No Interest and Penalty if demanded tax amount is paid by 31st March 2025 for FYs 2017-20

Summary: The Ministry of Finance has introduced Section 128A into the CGST Act, effective from November 1, 2024, offering taxpayers relief from interest and penalties for non-fraudulent GST demand notices issued under Section 73. This applies to the financial years 2017-18, 2018-19, and 2019-20, provided the full tax amount is paid by March 31, 2025. The measure, announced in Union Budget 2024, aims to alleviate challenges faced by businesses during the early years of GST implementation. However, the waiver is only applicable in cases not involving fraud or misrepresentation, and no refund will be issued for previously paid penalties or interest. The government is set to notify Rule 164 under the CGST Rules, outlining procedures and conditions for availing the waiver. The introduction of this provision acknowledges the difficulties businesses faced during the initial GST years and aims to streamline compliance. However, the scheme does not apply to cases involving fraudulent behavior or erroneous refunds. Further clarifications on complex situations involving multiple legal interpretations are expected from the GST Council.

Introduction

The Ministry of Finance has officially notified the enforcement of several sections of the Central Goods and Services Tax Act, 2017 (“the CGST Act”), including the newly introduced Section 128A in the CGST Act, w.e.f. November 1, 2024. Initially, Union Budget 2024 held on July 23, 2024, announced that Section 128A of the CGST Act offers relief to taxpayers for a complete waiver of interest and penalties on certain non-fraudulent GST demand notices issued under Section 73 of the CGST Act, w.r.t the financial years 2017-18 to 2019-20.

Insertion of Section 128A of the CGST Act

During the early years of GST implementation, taxpayers faced considerable challenges. In response, to promote compliance and help businesses move forward, the GST Policy Wing received numerous representations seeking relief from interest and penalties, reflecting the need to address the hardships encountered by taxpayers during this transitional phase.

Therefore, the Law Committee recommended to provide a waiver of interest and penalty to the demand notices issued under Section 73 of the CGST Act for FY 2017-18, FY 2018-19 and FY 2019-20. This waiver is only applicable for cases not involving fraud or wilful misstatement or suppression of facts, only if the taxpayer pays the full amount of tax demanded by 31^st March, 2025 as per recommendations of the GST Council.

It is pertinent to note that, the Committee also recommended not to extend the waiver in respect of cases involving charges of fraud or wilful misstatement or suppression of facts to evade tax, i.e. where demand notices have been issued under section 74 of the CGST Act and also in cases involving demands of erroneous refund.

Further, in cases where interest and penalty have already been paid in respect of any demand/ proceedings for the said financial years, no refund shall be admissible for the same.

Section 128A was first announced in the 53^rd GST Council meeting held on June 22, 2024. Thereafter, on July 23, 2024 in Budget 2024, it was introduced vide Section 142 of the Finance (No. 2) Act, 2024. Further, it is pertinent to note that the Officers’ Meeting held on July 21, 2024 held in the State of Andhra Pradesh raised the issue of – whether the payment of tax in proposed section 128A of the CGST Act also includes payment of cess. Co-joint reading of the proposed Section 128A of the CGST Act, along with Section 20 of the Integrated Goods and Services Tax Act, 2017 (“the IGST Act”) and Section 11 of GST (Compensation to States) Act, 2017 discusses that payment of tax under the proposed Section 128A of the CGST Act also covers cess.

Here, it is pertinent to note that, taxpayers may avail themselves of the benefit of the waiver of interest and penalty under Section 128A for the Financial Years 2017-18 to 2019-20, provided that the disputed tax and cess, as specified in demand notices issued under Section 73 of the CGST Act, are duly paid by them by 31^st March, 2025.

Implementation of Section 128A of the CGST Act

The GST Council in its 54^th meeting recommended a measure for facilitation of trade where procedure and conditions for waiver of interest or penalty or both, in respect of tax demands under section 73 of CGST Act for FYs 2017-18, 2018-19 and 2019-20 as per section 128A of CGST Act were discussed.

The GST Council recommended the insertion of Rule 164 in the Central Goods and Service Tax Rules, 2017 (“the CGST Rules”), along with certain Forms, providing for the procedure and conditions for availment of benefits in accordance with Section 128A of the CGST Act. However, Rule 164 of the CGST Rules is to be notified very soon by the Government.

