The government has officially notified Section 128A of the CGST Act, effective from 01.11.2024, which provides a waiver of interest and penalties for GST demands under Section 73 for the period from 01.07.2017 to 31.03.2020. This section is intended to offer relief to taxpayers who have made genuine errors while filing their returns. However, it does not extend to cases involving fraud, willful misstatement, or suppression of facts.
During the early years of GST implementation, many taxpayers faced difficulties in understanding and complying with the new provisions, leading to various errors in their filings. Imposing penalties and an interest rate of 18% per annum for such genuine hardships is considered unduly harsh, especially since 4-5 years have passed, often resulting in the tax demand doubling or even more.
This section provides relief only for the financial years 2017-18, 2018-19, and 2019-20. As the deadlines for passing orders and filing appeals for these years have already expired, many taxpayers, in an effort to avoid litigation, have likely paid the demanded tax along with interest and penalties. Unfortunately, Section 128A does not allow for refunds of the interest and penalties already paid. As a result, the actual extent of relief that this section will provide to genuine taxpayers is uncertain.
Eligibility Criteria:
According to the provisions of Section 128A, any person who is chargeable to tax as a result of proceedings initiated against them under Section 73 for the specified years can claim the benefit of this section. This implies that even unregistered taxpayers who have received a notice under Section 73 can claim this relief. However, Notification No. 21/2024–Central Tax, dated 08.10.2024, which specifies the deadline by which the payment must be made to avail the benefits of this section, only refers to registered taxpayers. This creates the need for clarification on whether unregistered taxpayers are also eligible to benefit from this section.
Covered Cases:
Section 128A is intended to assist honest taxpayers who have made bona fide errors. It explicitly excludes cases involving fraud, which are dealt with under Section 74. Furthermore, cases involving erroneous refunds, or matters under Sections 129 and 130, are also excluded from the scope of this amnesty scheme. The section outlines specific scenarios in which taxpayers can claim the waiver of interest and penalties:
Case 1: An intimation in Form DRC-01A has been issued under Section 73(3), but a show cause notice (SCN) has not yet been issued.
Case 2: A show cause notice has been issued in Form DRC-01, but a demand order has not yet been passed.
Case 3: A demand order has been passed under Section 73(9), but the appeal is either pending or has not been filed.
Case 4: A demand order has been passed under Section 107(11) following an appeal, subject to the withdrawal of the appeal if it was filed before the appellate tribunal.
Case 5: A demand order has been passed under Section 108(1) following a revision, subject to the withdrawal of the appeal if it was filed before the appellate tribunal.
Case 6: The taxpayer has filed an appeal with the appellate tribunal following an order issued by the appellate authority or revisional authority, and no order has been passed by the appellate tribunal for such appeal, subject to the withdrawal of the appeal and payment of the tax within the time specified under Section 128A, which is 31.03.2025.
The section does not cover cases where an order has already been issued by the appellate tribunal in response to an appeal. In such cases, the taxpayer will have to either pay the tax amount along with interest and penalties or file a further appeal.
Cases under Section 74:
Cases that involve fraud, willful misstatement, or willful suppression of facts are not covered under this waiver. However, in cases where a notice was issued under Section 74 but was later referred back to the proper officer for redetermination under Section 73 by the appellate authority, tribunal, or court under Section 75(2) — in situations where the authority determined that proceedings should have been initiated under Section 73 instead of Section 74 — the waiver of interest and penalties will be available under Section 128A.
However, Section 128A does not address cases where Section 74 has been wrongly invoked and has not been referred back under the provisions of Section 75(2). Taxpayers in such situations will need to pursue litigation to prove that Section 74 was inappropriately applied.
Conditions to be Fulfilled:
Payment of Tax: To avail the waiver of interest and penalties, the full amount of the tax due must be paid before the specified date. The department, through a notification dated 08.10.2024, has set 31.03.2025 as the deadline for depositing the full tax amount under demand in order to qualify for the waiver of interest and penalties. In cases where a notice has been issued under Section 74 but was referred back under Section 75(2), the deadline for paying the tax is six months from the date of the order issued by the proper officer redetermining the tax under Section 73.
Withdrawal of Appeal: If the taxpayer has already filed an appeal before the appellate authority or tribunal, or a writ has been filed with a court, the appeal must be withdrawn before the due date to avail the benefit of this section.
Period of Notice: The waiver of interest and penalties is only available for notices issued for the financial years 2017-18, 2018-19, and 2019-20. No amnesty is available for notices issued for later periods.
No Refund of Interest or Penalties Paid:
Refunds of interest or penalties already paid are not allowed under this scheme. The last date for issuing orders under Section 73 for FY 2017-18 was 31.12.2023. Similarly, for FY 2018-19 and 2019-20, the deadlines were 30.04.2024 and 31.08.2024, respectively. Once the order is issued, taxpayers have three months to file an appeal against the disputed demand. For FY 2017-18 and FY 2018-19, the time to file an appeal has already expired, while for FY 2019-20, the last date to appeal is 30.11.2024 or earlier. As a result, many taxpayers may have already paid the demanded tax along with interest and penalties to avoid litigation, irrespective of whether the demand was genuine or not. The scheme therefore actually benefits only lethargic taxpayers whose cases are still pending under appeal either because demands were ungenuine or they were waiting for such an amnesty scheme. In cases where the demand of tax itself is ungenuine, the scheme will not provide any benefit as the benefit of interest and penalty waiver is only available after payment of 100% tax demanded.
