I. Brief Overview of the Circular
Acting on the recommendations made during the 53rd GST Council meeting, the CBIC inserted s. 128A in the Central Goods and Services Tax Act, 2017 (‘Act’), intending to waive interest, penalty and/or both in cases wherein a demand has been raised qua the taxpayer for financial years (‘FYs’) 2017-18, 2018-19, and 2019-20, under s. 73 of the Act, upon fulfilment of certain conditions. Further, to implement the aforementioned waiver, the Goods and Services Tax Rules, 2017 (‘Rules’), were also amended to include r. 164[i], which details the procedure and conditions to be followed to close proceedings under s. 128A of the Act. These developments, recommended during the 53rd and 54th GST Council meetings, aim to provide taxpayers with a streamlined mechanism to settle disputes, thereby fostering compliance and reducing litigation.
Subsequently, several uncertainties regarding implementing the aforementioned provisions arose, prompting CBIC to issue clarification to ensure uniformity in application. These clarifications were later provided through the GST Circular[ii] dated 15.10.2024, discussed in detail below.
II. Overview of s. 128A of the Act and r. 164 of the Rules
S. 128A introduces the waiver of interest, penalty or both for demands under s. 73 of the Act, pertaining to the FYs 2017-18, 2018-19, and 2019-20. The relief is available under the following conditions:
Notices or statements issued under ss. 73(1) or 73(3) of the Act, with no subsequent adjudication under s. 73(9) of the Act.
Orders issued under s. 73(9) of the Act, with no appellate or revisional authority orders under ss. 107(11) or 108(1) of the Act.
Appellate or revisional authority orders issued under ss. 107(11) or 108(1), with no further adjudication under s. 113 of the Act by the Appellate Tribunal.
Cases initially adjudicated under s. 74 of the Act but later re-determined under s. 73 of the Act following appellate or judicial directions are also eligible for the waiver.
R. 164 of the Rules operationalizes s. 128A of the Act. Significant aspects include:
Filing of Applications- Taxpayers must file applications electronically using FORM GST SPL-01 (for cases with pending adjudication) or FORM GST SPL-02 (for cases with orders issued under ss. 73(9), 107(11), or 108(1) of the Act) within three months of the notified date, i.e., by 30.06.2025 unless extended.
Taxpayers must clear the full tax liability stated in notices or orders by 31.03.2025 or within six months from the issuance of revised orders under appellate directions.
Retrospective amendments to s. 16 of the Act allows adjustments for ITC, denied solely due to s. 16(4) violations. Taxpayers must ensure accurate deductions and provide supporting breakdowns in their applications.
III. Overview of the Clarifications issued by CBIC w.r.t s. 128A
Issue | Clarification |
Would the benefit under Section 128A be available in cases where the tax has been paid in full before s. 128A came into force? | If the taxpayer has made the payment of tax on or before the notified date, i.e., 31.03.2025, the said payment shall be considered for the benefit under s. 128A. |
Would the recovery of tax by the tax officers from a third party on behalf of the taxpayer be considered as tax paid under s. 128A? | If the tax officer makes such recovery on or before the aforementioned due date, it shall be treated as payments made towards the demand under s. 128A |
Would interest/penalty be recovered under s. 73, be adjustable against the tax amount paid under s. 128A? | Since no refund is available on interest or penalty, it cannot be adjusted as tax payable under s. 128A. |
Would s. 128A apply in cases where the tax amount has already been paid, and an order for interest or penalty is involved? | The waiver under s. 128A is available for interest or penalty demands if the tax has already been paid. However, such orders of interest should not be due to delay in return filing. |
Would the benefit under s. 128A be available partially, wherein a particular issue can be resolved through the aforementioned section while the remaining is litigated upon? | The benefit of s. 128A is only made available if the entire amount of tax demand raised vide notices/statements/ orders is paid in full. |
Can an application be made if tax demand orders are of multiple years, including the year for which the exemption has been granted? | The demand for all the periods for which notice has been issued should be duly paid to avail the benefit of s. 128A. However, the waiver would only be granted for the period covered under the aforementioned section. |
Would the benefit under s. 128A be available in cases pertaining to IGST and compensation cess? | The benefit provided under s. 128A is applicable in matters pertaining to IGST and compensation cess, subject to the tax demand being fulfilled. |
Would the benefit under s. 128A be available qua import IGST demands? | The relief under s. 128A is limited to transactions carried out under the Act and does not extend to the Customs Act. |
Can the waiver under s. 128A be availed by making payment through the utilization of ITC? | To become eligible to receive the benefit of s. 128A, payment of tax can be made either through deduction of electronic cash ledger or, by utilizing ITC, or by partly using both, except for cases wherein the demand is in regards to any amount of tax paid under the reverse charge mechanism. |
Whether waiver of penalties under other provisions, late fee, etc., be covered by s. 128A? | Penalty under ss. 73, 122, 125, etc., demanded under the demand notice/order are covered within s. 128A. However, late fees, redemption fines, etc., are not covered. |
Whether transition credit demands are covered under s. 128A? | If the amount of transitional credit is availed in the period covered under s. 128A and demand notice of wrongly availed credit is issued under s. 73, it would be covered under s. 128A. |
Whether s. 128A would be applicable in cases wherein a writ/SLP or appeal is pending? | Only once the SLP and/or the impending appeal is withdrawn and the proof of such withdrawal is duly filed will the taxpayer be eligible to seek the benefit of waiver provided under s. 128A. |
What would be the status of the conclusion of proceedings under s. 128A once an appeal filed against the demand order is decided? | The proceedings under s. 128A shall only be concluded once the taxpayer has paid the additional amount of tax, if any, that he is liable to pay as per the order passed by the appellate authority. Such additional tax should be paid within 3 months from the date of passing the order. |
IV. Our Analysis
The introduction of s. 128A of the Act and r. 164 of the Rules signifies a pragmatic approach towards dispute resolution under the GST regime. This amendment brought forth by the CBIC would not only ease things out for the taxpayers but also reduce the burden on the department, which is constantly reeling under the load of long pending matters and acrimonious litigation. Such relief was essentially needed, more by the department and less by the taxpayer, especially considering that in cases wherein demand(s) is raised under s. 73 of the Act, it is already presumed that the evasion of tax is not committed with fraudulent intent. Thus, it is in the best interest of both the taxpayer and the department to recover the tax that has been paid in short and close the matter. Not only does it expedite recovery, but it also saves the government exchequer from recurring financial drain that occurs due to protracted and pending litigation.
However, caution must be maintained while exercising the aforementioned provision, especially considering that the entire amount of tax must be deposited before availing of such a waiver. In such scenarios, the taxpayer should be sure that the tax demand raised against them is under s. 73 legally stands, and the issuance of the notice/order is based on cogent and established evidence.
End Notes
[i] Inserted vide Notification no. 20/2024; wef; 01.11.2024.
[ii] Circular No. 238/32/2024- GST.
Authored by Anshi Bhatia, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.