Clarification on Section 128A of CGST Act,2017

Summary of Clarification on Section 128A of CGST Act,2017

GST Circular has been issued for Clarification on Section 128A of CGST Act,2017. Section 128A allows the taxpayer to get waiver of Interest, penalty or both for certain tax demands related to section 73. This waiver applies to FY 2017-18, 2018-19 and 2019-20 only if certain conditions met. Rule 164 states procedure and conditions for closing proceedings u/s 128A effective from 01-11-2024. To avail the benefit of waiver the full payment of tax demand must be made by 31-03-2025.If the tax has been redtermined under section 73, the taxpayer must pay the full amount within 6 months from the date of redetermination order.

Key Points of the circular:

The circular provide instructions for:

How taxpayers can apply for the waiver under section 128A.
What tax officers must do to ensure proper implementation
Conditions and procedure to ensure taxpayers meet the requirement for the waiver.

1. Filling of Application:

The waiver applies specifically for the FY 2017-18, 2018-19 & 2019-20 in following situations

Notice or statement has been issued under section 73, and no final order u/s 73(9) has been issued
Final order u/s 73(9) issued, but no further order has been issued by Appellate authority or revision authority u/s 107 or 108 of CGST Act,2017.
The Appellate authority or revision authority issued order under section 107(11) or section 108(1) based on original notice, however no final decision has been given by Appellate Tribunal u/s 113.

If a tax notice was initially issued u/s 74 for FY 2017-18,2018-19 & 2019-20 but later the appellate authority, appellate tribunal or a court direct the proper officer to treat the case as section 73, the officer passes or needs to pass an order u/s 73 accordingly, These cases also qualify for the waiver of interest or penalty or both u/s 128A.

The taxpayer can now submit an application in FORM GST SPL-01, if notice or statement was issued u/s 73 for the period of July-2017 to March-2020, but no final order has been issued u/s 73 for confirming tax demand.

The taxpayer can file an application in FORM GST SPL-02, if final order u/s73 was issued for July -2017 to March-2020 but no further order has been issued by the appellate authority (section 107) or revisional authority (Section 108). If the order has been issued by Appellate authority or revisional authority, but no final order has been passed by Appellate Tribunal u/s 113, the taxpayer can file FORM GST SPT-02 on GST portal.

Taxpayer must file FORM GST SPL-01 or SPL-02 with in 3 months from the notified date under section 128A(1). since 31-03-2025 is notified date, the deadline for filling this form will be 30-06-2025. If a notice was originally issued under section 74 , but later appellate authority, tribunal or court direct the officer to redetermine the tax u/s 73. This situation also cover under clause (b) of section 128A(1).

As per Rule 164(6), the taxpayer has six month from the date of receiving the new order to file GST SPL-02.

If the taxpayer has filed an appeal under section 107 or 112 , writ petition, then taxpayer must withdraw these appeals or petitions before applying waiver of Interest, penalty or both under section 128A. The withdrawal order must be attached with FORM GST SPL-01 or SPL-02 application.

If the taxpayer has requested withdrawal from appellate authority, tribunal or court but has not yet received the withdrawal order they can upload withdrwal request or document with SPL-01 or SPL-02 application. Once the final withdrawal order is issued, the taxpayer must upload it on the GST portal with in one month of receiving it.

If a taxpayer has received multiple notices, statements or orders u/s 73 for period July-2017 to March-2020, they must file a separate application in GST SPL-01 or SPL-02 for each notice , statement or order.

2. Payment of Taxes:

If the taxpayer has received a notice or statement mentioned in section 128A(1)(a) and it has not yet been finalized , the taxpayer must pay the demanded tax using FORM GST DRC-03 on GST Portal. If a Final order has been issued under section 128A (1)(b) or (c) the taxpayer must pay the demanded tax using debit entry created in Part II of Electronic Liability register on GST Portal. This payment steps are explained in Circular No 224/18/2024.If the taxpayer has already made the payment through FORM GST DRC 03, they need to follow rule 142(2B) by submitting FORM GST DRC-03A to adjust the previously paid amount against the demand shown in ELR Part II. This adjustment must be done before filling the waiver application in FORM GST SPL-02. If the tax was paid earlier using FORM GST DRC-0, the date of payment will be the date of original DRC-03 Payment, not the date of adjustment through DRC-03A.

The taxpayer must make the full tax payment on or before 31-03-2025 as per required by section 128A(1).Redetermined case which originally issued under section 74 must be paid with in 6 months from date of receiving redetermined order under section 73. The Taxpayer can deduct the ITC amount which is allowed under section 16(5) or 16(6) from the total tax demand when calculating the tax payable for elligibility under section 128A. The Taxpayer can adjusts tax demand by excluding the ITC allowed u/s 16(5) & 16(6) and for that they do not need to file rectification using the special procedure under Notification No 22/2024.

ITC can only be deducted from the tax demand if it was denied because of Missed deadline to claim ITC u/s 16(4). The tax officer will double check that the deduction is appropriate and ensure no other reason was involved in the ITC denial.Before applying for waiver of Interest or penalty u/s 128A, the taxpayer must pay all tax demands in full including erroneous refunds and tax demands for other periods mentioned in notice.

3. Processing of application and issuance of order:

The application filed in FORM GST SPL-01 will be handle by officer who handling the section 73 order, the application filed in GST SPL-02 will be handled by the officer responsible for recovery u/s 79. If the officer plans to reject the application, they will issue FORM GST SPL-03 within 3 months and allowing Opprtunity of being heard. The taxpayer can respond the notice by submitting FORM GST SPL-04 within 1 Month.

The officer will issue SPL-05, if the waiver is granted and SPL-07 if rejected. If No decision is made within Timelimit, the waiver deemed approved and SPL-05 will appear automatically. If SPL-01application is approved then there is no need to issue summary order in FORM GST DRC-07. while approved SPL-02 application will update the tax liabilities in the ELR.

If additional tax is determined by Appellate authority, tribunal, court or revisional authority, it must be paid with in 3 months or waiver becomes void.The officer will ensure that taxpayer has fully paid all relevant demands except ITC now allowed under the new rules.Waiver of interest or penalty only applies to the specified period and demands under section 128A not for issues like erorneous refunds or demand from other periods.

Interest and penalty for periods outside the scope of section 128A(1) and for erorneous refunds, such details will de listed in columns 19 & 20 of FORM GST SPL-05 or GST SPL-06.The taxpayer will have chance for opportunity of being heard before the order is issued. If the listed interest or penalty is not paid within 3 months, the waiver u/s 128A will become invalid.

4. Appeal against the orders issued under Rule 164:

No appeal is allowed for approved waiver orders of SPL-05, but rejected application in SPL-07 can be appealed using APL-01.No pre-deposit is required if the tax dues were already paid, but any short fall must be cleared to file appeal. Appeals are limited to the waiver decision and do not reopen the original tax demand .if the appeal is successful, the appellate authority will issue SPL-06 and update the tax liability accordingly.

If the waiver is rejected and the appeal is upheld, the taxpayer’s original appeal can be restored submitting an undertaking SPL-08 not to pursue further appeals. If the waiver is granted in SPL-06, no further appeal can be filed against the decision in FORM GST SPL-06. If the taxpayer does not appeal the rejection order in SPL-07 within allowed time under section 107(1) , the original appeal is restored automatically.

Further, the following issues with respect to availing the benefit of waiver of interest or penalty or both provided under Section 128A, are also clarified hereby:

Sr 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 enalty 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 underReverse 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.