other prescribed information.
Paying Prescribed Amount
Section 148A also provides for payment of an amount relating to the track and trace system where such amount is prescribed.
Failure to comply with the applicable requirements can trigger Section 122B.
What Is the Penalty Under Section 122B?
The penalty under Section 122B is calculated using two amounts:
₹1,00,000
and
10% of the tax payable on the specified goods
The higher amount is payable.
Therefore:
Penalty = Higher of ₹1,00,000 or 10% of tax payable on such goods
The section expressly uses the words “whichever is higher.”
Example 1 – ₹5 Lakh Tax Payable
Suppose the tax payable on the relevant goods is ₹5 lakh.
Ten per cent of ₹5 lakh is:
₹5,00,000 × 10% = ₹50,000
Comparison:
- Fixed amount = ₹1,00,000
- 10% of tax = ₹50,000
The higher amount is ₹1,00,000.
Therefore, the Section 122B penalty would be ₹1,00,000, subject to the applicable facts and proceedings.
Example 2 – ₹20 Lakh Tax Payable
Suppose the tax payable on the goods is ₹20 lakh.
Ten per cent of ₹20 lakh is:
₹20,00,000 × 10% = ₹2,00,000
Comparison:
- Fixed amount = ₹1,00,000
- 10% of tax = ₹2,00,000
The higher amount is ₹2,00,000.
Therefore, the Section 122B penalty would be ₹2,00,000, subject to the applicable facts and proceedings.
Example 3 – ₹50 Lakh Tax Payable
Suppose the tax payable on the relevant goods is ₹50 lakh.
Ten per cent of ₹50 lakh is:
₹50,00,000 × 10% = ₹5,00,000
The higher amount is ₹5 lakh.
Therefore, the Section 122B penalty would be ₹5,00,000.
When Does 10% Become Higher Than ₹1 Lakh?
The two amounts become equal when:
10% of tax = ₹1,00,000
Therefore:
Tax = ₹10,00,000
This means:
- if tax payable is less than ₹10 lakh, ₹1 lakh will generally be the higher amount;
- if tax payable is ₹10 lakh, both calculations produce ₹1 lakh;
- if tax payable is more than ₹10 lakh, 10% of tax will be higher.
The actual penalty remains subject to the conditions and facts of the relevant proceeding.
Is Section 122B Penalty in Addition to Other Penalties?
Yes.
This is one of the most important features of Section 122B.
The provision states that the penalty is payable “in addition to any penalty” under Chapter XV or other provisions of Chapter XIX.
Therefore, Section 122B should not automatically be understood as replacing another applicable penalty.
Where another provision is independently attracted, the interaction between the provisions must be examined under the CGST Act.
Meaning of “Notwithstanding Anything Contained in This Act”
Section 122B begins with the expression:
“Notwithstanding anything contained in this Act”
This is a statutory overriding expression.
In context, it reinforces that the specific penalty mechanism provided in Section 122B applies notwithstanding other provisions, while the section itself expressly preserves other penalties by stating that its penalty is in addition to penalties under Chapter XV or other provisions of Chapter XIX.
The provision should therefore be read together with the other penalty and adjudication provisions of the CGST Act.
Section 122B and Specified Goods
Section 122B does not itself list all goods subject to the track and trace mechanism.
Instead, Section 148A provides that the Government may, on the recommendations of the GST Council, notify the goods and the persons or classes of persons to which the mechanism applies.
Therefore, businesses should not assume that every product is automatically subject to Section 148A and Section 122B.
The relevant notification and applicable prescribed requirements need to be checked for the particular goods and category of person.
Track and Trace and Evasion-Prone Commodities
The legislative development of Section 148A and Section 122B was closely connected with concerns relating to specified commodities that may be vulnerable to tax evasion and illicit trade.
The GST Council’s 55th Meeting material explains that the track and trace mechanism was intended to provide effective monitoring and control of the supply chain of specified products.
The Council material also refers to the earlier recommendation of the Group of Ministers on capacity-based taxation and special composition schemes for evasion-prone sectors, which was accepted by the GST Council in its 49th meeting.
However, the actual applicability of Section 122B depends on the statutory notifications and requirements made under Section 148A.
Information That May Be Associated With Track and Trace
The GST Council’s discussion paper considered a system in which the unique identifier could help establish information such as:
- date of manufacture;
- place of manufacture;
- manufacturing facility;
- machine used for manufacture;
- production shift or time;
- product description;
- quantity;
- maximum retail sale price;
- intended retail market; and
- other relevant information.
The Council material described these as features contemplated for the proposed system, rather than as a blanket statement that every listed field automatically applies to every commodity.
The actual requirements for a particular notified commodity must be determined from the applicable statutory and prescribed framework.
