Significant relief has been provided to taxpayers facing demands u/s 73 of the CGST Act, 2017 for the initial years of GST implementation. Section 128A was introduced to allow for the waiver of interest or penalty, or both, associated with these demands for the Financial Years 2017-18, 2018-19, and 2019-20, subject to specific conditions being met. To address various doubts raised by trade and field formations regarding its implementation, the CBIC has issued GST Circular 238/32/2024 dated October 15, 2024. This post details the clarifications provided therein.
Background and Legal Framework
i) Section 128A Introduction: Following recommendations from the 53rd GST Council meeting, Section 128A was inserted into the CGST Act, effective November 1, 2024. This section provides the legal basis for the waiver.
ii) Procedural Rules: Rule 164 was subsequently added to the CGST Rules (effective November 1, 2024, via Notification No. 20/2024) outlining the procedure and conditions for closing proceedings u/s 128A.
iii) Payment Deadline: The deadline for making the full payment of the demanded tax to avail the waiver has been notified as March 31, 2025 (vide Notification No. 21/2024).
iv) Special Case Deadline: For cases initially u/s 74 but redetermined u/s 73 by direction of higher authorities, the payment deadline is six months from the date of the redetermination order.
Eligibility for Waiver u/s 128A
The provisions for waiver u/s 128A are applicable if notices/ statements/ orders have been issued u/s 73 for FYs 2017-18, 2018-19, and 2019-20 in the following scenarios:
i) A notice u/s 73(1) or statement u/s 73(3) has been issued, but no order u/s 73(9) has been passed yet.
ii) An order u/s 73(9) has been issued, but no subsequent order has been passed by the Appellate Authority u/s 107(11) or Revisional Authority u/s 108(1).
iii) An order has been issued by the Appellate or Revisional Authority, but no order has been passed by the Appellate Tribunal u/s 113(1).
Special Inclusion: Cases originally initiated u/s 74 for the specified FYs, where an Appellate Authority, Tribunal, or Court directs the proper officer to redetermine the tax u/s 73, as per Section 75(2), are also covered.
Application Procedure for Waiver
A specific procedure must be followed by taxpayers seeking the benefit:
i) Form Filing:
a) FORM GST SPL-01: To be filed electronically if only a notice/ statement u/s 73 has been issued (no order passed yet).
b) FORM GST SPL-02: To be filed electronically if an order u/s 73, or a subsequent appellate/ revisional order, has been issued.
ii) Application Deadline:
a) General Cases: Within three months from March 31, 2025 (i.e., by June 30, 2025).
b) Section 74 Redetermined Cases: Within six months from the communication date of the proper officer’s redetermination order u/s 73.
iii) Withdrawal of Appeals/Writs: If an appeal (u/s 107 or 112) or a writ petition has been filed against the relevant notice/statement/order, it must be withdrawn before filing the waiver application (FORM GST SPL-01/SPL-02).
a) Proof of withdrawal (order or application for withdrawal) must be uploaded.
b) The final withdrawal order must be uploaded within one month of its issuance.
iv) Multiple Notices/Orders: A separate application is required for each distinct notice, statement, or order.
Tax Payment Requirements
Full payment of the demanded tax is a prerequisite for the waiver:
i) Payment Method:
a) For Notices/Statements (FORM GST SPL-01 cases): Payment via FORM GST DRC-03.
b) For Orders (FORM GST SPL-02 cases): Payment against the debit entry in Part II of the Electronic Liability Register (ELR). If payment was already made via DRC-03, FORM GST DRC-03A must be filed first to adjust the payment against the ELR demand.
ii) Payment Date Consideration: For adjustment cases using DRC-03A, the original date of payment via DRC-03 is considered for meeting the deadline, not the adjustment date.
iii) Impact of Section 16(5) & 16(6): If the demand included Input Tax Credit (ITC) disallowed u/s 16(4) which is now admissible due to the retrospective insertion of Section 16(5) or 16(6), this non-payable amount can be deducted when calculating the “full amount of tax” payable for the waiver.
a) No separate rectification application is needed for this adjustment under the special procedure (Notification No. 22/2024).
b) Taxpayers must ensure the deduction applies only to ITC denied solely due to Section 16(4). Proper officers will verify this.
iv) Full Tax Payment Condition: The waiver application can only be filed after paying the entire tax demanded in the notice/statement/order. This includes tax related to:
a) Erroneous refunds (if any).
ii) Tax periods other than FY 2017-18, 2018-19, 2019-20, if covered in the same notice/order.
