GST Appeals & Waiver Under Section 128A CBIC Instruction 02/2025 Explained!

In recent years, the Indian government has made significant strides in simplifying the GST framework, aiming to reduce unnecessary litigation and ease the compliance burden on taxpayers. One such step is the introduction of Section 128A of the CGST Act, 2017, which offers a waiver of interest, penalty, or both under specific conditions for the financial years 2017-18, 2018-19, and 2019-20. In a bid to further streamline the process and address concerns raised by taxpayers and field formations, the CBIC issued Instruction No. 02/2025-GST on February 7, 2025. This instruction provides crucial clarifications on the procedure to be followed in cases where the department files an appeal concerning only interest and/or penalty, but the tax amount has already been paid. 

Let’s understand the details!

Circular No. 02/2025-GST dated 07.02.2025

GOVERNMENT OF INDIA

MINISTRY OF FINANCE

DEPARTMENT OF REVENUE

CENTRAL BOARD OF INDIRECT TAXES AND CUSTOMS

GST POLICY WING

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CBIC-20016/39/2024-GST-SECTION

New Delhi: 07.02.2025

Instruction No. 02/2025-GST

To,

All the Principal Chief Commissioners /Chief Commissioners of the Central Tax

Subject: Procedure to be followed in department appeal filed against interest and/or penalty only, related to Section 128A of the CGST Act, 2017 -.

1. Kind attention is invited to  Section 128A of the Central Goods and Service Tax Act, 2017 (hereinafter referred to as 'the CGST Act') read with Rule 164 of the Central Goods and Service Tax Rules, 2017 (hereinafter referred to as 'the CGST Rules') which provides waiver of interest or penalty or both, relating to demands under section 73 of the CGST Act about Financial Years 2017-18, 2018-19 and 2019-20, subject to certain conditions. Further vide Circular No. 238/32/2024-GST dated 15th October 2024, various doubts related to section 128A were clarified.

2. In this regard, references have been received from various field formations seeking clarification from the Board as to whether the benefit of section 128A (supra) be extended to taxpayers in cases where the tax amount has been paid but the department has gone in Appeal based on the wrong arithmetic calculation of interest, or where the penalty is either not imposed or imposed less than the prescribed threshold, etc.

3. The matter has been examined by the Board. It has been observed that at S. No. 4 of the Table under para 4 in the aforesaid circular, it is clarified that cases where the tax due has already been paid and the notice or demand orders under Section 73 only pertain to interest and/or penalty involved, the same shall be considered for availing the benefit of section 128A. Hence, it is evident that in cases where the taxpayer has paid the full amount of tax and only interest and/or penalty is in dispute by the taxpayer, then he is eligible to avail the benefit of Section 128A of the CGST Act. On a similar pattern, it is felt that just because the department has gone in appeal or is in the process of filing an appeal, a taxpayer who is otherwise eligible for availing the benefit of section 128A, should not be denied the benefits. Further, the said provision intends to reduce litigation and a taxpayer should not be denied the benefit of the provision on mere technicalities.

4. Based on the above, it is decided that in cases where the tax amount has been fully paid by the taxpayer on demands made under section 73 of the CGST Act and the department is in appeal or under the process of filing an appeal only on account of wrong interest calculation and/or wrong imposition or non-imposition of penalty amount under the provisions of CGST Act or IGST Act and the taxpayer fulfills other conditions of section 128A and the rules made thereunder, the proper officer may proceed towards withdrawing such appeal filed and in case where the order under section 73 is under review stage only, accept the same.

5. Difficulties, if any, in the implementation of these instructions may be informed to the Board.

(Gaurav Singh)

Commissioner (GST Policy Wing)

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Key Highlights

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1. Section 128A Clarification: Section 128A of the CGST Act, 2017, offers taxpayers the opportunity to waive interest or penalty (or both) under specific conditions for demands raised under Section 73 (tax recovery) for the financial years 2017-18, 2018-19, and 2019-20. This provision was introduced to ease taxpayer compliance by reducing the financial burden of interest and penalties.

2. Tax Paid but Disputed Interest/Penalty: The instruction clarifies that in cases where the tax amount has been fully paid by the taxpayer on demands made under section 73 of the CGST Act and the department is in appeal or under the process of filing an appeal only on account of wrong interest calculation and/or wrong imposition or non-imposition of penalty amount, he can apply for waiver scheme u/s 128A.

Conclusion

The CBIC's Instruction No. 02/2025-GST aims to simplify the GST compliance process by providing clarity on the handling of appeals related to interest and/or penalty under Section 128A of the CGST Act. By ensuring that taxpayers who have paid the full tax amount are not denied the benefits due to technicalities in interest or penalty disputes, the instruction promotes a more efficient, litigation-free process. This initiative not only reduces unnecessary legal complications but also encourages timely resolution, benefiting both taxpayers and the tax administration.

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