The CBIC has introduced Section 128A under the CGST Act, effective November 1, 2024. This section offers taxpayers significant relief by waiving interest and penalties on demands raised under Section 73 for the financial years 2017-18, 2018-19, and 2019-20, subject to specific conditions. Taxpayers must pay the full tax amount demanded by March 31, 2025, to avail themselves of the waiver. The newly added Rule 164 outlines the procedure to apply for this relief.

Important Conditions for Waiver of Interest & Penalty

1. Full Tax Payment is Mandatory: To qualify for the waiver, the taxpayer must pay the complete tax amount mentioned in the notice, statement, or order. Partial waivers are not allowed.
2. Timeframe for Payment: If the demand is re-determined by a tax officer, the payment must be completed within six months from the re-determination order’s issuance date.
3. Exclusions:
   a. The waiver does not cover late fees or penalties unrelated to tax demands.
   b. Interest on delayed filing of returns or self-assessed liabilities is excluded.

Application and Processing

Taxpayers must follow these steps to benefit from the waiver:

• Submit an application as per the procedure in Circular No. 238/32/2024-GST.
• Ensure all payments are completed within the stipulated deadlines.
• For cases involving pending litigation in the Supreme Court, the taxpayer must withdraw their petitions before applying.

Payments can be made using Input Tax Credit (ITC), and amounts recovered by tax officers on the taxpayer’s behalf can be adjusted toward the demanded tax. However, interest or penalties already paid cannot be adjusted.

Key Clarifications from CBIC Circular 238/32/2024-GST

The CBIC circular dated October 15, 2024, offers in-depth guidance on how taxpayers can effectively navigate the waiver of Interest & Penalty under CGST Act process. Key clarifications include:

• Application Process: Taxpayers are required to submit their waiver application using the appropriate format, either FORM GST SPL-01 or FORM GST SPL-02, based on their specific circumstances.
• Flexibility in Payment: Taxpayers can utilize their Input Tax Credit (ITC) for making the necessary payments, providing more flexibility and ease in complying with the payment requirements for the waiver.
• Third-Party Payments: If tax authorities have recovered any amounts from third parties on behalf of the taxpayer, those amounts will count towards the total tax payment required for the waiver application under Section 128A.
• Exclusions: It’s important to note that late fees, penalties not directly related to the tax demand, and liabilities arising under the Customs Act do not qualify for the waiver under this provision.

Procedural Details under Rule 164

With the introduction of Rule 164 on November 1, 2024, additional procedural requirements are outlined:

• Payment Deadline: Taxpayers must settle all tax payments within three months after receiving an order for waiver approval. Failing to do so will result in the forfeiture of the waiver benefits, underscoring the importance of adhering to strict timelines.
• Supreme Court Cases: For cases involving pending appeals in the Supreme Court, taxpayers must withdraw any Special Leave Petitions (SLPs) before they can submit their waiver request.
• Tax Demands Post-Order: Any additional tax demands issued by appellate authorities must be cleared within three months from the date of such orders. Delays beyond this period will invalidate the waiver.

Key Takeaways

The new provision of waiver of Interest & Penalty under CGST act offers a structured approach to resolving tax disputes efficiently. Taxpayers should adhere to the specified conditions, timelines, and application processes to benefit from the waiver. This measure simplifies compliance and provides much-needed relief to taxpayers with pending demands under Section 73 for prior financial years.

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