Electronic Storage and Access of Information
Section 148A also provides for a system enabling the affixation of unique identification markings and the electronic storage and access of information contained in those markings.
The Government may provide this system itself or through prescribed persons.
This electronic component is important because the track and trace mechanism is intended not merely to place a mark on goods but also to connect the mark with relevant information that can be accessed for verification.
Machinery Information Under Track and Trace
Section 148A(3)(c) specifically provides for furnishing details of machinery installed at the place of business where specified goods are manufactured.
The information can include:
- machinery identification;
- capacity;
- duration of operation; and
- other information as prescribed.
This requirement can help connect production activity with the goods being tracked.
For manufacturers covered by the notified framework, maintaining accurate machinery information can therefore form an important part of compliance.
Section 122B for Manufacturers
Manufacturers may be among the persons covered by the track and trace mechanism where they fall within the notified class under Section 148A.
A covered manufacturer may have obligations relating to:
- unique identification marking;
- production-related information;
- records;
- machinery details;
- electronic information;
- prescribed payments; and
- other requirements under the applicable framework.
Failure to comply with the applicable Section 148A requirements can expose the manufacturer to the Section 122B penalty.
Section 122B for Persons Dealing With Specified Goods
The provision is not necessarily restricted to manufacturers.
Section 148A(1)(b) allows the Government to specify persons or classes of persons who are in possession of or deal with the specified goods.
Therefore, depending on the applicable notification and prescribed framework, other persons dealing with specified goods may also come within the compliance framework.
The precise obligation depends on the category of person and the requirements notified or prescribed for the relevant goods.
Section 122B and Records
Record maintenance is an important component of the track and trace framework.
Section 148A(3)(b) requires covered persons to furnish information and details within the prescribed time and maintain records or documents in the prescribed form and manner.
Accordingly, businesses subject to the mechanism should maintain records that support:
- unique identification markings;
- relevant product information;
- manufacturing information;
- required supply-chain information;
- machinery information; and
- other prescribed data.
Section 122B and Tax Payable
The penalty calculation refers to “10 per cent. of the tax payable on such goods.”
This is important because the penalty is not simply a fixed ₹1 lakh amount.
Where 10% of the relevant tax payable exceeds ₹1 lakh, the percentage-based amount becomes the penalty under Section 122B.
The applicable tax figure should therefore be correctly determined when calculating the statutory penalty.
Section 122B Is Different From Section 122
Section 122 is the broader provision containing penalties for various specified offences.
Section 122B is a separate provision specifically created for failure to comply with the track and trace mechanism.
| Basis | Section 122 | Section 122B |
|---|---|---|
| Nature | Penalties for specified GST offences | Penalty for track and trace non-compliance |
| Scope | Multiple specified offences | Section 148A-related compliance |
| Amount | Depends on relevant clause | ₹1 lakh or 10% of tax payable, whichever is higher |
| Track and trace | Not its specific subject | Specifically connected with Section 148A |
| Additional penalties | Depends on applicable provisions | Expressly stated to be in addition to specified other penalties |
Section 122B was introduced specifically to create a penalty mechanism for the newly established track and trace framework.
Section 122B and Section 122A
Section 122A deals with a different compliance mechanism.
It provides a penalty for failure to register certain machines used in the manufacture of goods where a special procedure has been notified under Section 148.
Section 122B, on the other hand, deals with failure to comply with the track and trace mechanism under Section 148A.
| Provision | Subject |
|---|---|
| Section 122A | Failure to register certain machines under a special procedure |
| Section 122B | Failure to comply with track and trace mechanism |
Both provisions were inserted recently, but they address different compliance requirements.
Section 122B and Section 148
Section 148 allows the Government to prescribe special procedures for certain classes of registered persons.
Section 148A is a separate provision specifically dealing with the track and trace mechanism for certain goods.
Therefore, Section 122B is linked to Section 148A, not simply to every special procedure notified under Section 148.
This distinction is important when determining whether the Section 122B penalty is applicable.
Section 122B and Section 126
Section 126 contains general disciplines related to penalty.
Section 122B, however, creates a specific statutory penalty for a defined category of non-compliance.
The specific penalty provision should therefore be read together with the applicable general penalty principles and procedural provisions of the CGST Act.
The existence of Section 122B does not mean that the remaining provisions governing GST penalties and adjudication can simply be ignored.
Section 122B and Adjudication
Section 122B establishes the amount of penalty, but a taxpayer should distinguish between:
- the statutory provision creating the liability to penalty; and
- the procedural process through which the tax authority determines and communicates that liability.
The applicable provisions concerning notice, opportunity of hearing, adjudication, order and appeal need to be considered according to the nature of the proceeding.
Section 122B itself primarily specifies the substantive penalty for the identified non-compliance.
Importance for Manufacturers and Supply-Chain Businesses
Businesses dealing in goods that may be notified under Section 148A should pay particular attention to track and trace compliance.