Thus, the scheme may primarily benefit taxpayers with pending appeals or those who were waiting for such an amnesty scheme. Taxpayers who have already paid or those facing genuine disputes may not find the scheme as beneficial, as the waiver applies only to interest and penalties, not the tax amount itself.
The procedure for closure of proceedings under section 128A concerning demands issued under section 73 involves the following key steps:
Application for Waiver:
Eligible persons can file an application electronically in FORM GST SPL-01 or SPL-02, depending on the type of notice or order, to seek a waiver of interest or penalty.
The application must include details of the tax demand and proof of payment made in FORM GST DRC-03 or in the electronic liability register.
Payment of Tax:
The full amount of tax demanded must be paid before applying for waiver if the demand includes erroneous refunds or other reasons.
Payment can be made by crediting the electronic liability register, and if paid via FORM GST DRC-03, FORM GST DRC-03A must be filed.
Withdrawal of Appeals:
Applicants must withdraw any appeals or writ petitions filed before any court or authority and provide proof of withdrawal with the application.
Processing by Officer:
The proper officer will review the application. If the waiver is denied, a notice (FORM GST SPL-03) will be issued to the applicant, giving them an opportunity to respond (FORM GST SPL-04).
If the officer is satisfied, they will approve the waiver in FORM GST SPL-05, concluding the proceedings.
If the officer is not satisfied, they will reject the application in FORM GST SPL-07.
Time Limits:
Applications must be filed within three to six months, depending on the case, from the date of the notice or order.
The officer must issue orders within specific time frames, and if they fail to do so, the application will be deemed approved.
Restoration of Appeal:
If the waiver is rejected and no appeal is filed, the original appeal (if withdrawn) will be restored.
If the appellate authority finds the rejection wrong, they will pass an order accepting the waiver.
Payment of Additional Amounts:
Failure to pay any additional tax, interest, or penalty within the prescribed time will void the waiver granted under section 128A.
Other Considerations:
Whether Cess is also covered ?
There have been discussions about whether cess is included under Section 128A, but no clarification has been issued by the department.
What about cases where Section 74 is wrongly invoked?
Many cases have been initiated under Section 74, alleging fraud, though these allegations may not be tenable. Since the section explicitly excludes cases under Section 74 and does not address erroneous demands, affected taxpayers will need to pursue litigation to prove that the demand is not valid under Section 74. If successful, the authorities may refer the case back to the proper officer to redetermine the tax under Section 73, in line with Section 75(2).
Cases where Coercive Actions have been taken Before 01.11.2024:
In cases where the time for filing an appeal has expired for FY 2017-18 and FY 2018-19, the department may have already initiated recovery proceedings. In such cases, the benefit of this waiver, which is effective from 01.11.2024, cannot be utilized.
In the case of Unitac Energy Solutions [India] Pvt Ltd Vs. Assistant Commissioner [ST] -2024 (7) TMI 738 - MADRAS HIGH COURT.assessee had suffered adverse assessment orders for assessment years 2017-18 to 2020-21 and it had discharged entire tax liability and a part of interest, Competent Authority was directed to dispose of assessee's application under section 80 for waiver of interest in view of Recommendation of 53rd GST council meeting and recovery proceedings were to be kept in abeyance.
Similarly in the case of M/s. Saptarshi & Anr. Vs. Deputy Commissioner of State Tax, assessee paid tax liability as per impugned orders, matter remanded for reconsideration in light of new Section 128A of CGST Act providing for deemed conclusion of proceedings.
Whether proportionate benefit will be available in case proportionate tax is deposited?
The section only applies where the full amount of the tax demand is paid by 31.03.2025 or the specified due date. No waiver is available for partial payments of the tax demand.
Where notice or order includes demand of tax, partially on account of erroneous refund and partially for other reasons?
Section 128A is not applicable to interest and penalty arising due to erroneous refund. However where a notice includes demand on account of both reasons, benefit of interest, penalty waiver on other demand can only be availed if the taxpayer deposits while of the tax demand ie including tax demanded on account of erroneous refund.
Therefore, the taxpayer will have to deposit the full tax demanded along with interest and penalty demanded on account of an erroneous refund, in order to get a waiver of interest and penalty arising due to other reasons.
Where a notice includes tax demand for multiple periods, including periods not covered by section 128A?
An application under section 128A can only be filed after depositing the full amont of tax demanded, for all periods ie including period not covered under section 128A. However the waiver of interest and penalty will be limited to the amount arising due to the demands for the period covered under section 128A
Whether an appeal can be filed after claiming benefit of section 128A?
Subsection 4 of Section 128A states that once proceedings are deemed to be concluded on account of the payment of the tax and the waiver of interest and penalties, no further appeals can be filed against the order.
In conclusion, while this waiver scheme aims to provide relief to honest taxpayers for genuine mistakes, its actual benefit may be limited. Taxpayers who have already paid the demanded tax or who are facing coercive recovery actions may not benefit, while those with pending appeals may find this scheme useful. However, the exclusion of refunds for interest and penalties already paid and the restriction of relief to cases under Section 73, rather than Section 74, limit the scope of the scheme.
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