Clarifications on Waiver of Interest and Penalty under Section 128A of the CGST Act

The Circular No. 238/32/2024-GST issued on 15th October 2024 provides detailed clarifications related to Section 128A of the Central Goods and Services Tax (CGST) Act, 2017. This section was introduced based on the GST Council’s recommendations to address the waiver of interest, penalties, or both for certain demands under Section 73 of the CGST Act for the Financial Years 2017-18, 2018-19, and 2019-20. The waiver is subject to specific conditions and is aimed at easing compliance burdens for taxpayers.

Key Provisions of Section 128A:

  1. Waiver of Interest or Penalty:

The waiver applies to demands raised under Section 73 of the CGST Act for tax periods falling within FYs 2017-18, 2018-19, and 2019-20. Taxpayers can avail the waiver by making full payment of the demanded tax by 31st March 2025, or within six months if the tax is redetermined under Section 73 due to directions from appellate or judicial authorities.

2. Scope and Applicability:

Section 128A applies to cases where:

  • A notice has been issued under Section 73, but no order has been passed.
  • An order has been issued under Section 73, but no appellate authority or tribunal has passed a final decision.
  • An order from the appellate authority exists but no final decision has been made by the Appellate Tribunal.
  • Cases involving notices originally issued under Section 74 (fraud, wilful misstatements, etc.) but later redetermined under Section 73 are also eligible.

Procedures for Availing Waiver

  1. Filing Applications:
  • Taxpayers must file applications in the prescribed forms electronically on the GST portal.
  • Form GST SPL-01: For cases where notices are issued but not adjudicated.
  • Form GST SPL-02: For cases where an order has already been issued under Section 73, or by the appellate authority.
  • The application must be filed within three months from 31st March 2025 or, for redetermined cases, within six months from the date of the redetermination order.

2. Payment of Tax:

  • Payment must be made through FORM GST DRC-03 (for unadjudicated notices) or via the Electronic Liability Register (ELR) (for adjudicated demands).
  • The full amount of the tax demanded must be paid by 31st March 2025. For cases where a redetermination is involved, the tax must be paid within six months from the date of redetermination.
  • The tax amount must exclude any amounts no longer payable due to retrospective changes in the law (such as input tax credit denied under Section 16(4)).

3. Processing of Applications:

  • Upon receiving an application, the proper officer will verify the eligibility for the waiver. If found ineligible, the officer must issue a notice of rejection in FORM GST SPL-03 and provide an opportunity for a personal hearing.
  • After reviewing the response, the officer will either approve the waiver in FORM GST SPL-05 or reject it in FORM GST SPL-07.
  • If no action is taken by the proper officer within the specified timeframe, the application will be deemed approved automatically.

Clarifications on Specific Issues:

The circular addresses several common doubts raised by taxpayers and field officers:

1. Payments Made Before Section 128A Came into Effect:

Payments made before the effective date of Section 128A, regardless of whether they were made before or after the issuance of a demand notice, are considered valid for waiver purposes as long as they were made with the intent to settle the demand.

2. Recovery from Third Parties:

Payments recovered by tax officers from a third party on behalf of the taxpayer are also valid for waiver eligibility.

3. Adjustment of Interest/Penalty:

Interest or penalty amounts already paid or recovered cannot be adjusted against the tax payable under Section 73 for the purpose of availing the waiver.

4.Waiver for Interest and Penalty-Only Cases:

The waiver applies even if the demand only pertains to interest and/or penalties, provided that no tax is due. However, interest on delayed filing of returns or delayed reporting of supplies is not eligible for waiver.

5. Partial Waiver Not Allowed:

The waiver is only available when the taxpayer pays the full amount of the tax demanded. Partial payments to settle specific issues while litigating others do not qualify for the waiver.

6. Multiple Tax Periods in a Notice:

If a demand spans multiple tax periods, only the periods covered by Section 128A will be eligible for a waiver of interest and penalty. The full amount of tax must still be paid, and the waiver will only apply to eligible periods.

7.Erroneous Refunds:

Cases involving erroneous refunds are covered by the waiver, provided the full tax amount (including erroneous refund amounts) is paid.

8. Appeals and Writ Petitions:

Taxpayers who have filed appeals or writ petitions must withdraw them to avail the waiver. If the waiver application is rejected, the taxpayer can appeal the rejection.

9.SLP in the Supreme Court:

Special Leave Petitions (SLPs) pending in the Supreme Court must be withdrawn to avail the waiver.

10. Waiver for Transitional Credit:

Transitional credits availed during the relevant period are eligible for waiver if a demand is raised under Section 73.

11. Non-Tax Liabilities:

Penalties under sections other than Section 73, late fees, and redemption fines are not covered under Section 128A.

12. Use of Input Tax Credit (ITC):

Payment towards the tax demand can be made using ITC, except for certain cases like Reverse Charge Mechanism (RCM) payments or erroneous refunds, which must be paid in cash.

13. Customs-Related IGST Demands:

Demands under the Customs Act, 1962, including import IGST, are not eligible for the waiver under Section 128A as they are governed by separate provisions.

Appeal Process:

  • No appeal is allowed for orders accepting the waiver. However, rejection orders can be appealed under Section 107. The appeal will only pertain to the applicability of the waiver, not the merits of the original tax demand.
  • If a taxpayer withdraws an appeal to file for the waiver and the waiver application is rejected, they may restore their original appeal, provided certain conditions are met.