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 31st 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 53rd 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 31st March, 2025.
Implementation of Section 128A of the CGST Act
The GST Council in its 54th 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.
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.