Processing of Waiver Applications
The procedure for handling applications by the tax authorities is outlined:
i) Proper Officer: The officer who issues Section 73 orders (for SPL-01) or the recovery officer u/s 79 (for SPL-02) will process the application.
ii) Examination & Notice: If the application appears rejectable upon examination, a notice in FORM GST SPL-03 will be issued within three months of receiving the application, offering a personal hearing.
iii) Applicant’s Reply: The applicant can reply electronically in FORM GST SPL-04 within one month of receiving the notice.
iv) Order Issuance:
a) Acceptance: An order in FORM GST SPL-05 is issued if the applicant is found eligible.
b) Rejection: An order in FORM GST SPL-07 is issued if the applicant is found ineligible.
v) Timelines & Deemed Approval: Orders (SPL-05 or SPL-07) must be issued within the time limit prescribed in Rule 164(13). If no order is issued within this time, the application is deemed approved, and FORM GST SPL-05 will be made available.
vi) Liability Modification: Acceptance via FORM GST SPL-05 (for SPL-02 applications) modifies the liability in the ELR Part II. No DRC-07 is needed for SPL-01 acceptances.
vii) Conditional Waiver (Departmental Appeals): If the department had filed an appeal/revision against the original demand, the waiver granted (via SPL-05/SPL-06) is conditional. Any additional tax determined by the higher authority must be paid within three months of that authority’s order. Failure voids the waiver (Rule 164(16)).
viii) Payment of Non-Waived Amounts: If the original demand included amounts for which waiver isn’t applicable (e.g., interest/penalty for other periods, or related to erroneous refunds), these amounts will be specified in the acceptance order (SPL-05/SPL-06). They must be paid within three months of the order date. Failure voids the waiver (Rule 164(17)).
Appeals Related to Waiver Applications
Specific provisions exist regarding appeals concerning waiver orders:
i) No Appeal against Acceptance: An order accepting the waiver (FORM GST SPL-05) cannot be appealed by the taxpayer u/s 107.
ii) Appeal against Rejection: An order rejecting the waiver application (FORM GST SPL-07) is appealable u/s 107 by filing FORM GST APL-01.
a) Pre-deposit: Generally, no pre-deposit may be needed as the full tax should already be paid. However, if tax paid is less than the required pre-deposit amount (as per Section 107(6)), the balance must be paid.
b) Scope of Appeal: The appeal’s subject matter is limited to the eligibility for the waiver u/s 128A, not the merits of the original tax demand.
iii) Appellate Authority Order (Acceptance): If the appellate authority finds the rejection (SPL-07) incorrect and allows the waiver, an order in FORM GST SPL-06 will be issued.
iv) Restoration of Original Appeal: If a taxpayer had withdrawn an original appeal to apply for the waiver, and the waiver application is subsequently rejected (via SPL-07):
a) If the rejection is upheld on appeal (via APL-04), the original appeal can be restored if the taxpayer provides an undertaking (FORM GST SPL-08) not to appeal further against the waiver rejection upholding order.
b) If the rejection is overturned on appeal (via SPL-06), no further appeal lies against SPL-06.
c) If no appeal is filed against the rejection order (SPL-07) within the time limit, the original appeal is restored.
Key Clarifications Provided in the Circular
Several specific doubts have been addressed:
1. Tax Paid Before Section 128A Effective Date: Payments made towards the demanded tax before Section 128A came into effect do count towards the “full payment” requirement, provided they were made by the notified deadline (31.03.2025 or later date for specific cases) and intended for that demand.
2. Tax Recovered from Third Parties: Amounts recovered by tax officers from third parties on behalf of the taxpayer do count as tax paid, if recovered by the notified deadline.