The Council also recommended to notify March 31, 2025 as the date on or before which the payment of tax demanded must be paid by the registered persons, to avail the said benefit as per section 128A of the CGST Act.

The Council also recommended the issuance of a circular to clarify various issues related to availment of waiver of interest or penalty or both as per Section 128A of the CGST Act.

In furtherance of the above, the Ministry of Finance vide Notification No. 17/2024-Central Tax dated September 27, 2024 notified the dates for various provisions of the Finance (No. 2) Act, 2024 including Section 128A of the CGST Act w.e.f. November 01, 2024.

Relevant Section 128A is reproduced below:

Waiver of interest or penalty or both relating to demands raised under section 73, for certain tax periods.

128A. (1) Notwithstanding anything to the contrary contained in this Act, where any amount of tax is payable by a person chargeable with tax in accordance with,––

(a) a notice issued under sub-section (1) of section 73 or a statement issued under sub-section (3) of section 73, and where no order under sub-section (9) of section 73 has been issued; or

(b) an order passed under sub-section (9) of section 73, and where no order under sub-section (11) of section 107 or sub-section (1) of section 108 has been passed; or

(c) an order passed under sub-section (11) of section 107 or sub-section (1) of section 108, and where no order under sub-section (1) of section 113 has been passed, pertaining to the period from 1st July, 2017 to 31st March, 2020, or a part thereof, and the said person pays the full amount of tax payable as per the notice or statement or the order referred to in clause (a), clause (b) or clause (c), as the case may be, on or before the date, as may be notified by the Government on the recommendations of the Council, no interest under section 50 and penalty under this Act, shall be payable and all the proceedings in respect of the said notice or order or statement, as the case may be, shall be deemed to be concluded, subject to such conditions as may be prescribed:

Provided that where a notice has been issued under sub-section (1) of section 74, and an order is passed or required to be passed by the proper officer in pursuance of the direction of the Appellate Authority or Appellate Tribunal or a court in accordance with the provisions of sub-section (2) of section 75, the said notice or order shall be considered to be a notice or order, as the case may be, referred to in clause (a) or clause (b) of this sub-section:

Provided further that the conclusion of the proceedings under this sub-section, in cases where an application is filed under sub-section (3) of section 107 or under sub-section (3) of section 112 or an appeal is filed by an officer of central tax under sub-section (1) of section 117 or under sub-section (1) of section 118 or where any proceedings are initiated under sub-section (1) of section 108, against an order referred to in clause (b) or clause (c) or against the directions of the Appellate Authority or the Appellate Tribunal or the court referred to in the first proviso, shall be 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:

Provided also that where such interest and penalty has already been paid, no refund of the same shall be available.

(2) Nothing contained in sub-section (1) shall be applicable in respect of any amount payable by the person on account of erroneous refund.

(3) Nothing contained in sub-section (1) shall be applicable in respect of cases where an appeal or writ petition filed by the said person is pending before Appellate Authority or Appellate Tribunal or a court, as the case may be, and has not been withdrawn by the said person on or before the date notified under sub-section (1).

(4) Notwithstanding anything contained in this Act, where any amount specified under sub-section (1) has been paid and the proceedings are deemed to be concluded under the said sub-section, no appeal under sub-section (1) of section 107 or sub-section (1) of section 112 shall lie against an order referred to in clause (b) or clause (c) of sub-section (1), as the case may be.

Coverage under Section 128A of the CGST Act:

1) Show Cause Notice is issued under Section 73(1) or statement issued under Section 73(3) and where no adjudication order is passed under Section 73(9);

2) Adjudication Order is passed under Section 73(9); Filed Appeals to Appellate Authority or pending with Revisional Authority and where no Appellate order is passed under Section 107(1);

3) Appellate Order is passed under Section 107(11) or 108(1) and where GST Appellate Tribunal passes no order under Section 113(1) of the CGST Act; and

4) Adjudication order passed under Section 74, where the appellate authority or Tribunal or Courts have held that the demand is not sustainable under Section 74, but only under Section 73 and the issue is pending before the adjudicating authority to re-determine the demand under Section 73.

