"Substantial penalty” is not specifically defined in GST and so it takes the meaning from various judicial pronouncements and principles of jurisprudence.

A penalty is a punishment imposed by law for committing an offence or failing to do something that was the duty of a party to do.

(a) A substantial penalty shall not be levied in instances where the tax involved is less than 5,000 rupees (minor breach) and documentation errors are easily rectifiable.

(b) There are safety nets so that the degree and severity of a breach can be determined before a penalty is imposed.

(c) No penalty will be imposed without issuing a show cause notice or giving the assessee a personal hearing.

(d) Voluntary disclosure by a person to a tax authority (not merely in his own books and records) about the circumstances of the breach may be considered as a mitigating factor for levy of penalty.