3. Adjustment of Interest/Penalty Paid: Amounts already paid or recovered as interest or penalty cannot be adjusted against the tax payable for waiver eligibility. No refund of such interest/penalty is permissible.
4. Cases with Only Interest/Penalty Demanded: If the tax was already fully paid and the notice/order is only for interest/penalty under Section 73 for the specified FYs, the waiver is applicable. However, this does not apply to interest demanded for delayed return filing or delayed reporting (self-assessed liability interest u/s 75(12)).
5. Partial Waiver/Payment: Partial payment for partial waiver is not allowed. The full amount of tax demanded must be paid.
6. Demands Spanning Multiple Periods: If a notice/order covers FYs eligible for waiver and other periods:
a) The waiver benefit can be availed for the eligible periods (FY 2017-18, 2018-19, 2019-20).
b) However, the full tax demanded for all periods in the notice/order must be paid first.
c) Interest and penalty for the non-eligible periods remain payable and must be paid within three months of the waiver acceptance order (SPL-05/SPL-06), otherwise the waiver becomes void. (Note: A subsequent clarification may modify details regarding this specific point – refer to item 4.2.2 of Circular 248/05/2025 for any withdrawal/changes).
7. Demands Including Erroneous Refund: If a notice/order includes demand for erroneous refund along with other tax dues:
a) The waiver benefit can be availed for the tax demand other than the erroneous refund part.
b) The full tax demanded, including the erroneous refund amount, must be paid first.
c) Interest and penalty related to the erroneous refund remain payable and must be paid within three months of the waiver acceptance order (SPL-05/SPL-06), otherwise the waiver becomes void.
8. Departmental Appeals & Enhanced Liability: If the department’s appeal results in enhanced tax liability after a waiver order (SPL-05/SPL-06) has been issued, the taxpayer must pay the additional tax within three months of the higher authority’s order. Failure voids the waiver.
9. Pending SLPs (Supreme Court): If a Special Leave Petition filed by the taxpayer is pending, it must be withdrawn similarly to appeals/writs before applying for the waiver. Proof of withdrawal (or application for it) is required.
10. Applicability to IGST & Compensation Cess: The waiver u/s 128A is applicable to demands involving IGST and Compensation Cess. “Full payment of tax” includes amounts demanded under CGST, SGST, IGST, and Cess.
11. Transitional Credit Demands: Demands u/s 73 for wrongly availed transitional credit during the eligible period are covered u/s 128A.
12. Scope of Penalty Waiver: The waiver covers all penalties demanded u/s 73 notice/ statement/ order, including those levied under sections like 73, 122, 125, etc. However, it does not cover late fees or redemption fines.
13. Payment Using ITC: The demanded tax can generally be paid using the Electronic Credit Ledger (ITC) or Electronic Cash Ledger, or a combination. However, tax payable under Reverse Charge, by E-commerce Operators (u/s 9(5)), or for erroneous refunds claimed in cash must be paid only through the Electronic Cash Ledger.
14. Import IGST: The waiver does not apply to IGST on imports demanded under the Customs Act, 1962, as these demands are not issued u/s 73 of the CGST Act.
15. Tax Calculation after Section 16(5)/(6): As clarified earlier (point 3.2.4), only the net payable tax after deducting amounts now admissible due to retrospective Section 16(5)/(6) needs to be paid. Taxpayers should provide a breakup of this calculation in their application (SPL-01/SPL-02).
16. Mandatory Use of DRC-03A: Yes, if an order (DRC-07/DRC-08/APL-04) exists and tax was paid via DRC-03, filing FORM GST DRC-03A to adjust this payment against the ELR demand is mandatory before filing the waiver application (FORM GST SPL-02).
Conclusion
This clarification by CBIC provides essential guidance for taxpayers wishing to avail the interest and penalty waiver u/s 128A. Eligible taxpayers must ensure full payment of the demanded tax (considering applicable adjustments) by the specified deadlines (primarily March 31, 2025) and follow the application procedures meticulously to benefit from this relief measure for the initial GST years.
Disclaimer: This blog post is for informational purposes only and does not constitute legal or tax advice. Please refer to the official CBIC Circular 238/32/2024 dated 15/10/2024 and consult with a qualified professional for specific guidance.
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