Article on Section 128A: Relief to Reduce Litigation

Section 128A: Relief to Reduce Litigation

As we know that it has been more than seven years since the introduction of the goods and services tax (GST). In those seven years, the Government on the recommendation of the GST Council, had provided many reliefs & facilities to the taxpayers. Section 128A is also one of them. Which provides an option to the taxpayers that if the amount mentioned in the show cause notice (SCN) issued u/s 73 is being paid upto the specified date than in such situation interest & penalty which are otherwise leviable as per show cause notice would be waived off. In this article we are going to discuss about the scope of this section, effective date of such section and many other implications of the said section.

After considering the difficulties faced by the taxpayers during the initial years of implementation of GST, in the 53^rd GST council meeting which was held on 22.06.2024, it was recommended to insert the Section 128A in CGST Act, 2017. Thereafter, through Section 146 of Finance (No.2) Act, 2024, such Section 128A was inserted which was later on Notified vide Notification No. 17/2024-Central Tax which states that section 146 of Finance (No.2) Act, 2024 shall come into force with effect from 1^st Day of November 2024. Let’s discuss the silent features of section 128A:

1. Scope of section 128A:
Section 128A of CGST Act 2017 which shall come into force with effect from 01.11.2024 seeks to waive the interest u/s 50 and penalties under Act, in respect of demand notices or orders issued under Section 73 of the CGST Act pertaining to tax period 1.7.2017 to 31.03.2020, in the cases where the taxpayer pays the full amount of tax demanded in the notice or orders on or before the date notified under section 128A(1) of the Act and satisfied other prescribed conditions. It is important to note that the waiver does not cover demand of erroneous refunds.

2. Date notified under section 128A(1):
In section 128A it is mentioned that if amount of tax is paid on or before the notified date. Hence in the exercise of power conferred under sub-section (1) of section 128A, the Central Government, on the recommendations of the Council has notified 31.03.2025 as the last date upto which the payment for the tax payable as per the notice or statement or the order issued u/s 73, can be made for waiver of interest, or penalty, or both, under the said section.

3. Waiver of interest and penalty only:
In section 128A it is important to know that there is no waiver to amount of tax payable. Said section provides that if taxable person pays full amount of tax payable as per notice or order on or before notified date then no interest u/s 50 and penalties under the Act shall be payable. In other words in such cases there is 100% waiver to the amount of interest and penalty.

4. Who is eligible for the waiver of interest and penalty:
In section 128A it is stated that any person chargeable with tax would be eligible to waive of interest and penalty after making full payment of specified amount of tax.

5. Conditions given u/s 128A for waiver:
1. The demand should be related to the financial year 2017-18, 2018-19 & 2019-20.

2. The demands which are raised u/s 73 would be covered here. However, as per the first proviso to sub-section (1) of Section 128A, in cases where a notice was initially issued u/s 74 any for FY from 2017-18 to 2019-20 and an order is passed or required to be passed by the proper officer u/s 73 (in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court in accordance with the provisions of section 75(2), those cases are also covered under Section 128A.

3. The full payment of tax demanded should be done before the notified date i.e., 31.03.2025

4. The tax payer should withdraw any pending appeals on or before the date notified i.e, 31.03.2025 to avail such benefits of waiver.

5. If the demand is related to erroneous refunds, the benefit of section 128A can’t be availed.

In respect of section 128A it is also important to know that vide Notification No. 20/2024 Central Tax dated 8 October 2024 the CBIC has prescribed Rule 164 of CGST Rules 2017 which is also effective from 1^st November 2024. In the said Rule 164 the procedure for filing application and conditions for closure of proceedings under Section 128A of CGST Act has been laid down. In the said Rule, various forms have been prescribed. A summary of the same is as below:

1. FORM GST SPL-01: To be filed by the taxpayer for waiver of interest or penalty or both in respect of a Notice or a Statement mentioned u/s 128(1)(a) of CGST Act 2017. The amount of tax is to be deposited by the taxpayer vide DRC-03.