A compliance system may need to ensure that:
- the required unique identification marking is correctly applied;
- information associated with the marking is correctly captured;
- required records are maintained;
- prescribed machinery information is available;
- electronic data is correctly maintained;
- required information is furnished within the prescribed time; and
- any prescribed amount connected with the system is paid.
Failure to comply can have a direct financial consequence under Section 122B.
Practical Compliance Checklist
Businesses covered by the track and trace mechanism can use the following checklist:
1. Identify Whether the Goods Are Notified
First determine whether the goods are covered by a notification under Section 148A.
2. Identify the Covered Person Category
Check whether the business falls within the notified class of persons dealing with or possessing the specified goods.
3. Understand the Unique Identification Requirement
Determine the prescribed marking, format, information and method of affixation.
4. Maintain Required Data
Maintain the information and records required under the applicable framework.
5. Maintain Machinery Information
Where applicable, maintain details relating to manufacturing machinery.
6. Check Electronic Systems
Ensure that the systems used to record and transmit track and trace information operate correctly.
7. Monitor the Supply Chain
Maintain appropriate records concerning the movement or handling of specified goods where required.
8. Preserve Supporting Documents
Keep records demonstrating compliance with the prescribed requirements.
9. Monitor Changes
Track notifications, rules and other changes affecting the track and trace mechanism.
10. Review Non-Compliance Immediately
If a compliance failure occurs, determine its scope and potential Section 122B consequences promptly.
Why Compliance With Section 148A Is Important
Section 148A creates the underlying obligation, while Section 122B creates the specific monetary consequence for contravention.
Therefore, businesses should not treat the unique identification marking as merely an optional product label where the relevant goods and persons have been brought within the statutory framework.
Once the applicable requirements are notified or prescribed, compliance becomes an important part of the GST and supply-chain control framework.
Key Takeaways of Section 122B
Section 122B can be summarised through the following points:
- Section 122B deals with the penalty for failure to comply with the track and trace mechanism.
- It was introduced through the Finance Act, 2025.
- It came into force from 1 October 2025.
- It is directly connected with Section 148A.
- Section 148A establishes the track and trace mechanism for certain notified goods.
- The Government may specify the goods covered by the mechanism.
- The Government may also specify persons or classes of persons who are in possession of or deal with those goods.
- Section 122B applies to a person referred to in Section 148A(1)(b) who contravenes the applicable Section 148A requirements.
- The penalty is ₹1 lakh or 10% of the tax payable on such goods, whichever is higher.
- The penalty is in addition to penalties under Chapter XV or other provisions of Chapter XIX.
- The track and trace mechanism uses unique identification marking for specified goods.
- Section 2(116A) defines unique identification marking.
- The marking can include a digital stamp, digital mark or similar unique, secure and non-removable marking.
- Section 148A provides for furnishing information and maintaining records.
- Section 148A also provides for furnishing details of machinery used in manufacturing specified goods.
- The Government may provide a system for electronic storage and access of information connected with the unique identification marking.
- Section 122B is not a general penalty applicable to every GST taxpayer.
- Its application depends on the goods and persons covered by the Section 148A framework.
- Section 122B is different from Section 122A, which concerns registration of certain machines under a special procedure.
- Businesses covered by the track and trace mechanism should maintain accurate records and systems to demonstrate compliance.
Conclusion
Section 122B of the CGST Act introduces a specific penalty for failure to comply with the track and trace mechanism established under Section 148A.
The provision was inserted through the Finance Act, 2025 and became effective from 1 October 2025. It forms part of the broader legal framework intended to enable tracking and tracing of specified goods through unique identification markings and associated information.
The penalty under Section 122B is significant. A person covered by Section 148A(1)(b) who contravenes the applicable requirements is liable to pay ₹1 lakh or 10% of the tax payable on the relevant goods, whichever is higher. The section also makes clear that this penalty is in addition to other penalties that may be applicable under Chapter XV or Chapter XIX of the CGST Act.
The provision should therefore be read together with Section 148A, which establishes the underlying compliance framework. Section 148A allows the Government to notify the goods and persons covered by the mechanism and provides for unique identification marking, information and record maintenance, machinery details and other prescribed requirements.
For businesses, the most important practical point is that Section 122B does not automatically apply to every product or every GST-registered person. Its application depends on the goods and persons brought within the Section 148A framework. Businesses dealing with notified goods should therefore identify their specific obligations and ensure that the required marking, information, records and other compliance requirements are properly maintained.
The introduction of Section 122B represents a move toward greater traceability of specified goods and stronger compliance controls across the relevant supply chain. For affected businesses, maintaining accurate product-level information and ensuring that the prescribed track and trace process is followed can help prevent non-compliance and the resulting statutory penalty.
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