CBIC issues Clarification on Key Doubts on Section 128A of CGST Act [Read Circular]

The Central Board of Indirect Taxes and Customs ( CBIC ) has issued a crucial clarification concerning Section 128A of the Central Goods and Services Tax ( CGST ) Act, 2017.

The clarification follows recommendations made by the GST Council in its 53rd and 54th meetings, for resolving uncertainties related to the waiver of interest, penalties, or both for specific financial years under certain conditions.

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Section 128A was introduced into the CGST Act, effective from 1st November 2024, following the GST Council’s recommendations in its 53rd meeting. This section provides for the waiver of interest or penalty, or both, on tax demands under Section 73 of the CGST Act, applicable to the Financial Years 2017-18, 2018-19, and 2019-20.

To complement this, Rule 164 was inserted into the CGST Rules, 2017, with effect from 1st November 2024 through Notification No. 20/2024–Central Tax dated 8th October 2024. This rule outlines the procedure and conditions for the closure of proceedings under Section 128A. Additionally, Notification No. 21/2024–Central Tax dated 8th October 2024 sets a deadline of 31st March 2025 for taxpayers to make full payment of tax demanded in order to avail the waiver benefits under Section 128A.

For cases where the application is made in accordance with the first proviso of sub-section (1) of Section 128A, the full tax payment must be made within six months of the issuance of the order redetermining the tax under Section 73 of the CGST Act.

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Various doubts had been raised by the trade community and field formations regarding the implementation of Section 128A, particularly concerning the waiver of interest and penalties for tax demands relating to Financial Years 2017-18, 2018-19, and 2019-20 under Section 73. Thus, the CBIC issued this clarification.

The procedure to be followed by the taxpayers and the tax officers to avail and implement the benefit provided under Section 128A, is as follows:

Filing of Application under Section 128A of the CGST Act

The provisions apply in the following situations:

Notice Issued under Section 73 but No Order Yet (Clause a of Section 128A(1)): If a notice or statement has been issued under Section 73, but no order has been passed under Section 73(9), the taxpayer can file an application using FORM GST SPL-01 electronically on the common portal.

Order Issued under Section 73 but No Appellate/ Revisional Order (Clause b of Section 128A(1)): Where an order has been issued under Section 73(9) but no order has been passed by the Appellate or Revisional Authority, the taxpayer can file FORM GST SPL-02 electronically.

Appellate Authority Order Issued but No Tribunal Order (Clause c of Section 128A(1)): If an order has been issued by the Appellate or Revisional Authority but no order has been passed by the Appellate Tribunal under Section 113, the taxpayer can file FORM GST SPL-02.

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For cases where a notice was initially issued under Section 74 and was later redetermined under Section 73, the taxpayer can also apply for the waiver. Applications must be filed within three months from the notified date ( 31st March 2025 ) or within six months for redetermination cases.

If an appeal or writ petition is pending in any of these cases, it must be withdrawn before filing the application for waiver. Proof of withdrawal must be submitted, and a final order must be uploaded within one month. For multiple notices or orders, a separate application must be filed for each.

Payment of Tax under Section 128A of the CGST Act

1.For Unadjudicated Notices (Clause a of Section 128A(1)):

In cases where a notice or statement has been issued under Section 73 but has not yet been adjudicated, the taxpayer must make the tax payment through FORM GST DRC-03.

2. For Adjudicated Orders (Clause b and c of Section 128A(1)):

In cases where orders have been issued under Section 73, 107, or 108, the payment must be made against the debit entry in Part II of the Electronic Liability Register ( ELR ) created by the demand order. If payment has already been made through **FORM GST DRC-03**, the taxpayer must file **FORM GST DRC-03A** to adjust the amount in the ELR before filing for waiver under Section 128A. The date of payment is the date the amount was paid via FORM GST DRC-03, not when it was adjusted using FORM GST DRC-03A.