2. FORM GST SPL-02: To be filed by the taxpayer for waiver of interest or penalty or both in respect of Order passed by the officer u/s 73(9) of CGST Act or Order passed by first appellate authority. The said FORM GST SPL-02 is to be filed on or before 30 June 2025. The amount of tax is to be paid by crediting the amount in Electronic liability register i.e. the procedure similar to payment of pre-deposit for filing appeal before tribunal In case payment is already made through DRC-03, an application in DRC-03A is to be filed.

3. FORM GST SPL-03: The proper officer shall examine the application submitted in FORM GST SPL-01 or FORM GST SPL-02. If, on examination, he finds that the said application is liable to be rejected, he shall issue a notice to the applicant, within three months from the date of receipt of the said application, in FORM GST SPL-03 on the common portal.

4. FORM GST SPL-04: On receipt of the notice in FORM GST SPL-03, the applicant may file his reply in FORM GST SPL-04, electronically on the common portal, within a period of one month from the date of receipt of the notice.

5. FORM GST SPL-05: The proper officer shall issue an order in FORM GST SPL-05, accepting the said application, if he is satisfied that the applicant is eligible for waiver of interest or penalty or both under Section 128A. However, if the proper officer, based on the application and the reply in FORM GST SPL-04 received from the taxpayer, is of the view that the applicant is not eligible for waiver of interest or penalty or both under Section 128A, he shall issue an order in FORM GST SPL-07 for rejecting the said application.

If the appellate authority held that the officer has wrongly rejected the application, the said appellate authority shall pass an Order in Form GST SPL-06. However, if the appellate authority held that the application was rightly rejected, the applicant has to file an undertaking in Form GST SPL-08 stating that he has neither filed nor intends to file appeal against the order of appellate authority in APL-04, within 3 months from the date of issuance of order in form GST APL-04.

In respect of section 128A the CBIC has also issued the circular No. 238/32/2024-GST to clarify on certain aspects related to waiver of interest or penalty under captioned section. Key clarifications are captured below:

