The Central Board of Indirect Taxes and Customs (CBIC) has recently issued Instruction No. 02/2025-GST on February 7, 2025, to provide clarity regarding the applicability of Section 128A of the Central Goods and Services Tax (CGST) Act, 2017. This clarification aims to address disputes related to interest and penalty in cases where tax dues have already been settled. The move is expected to provide relief to taxpayers by reducing unnecessary litigation.

Understanding the Legal Framework

Section 128A of the CGST Act, 2017

Section 128A of the CGST Act, 2017, in conjunction with Rule 164 of the CGST Rules, 2017, allows for the waiver of interest and penalty on tax demands raised under Section 73 of the Act for the financial years 2017-18, 2018-19, and 2019-20. This waiver is subject to certain conditions.

Further clarification on the applicability of Section 128A was provided in Circular No. 238/32/2024-GST, dated October 15, 2024. However, concerns remained regarding the eligibility of taxpayers to avail themselves of this benefit when departmental appeals were filed over interest miscalculations or penalties.

Clarifications on Applicability of Section 128A

Field officers sought guidance on whether taxpayers can claim the benefits of Section 128A in cases where:

  1. The tax amount has been fully paid, but the department has appealed due to an arithmetic miscalculation of interest.
  2. The penalty was either not imposed or imposed at a lower rate than the prescribed threshold.

Upon review, CBIC referred to Serial No. 4 of the Table under Paragraph 4 of Circular No. 238/32/2024-GST. It concluded that when the tax dues are fully settled and the demand or notice under Section 73 relates solely to interest and/or penalty, taxpayers should be eligible for the benefits of Section 128A.

Key Decisions and Implementation Guidelines

1. Eligibility for Waiver Under Section 128A

  • Taxpayers who have fully paid their tax dues under Section 73 but have disputes regarding only interest or penalty are eligible for relief under Section 128A.
  • The existence of a departmental appeal or an ongoing process to file such an appeal does not disqualify a taxpayer from availing of this benefit.

2. Objective of Section 128A: Reducing Litigation

  • CBIC reiterated that Section 128A is aimed at minimizing litigation.
  • Taxpayers should not be denied the benefit based on technical interpretations.

3. Withdrawal of Departmental Appeals in Relevant Cases

  • If a departmental appeal is solely related to an interest miscalculation or incorrect penalty imposition and the taxpayer meets all conditions under Section 128A, the appeal should be withdrawn.
  • If an order under Section 73 is under review and only involves these issues, it should be accepted instead of being contested further.

Implementation and Compliance

CBIC has directed field officers to:

  • Ensure the proper application of these instructions.
  • Withdraw pending appeals related to interest and penalty where applicable.
  • Accept orders under Section 73 rather than escalating disputes unnecessarily.
  • Report any implementation difficulties to the Board for resolution.

Conclusion

CBIC’s clarification under Instruction No. 02/2025-GST is a significant step towards reducing unnecessary litigation and fostering a more taxpayer-friendly compliance environment. By ensuring that disputes related only to interest or penalty do not lead to prolonged legal battles, this directive strengthens the objective of the GST Amnesty Scheme 2025 and simplifies compliance for businesses.

Taxpayers are advised to review their cases and assess whether they qualify for relief under Section 128A. Seeking professional guidance on the matter can help businesses effectively utilize the benefits of this scheme and ensure compliance with the latest CBIC directives.