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3.Payment Deadline:

Payment must be made on or before 31st March 2025. For redetermination cases, payment must be made within six months from the communication of the proper officer’s order.

4. Adjustment for ITC Denials (Section 16):

If the tax demand includes amounts denied due to contraventions under Section 16(4), which are now retrospectively available under Section 16(5) or 16(6), the full tax payable should be recalculated after deducting such amounts. No rectification application is required for this adjustment under the special procedure.

5. Ensuring Correct ITC Deductions:

Taxpayers must ensure that any deducted ITC amount corresponds solely to violations of Section 16(4) and not for any other reasons. Tax officers must verify the validity of such deductions.

6. Conditions for Filing Application for Waiver:

In cases involving erroneous refunds or demands for other periods not covered by Section 128A, full payment must be made for the entire demand before applying for a waiver.

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Processing of Application and Issuance of Order under Section 128A

1. Proper Officer Assignment:

The proper officer for processing the waiver application depends on the form filed:

- FORM GST SPL-01: The officer issuing the order under Section 73.

- FORM GST SPL-02: The officer responsible for recovery under Section 79.

2. Examination and Rejection:

Upon receiving the application, the proper officer will examine it. If rejection is likely, a notice in **FORM GST SPL-03** will be issued within three months, allowing the applicant a personal hearing.

3. Reply and Decision:

The applicant can respond to the notice via FORM GST SPL-04 within one month. Based on the reply, the officer will either approve the application by issuing an order in FORM GST SPL-05 or reject it through FORM GST SPL-07.

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4. Deemed Approval:

If no order is issued within the prescribed time limit, the application will be deemed approved, and **FORM GST SPL-05** will be automatically available on the common portal.

5. Summary of Order:

- For FORM GST SPL-01: No summary order ( GST DRC-07 ) is required.

- For FORM GST SPL-02: The liability in the Electronic Liability Register ( ELR ) will be adjusted accordingly.

6. Conditional Waiver:

If additional tax is determined by an appellate or revisional authority, the waiver becomes conditional on its payment within three months. Failure to do so will void the waiver.

7. Tax Payment Verification:

The proper officer must ensure that all tax ( except those not payable due to retrospective changes in Section 16 ) has been paid, including tax related to erroneous refunds and other periods.

8. Demand for Other Periods:

If additional interest or penalty applies for periods outside Section 128A, the officer will specify this in FORM GST SPL-05 or FORM GST SPL-06, and the applicant will be given a hearing.

9. Payment of Interest or Penalty:

Any interest or penalty due must be paid within three months of the order. Failure to do so will void the waiver granted under Section 128A.

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Appeal Against Orders under Rule 164

No appeal can be filed against an order in FORM GST SPL-05, concluding the proceedings under Section 128A. However, an appeal can be filed against an order in FORM GST SPL-07 ( rejecting the waiver application ) under Section 107 within the prescribed time, using FORM GST APL-01.

Typically, no additional pre-deposit is required as the tax dues have already been paid, unless less than the required amount was paid.

It is clarified that the appeal will only concern the waiver of interest or penalty under Section 128A, not the merits of the original demand notice, statement, or order.

If the appellate authority finds the rejection of the waiver application incorrect, it will pass an order in FORM GST SPL-06, adjusting the liability in the Electronic Liability Register ( ELR ).

If the waiver application is rejected, and the taxpayer appeals the rejection but loses, the original appeal will be restored if an undertaking is filed in FORM GST SPL-08 that no new appeal will be filed against the appellate authority's order.

The board added that if the appellate authority overturns the rejection and grants the waiver, no further appeal can be made against the FORM GST SPL-06 order.

If the taxpayer does not appeal the rejection within the time limit, the original appeal will also be restored, clarified the board.

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The board also clarified the further 16 doubts including:

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?
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?
3. 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?
4. 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?
5. Whether payment to avail waiver under Section 128A can be made by utilizing ITC?

To Read the full text of the Order CLICK HERE

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