S. No.	Issue	Clarification
1	Whether the benefit provided under Section 128A will be applicable to taxpayers who have paid the tax component in full before the date on which the said section has come into effect?	In this regard, it is to be mentioned that all such amount paid towards the said demand upto the date notified under sub-section (1) of section 128A, irrespective of whether the said payment has been done before Section 128A comes into effect, or after that, and irrespective of whether such payment was made before the issuance of the demand notice or demand order, or after that, shall be considered as paid towards the amount payable in sub-section (1) of Section 128A, as long as the said amount has been paid upto the date notified under sub-section (1) of section 128A and was intended to be paid towards the said demand.
2	Whether amount recovered by the tax officers as tax due from any other person on behalf of the taxpayer, against a particular demand can be considered as tax paid towards the same for the purpose of Section 128A?	Yes. The said amount recovered by the tax officers as tax due from any other person on behalf of the taxpayer against a demand, shall also be considered as the tax paid towards the said demand, for the purpose of section 128A provided the same has been recovered on or before the date notified under sub-section (1) of section 128A.
3	Whether the amount recovered by the tax officers as interest or penalty or both, pertaining to demand under section 73 pertaining to Financial Years 2017-18, 2018-19 and 2019-20, can be adjusted against the tax amount payable towards the demand made under section 73 pertaining to the said financial years?	No. It is mentioned that as per the third proviso to sub-section (1) of section 128A, no refund of such amount of interest or penalty or both, is available. Accordingly, any amount paid by the taxpayer or recovered by the tax officers, as interest or penalty cannot be adjusted towards the amount payable as tax.
4	Whether the benefit provided under Section 128A will be applicable in cases, where the tax due has already been paid and the notice or demand orders under section 73 only pertains to interest and/or penalty involved?	Where the tax due has already been paid and the notice or demand orders under section 73 only pertains to interest and/or penalty involved, the same shall be considered for availing the benefit of section 128A. However, the benefit of waiver of interest and penalty shall not be applicable in the cases where the interest has been demanded on account of delayed filing of returns, or delayed reporting of any supply in the return, as such interest is related to demand of interest on self-assessed liability and does not pertain to any demand of tax dues and is directly recoverable under sub-section (12) of section 75.
5	Whether the benefit under Section 128A is available, if the taxpayer intends to avail partial waiver of interest or penalty or both, on certain issues, by making part payment of the amount demanded in the notice/ statement/ order, as the case may be, and opts to litigate for the remaining issues?	No. Section 128A (1) clearly provides that the waiver of interest or penalty or both is only applicable when the full amount of tax demanded in the notice/ statement/ order is paid.
6	Where the notice/order involves multiple periods, ranging from the period for which waiver provided in Section 128A is applicable, and includes some other tax periods for which such waiver is not applicable, whether the benefit of waiver of interest or penalty or both under Section 128A can be availed for the period covered under section 128A? If so, what is the tax amount payable for claiming waiver under Section 128A?	The taxpayer is eligible to apply for waiver of interest or penalty or both, in such cases where the demand notice/ order spans tax periods covered under Section 128A and those not covered under the said section. However, as per sub-rule (4) of Rule 164, the taxpayer shall be required to pay the full amount of tax demanded in the notice/ statement / order, as the case may be, to avail the benefit of waiver of interest or penalty or both under Section 128A. Further, though the amount of tax demanded shall be required to be paid as per the notice/ statement / order, as the case may be, for whole of the period covered under the said notice/ statement / order, but the waiver of interest or penalty or both under section 128A shall only be applicable for the period specified in section 128A, and not for the period not covered under the said section. On payment of the full amount demanded in the notice/ statement/ order, if the proper officer finds that the applicant is eligible for waiver of interest or penalty or both for tax periods covered under Section 128A, he will reduce the liability to that extent in his order in FORM GST SPL-05, and the remaining liability of interest or penalty or both for tax periods not covered under Section 128A, remains payable by the taxpayer. The said amount shall be required to be paid by the applicant within three months from the date of issuance of order in FORM GST SPL-05 or FORM GST SPL-06, as the case may be. If the said amount is not paid within the time limit as mentioned above, the order in FORM GST SPL-05 or FORM GST SPL-06, as the case may be, the waiver of interest or penalty or both under section 128A as per the order issued in FORM GST SPL-05 or FORM GST SPL-06, shall become void, as per sub-rule (17) of rule 164.