Condition to avail of benefits under 128A of the CGST Act:

1) Registered Person to pay the full amount of tax payable as per the notice or statement or order on or before March 31, 2025.

2) Withdrawal of any Appeal or Writ by the taxpayer by the notified date.

3) No further appeals are allowed on the concluded matter.

Conclusion of proceedings as per Section 128A of the CGST Act:

If the demanded tax, including the revised tax amount (if any), is paid on or before March 31, 2025, all proceedings in respect of the said notice, statement, or order as applicable, shall be deemed to be concluded.

Exceptions to Section 128A of the CGST Act

1) Where interest and/or penalty have already been paid, no refund shall be available.

2) In case of any amount payable by the person on account of an erroneous refund.

Conclusion:

The introduction of Section 128A of the CGST has been brought considering the GST law was at a nascent stage and there was a lot of ambiguity on the portal and in the implementation of the same. The stated Section 128A has been duly notified, however, the rule is yet to be notified. There are still several unresolved issues that need clarification. One such concern arises when an Order-in-Original (“OIO”) addresses multiple issues, including interpretative matters. The current guidelines do not clearly outline how the amnesty scheme should be applied in cases where an OIO deals with a variety of issues, especially those involving complex legal interpretations.

Moreover, ambiguity exists regarding the scheme’s application when an OIO is issued under both Section 73 and Section 74 of the CGST Act for the same issue or subject, but across different periods. It is unclear whether the scheme can be selectively applied to one section while litigation under the other section continues, or if a more comprehensive approach is required.

Another unresolved question concerns situations where taxes have been paid, but litigation is ongoing concerning interest and/or penalties under Section 73 of the CGST Act. Therefore, clarification on these points would be instrumental in ensuring effective implementation of the scheme.

Way Forward:

1. Timely introduction Notification of Rule 164: The timely notification of Rule 164 of the CGST Rules is crucial for outlining the procedure and conditions for availing benefits under Section 128A. This will provide much-needed clarity and transparency in the process of availing the waiver of interest and penalties.

2. Issuance of a Circular for Clarification: The GST Council should recommend the issuance of a comprehensive circular addressing the practical issues taxpayers face in the application of Section 128A, especially in cases where multiple issues or sections (such as Section 73 and Section 74) are involved on same matter.

3. Guidance for Mixed Cases in Orders-in-Original: Clear guidelines should be established to address how the amnesty scheme under Section 128A should be applied in situations where an Order-in-Original involves both interpretative issues and compliance-based demands. This will help resolve ambiguities in the selective application of the scheme.

4. Extension of Time for Payment of Tax: Although the current deadline for availing the benefits under Section 128A is March 31, 2025, extending this deadline may be necessary to give taxpayers adequate time to comply, especially small and medium-sized enterprises that may require additional time to manage their tax payments.

5. Clarity on Ongoing Litigation: The scheme should provide clear guidance on whether it can be applied to cases where taxes have already been paid, but litigation continues regarding interest or penalties. This will avoid unnecessary confusion and ensure that taxpayers can fully utilize the benefits of the scheme.

6. Review of Cess Applicability: As there have been discussions regarding the inclusion of cess under Section 128A, it would be beneficial to provide specific clarification on this matter. A co-joint reading with Section 20 of the IGST Act and Section 11 of the GST (Compensation to States) Act suggests that Cess should be included, but an explicit clarification would clear any uncertainties.

7. Ongoing Consultation with Stakeholders: The government should continue consulting with taxpayers, trade bodies, and tax professionals to assess the effectiveness of the scheme and address any additional concerns that arise during implementation.

8. Finalization of Legal Positions: Taxpayers should be encouraged to conclude any ongoing disputes by withdrawing appeals or writ petitions to avail the benefits of Section 128A. It is crucial to communicate that no further appeals will be allowed once the matter is resolved under this section.

The successful implementation of Section 128A will require proactive steps from both the government and taxpayers to resolve outstanding issues and ensure smooth compliance with the scheme’s provisions. Effective communication, timely notifications, and clear guidance will be key in ensuring the success of this important reform.

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(Author can be reached at [email protected])