7	Where the notice/ statement/ order issued under section 73 involves multiple issues and one of them is regarding demand of erroneous refund, whether an application can be filed for waiver of interest or penalty or both under Section 128A? If so, what is the tax amount payable for claiming waiver under Section 128A?	Yes. However, as per sub-rule (3) of Rule 164, the taxpayer shall be required to pay the full amount of tax demanded in the notice/ statement / order, as the case may be, including on account of demand of erroneous refund, to avail the benefit of waiver of interest or penalty or both under Section 128A. Further, in such cases, the waiver of interest or penalty or both under section 128A shall only be available in respect of tax demand other than that pertaining to demand of erroneous refund. On payment of the full amount demanded in the notice/ statement/ order, if the proper officer finds that the applicant is eligible for waiver of interest or penalty or both for tax periods covered under Section 128A in respect of tax demand other than that pertaining to demand of erroneous refund, he will reduce the liability to that extent in his order in FORM GST SPL-05, and the remaining liability of interest or penalty or both, that corresponds to demand of erroneous refund, remains payable by the applicant. The said amount shall be required to be paid by the applicant within three months from the date of issuance of order in FORM GST SPL-05 or FORM GST SPL-06, as the case may be. If the said amount is not paid within the time limit as mentioned above, the order in FORM GST SPL-05 or FORM GST SPL-06, as the case may be, the waiver of interest or penalty or both under section 128A as per the order issued in FORM GST SPL-05 or FORM GST SPL-06, shall become void, as per sub-rule (17) of rule 164.
8	In cases where department has filed an appeal against the order mentioned in clause (b) or clause (c) of sub-section (1) of section 128A and the Appellate Authority or the Appellate Tribunal or the court or the Revisional Authority, has issued an order enhancing the tax liability, and in the meanwhile the proper officer has issued an order in FORM GST SPL-05 under section 128A, and the taxpayer has not paid the said additional amount of tax liability within the specified time limit, what will be the status of the conclusion of proceedings under Section 128A?	Yes, as per the second proviso to section 128A, the conclusion of proceedings in such cases is subject to the condition that the said person pays the additional amount of tax payable, if any, in accordance with the order of the Appellate Authority or the Appellate Tribunal or the court or the Revisional Authority, as the case may be, within three months from the date of the said order. Accordingly, it becomes clear that even in cases where an order in FORM GST SPL-05 or in FORM GST SPL-06 has been issued the conclusion of the said proceedings will be subject to the condition that the taxpayer pays the additional tax amount as determined by the Appellate Authority or the Appellate Tribunal or the court or the Revisional Authority by an order issued in the matter of appeal filed by the department, within a period of three months from the date of the such order enhancing the tax liability. In case such additional payment is not done within a period of three months from the date of the said order, then as per sub-rule (16) of Rule 164, the waiver of interest or penalty or both under section 128A as per the order issued in FORM GST SPL-05 shall become void.
9	Sub-section (3) of section 128A refers to only appeal or writ petition. In this regard, whether matters where SLP filed by the applicant is pending before the Supreme Court, what is the procedure to be followed by the taxpayer to avail the waiver of interest or penalty or both?	Yes, in such cases also the applicant will be required to withdraw the said special leave petition and file an application in FORM GST SPL-01 or FORM GST SPL-02, as the case may be, along with proof of withdrawal of SLP or the copy of the application or any other document filed for withdrawal of SLP, where the order for withdrawal of SLP has not been issued at the time of filing application in FORM GST SPL-01 or FORM GST SPL-02. In such cases, the procedure mentioned in para 3.1.6 may be followed.
10	Whether the benefit provided under Section 128A will be available for matters involving IGST and Compensation Cess?	Yes. On joint reading of section 20 of the Integrated Goods and Services Tax Act, 2017 and section 11 of GST (Compensation to States) Act, 2017 along with section 128A of CGST Act, it becomes clear that the benefit provided under Section 128A of CGST Act will be available for matters involving IGST and compensation cess as well. In this regard, it is mentioned that in such cases, full payment of tax means payment of CGST, SGST, IGST and compensation cess demanded in the notice/ statement/ order, as the case may be.
11	Whether Section 128A covers cases involving demand of irregularly availed transition credit?	The transitional credit is considered to be availed on the date on which the said credit amount is credited in the Electronic Credit Ledger. On reading Rule 121 read with sub-rule (3) of rule 117, it is clear that any demand in respect of transitional credit wrongly availed, whether wholly or partly can be made under section 73 or, as the case may be, section 74. Therefore, it is mentioned that if the amount of transitional credit has been availed in the period covered under Section 128A and notice for demand of wrongly availed credit is issued under section 73, the same is covered under Section 128A.
12	Whether Section 128A will cover waiver of penalties under other provisions, late fee, redemption fine etc?	It is clarified that any penalty, including penalties under section 73, section 122, section 125 etc, demanded under the demand notice/ statement/ order issued under section 73, is covered under the waiver provided under Section 128A. However, late fee, redemption fine etc are not covered under the waiver provided under Section 128A.
13	Whether payment to avail waiver under Section 128A can be made by utilizing ITC?	Yes. The payment of tax required to be made for eligibility for waiver under section 128A is the amount of tax demanded in the notice/ statement/ order. Therefore, it can be paid either by debiting from electronic cash ledger or by utilising the Input Tax Credit (ITC), by debiting the electronic credit ledger, or partly from both. However, where the demand is in respect of any amount of tax to be paid by the recipient under Reverse Charge Mechanism or by the Electronic Commerce Operator under section 9(5), then the said amount shall be required to be paid by debiting the electronic cash ledger only and not through the electronic credit ledger. Further, where the amount has to be paid for demand of erroneous refund, the demand in respect of erroneous refund paid in cash is required to be paid only by debiting the electronic cash ledger only and not through the electronic credit ledger.
14	Whether the benefit of waiver under Section 128A be availed qua import IGST payable under the Customs Act, 1962?	No. In such cases, demand is not issued under section 73 of the CGST Act, but is issued under the provisions of Customs Act, 1962 and therefore, such cases are not covered under waiver of interest or penalty or both under section 128A.
15	With retrospective insertion of sub-sections (5) and (6) to section 16 of the CGST Act, the tax demanded in notice/ statement/ order reduces. Whether the entire tax amount demanded in the notice/ statement/ order has to be paid in such cases, to avail the benefit under section 128A?	Sub-rule (5) of rule 164 mentions that the amount payable in order to avail the benefit under section 128A, shall be calculated after deducting the amount not payable in accordance with sub-section (5) or sub-section (6) of section 16, from the amount payable in terms of the notice or statement or order under section 73, as the case may be. Therefore, the applicant is required to pay only the amount that is payable, calculated after deducting the amount not payable in accordance with sub-section (5) or sub-section (6) of section 16, from the amount payable in terms of the notice or statement or order under section 73, as the case may be, before submitting the application. While calculating the amount deductible on account of not being payable in accordance with sub-section (5) or sub-section (6) of section 16, from the amount payable in terms of the notice or statement or order under section 73, as the case may be, taxpayer is required to ensure that such amount is deducted only where ITC has been denied solely on account of contravention of Section 16(4) of the CGST Act and not on any other grounds. He is also advised to provide a breakup of the amount not payable by him anymore, as per sub-sections (5) and (6) of section 16, in FORM GST SPL-01 or FORM GST SPL-02, as the case may be, to enable the officer to verify the payment easily. It is also re-iterated that where the taxpayer is deducting the amount of ITC which was denied on account of contravention of sub-section (4) of section 16 of the CGST Act, but which is now available, as per retrospectively inserted provisions of sub-section (5) or sub-section (6) of section 16 of the CGST Act, he is not required to file application for rectification in respect of the same as per special procedure notified under Section 148 vide notification No. 22/2024- Central tax dated 8th October 2024
16	In case of application in FORM GST SPL-02, where the applicant has paid full or partial amount of tax through FORM GST DRC-03, whether the said applicant is mandatorily required to file application in FORM GST DRC-03A for such tax amount which he desires to get adjusted against tax demand as per FORM GST DRC-07/ FORM GST DRC-08/ FORM GST APL-04?	Yes. In cases where order in FORM GST DRC-07, FORM GST DRC-08 or FORM GST APL-04, as the case may be, has been issued and such taxpayer has paid required amount through FORM GST DRC-03, such applicant is required to adjust the said amount towards the demand created in the Electronic Liability Register, as per the second proviso to sub-rule (2) of rule 164, before filing the application in FORM GST SPL-02.

No refund of interest or penalty already paid:
Third proviso to section 128A (1) states that where such interest and penalty has already been paid, no refund of the same shall be available.

Conclusion: Which provides a relief to the taxpayers that if the amount mentioned in the show cause notice (SCN) issued u/s 73 is being paid upto the specified date i.e., 31.03.2025 than in such situation interest & penalty which are otherwise leviable as per show cause notice would be waived off.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.