CBIC Directive on Section 128A: Streamlining Interest and Penalty Dispute Resolution under Section 73 of the CGST Act

Introduction

The Central Board of Indirect Taxes and Customs (‘CBIC’) vide instruction dated 07.02.2025[i], directed the Goods and Services Tax (‘GST’) department to withdraw appeals filed for wrong calculation of interest and penalty in cases where the tax overdue has been paid and the amnesty scheme laid under s. 128A read with s. 73 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) is applicable. S. 128A read with r. 164 of the Central Goods and Services Tax Rules, 2017 (‘CGST Rules’) was introduced to alleviate the burden of interest and penalties on taxpayers by offering waivers for specific periods and conditions. This waiver applies to tax demands raised under s. 73 for financial years (‘FYs’) 2017-18, 2018-19, and 2019-20. Previously, the Circular dated 15.10.2024 (‘Circular’) had provided clarifications on the applicability of s. 128A[ii].

However, uncertainty remained regarding cases where the department had filed appeals challenging the quantum of interest or penalties. The latest instruction removes ambiguity, ensuring that taxpayers who have settled their tax dues are not subjected to unnecessary litigation.

This instruction strengthens the intended purpose. 128A — to reduce litigation and allow taxpayers to resolve disputes arising from calculation errors or procedural missteps.

S. 128A of the CGST Act

S. 128A of the CGST Act allows for the waiver of interest or penalties associated with demands under s. 73 of the CGST Act for FYs 2017-18, 2018-19, and 2019-20, provided certain conditions are met. The following cases qualify for the waiver of interest and/or penalties under s. 128A of the CGST Act:

• Notices or statements issued without adjudication: Cases where notices or statements have been issued under s. 73(1) or s. 73(3) of the CGST Act, but no subsequent adjudication has taken place under s. 73(9).

• Orders issued without further appeal or revision: Cases where orders have been passed under s. 73(9), provided no appellate or revisional orders exist under s. 107(11) or s. 108(1) of the CGST Act.

• Appellate or revisional authority orders without tribunal review: Situations where orders have been passed by an appellate or revisional authority under s. 107(11) or s. 108(1), but no further adjudication has occurred under s. 113 by the Appellate Tribunal.

• Cases initially adjudicated under s. 74 but later reassessed under s. 73: Cases that were originally adjudicated under s. 74 but were later re-determined under s. 73 of the CGST Act, following appellate or judicial directions, making them eligible for a waiver.

The accompanying r. 164 of the CGST Rules operationalises s. 128A by outlining the procedure for availing the waivers of interest and penalties.

Instructions Issued

Para 4 of the Circular provided an issue-wise clarification table. In serial No. 4 of that table, it was clarified that in cases where the tax due has been paid and the notice or demand orders under s. 73 of the CGST Act only pertains to the interest and penalty, or either of the two, the taxpayer shall be eligible to avail the benefit under s. 128A. Therefore, whenever the penalty and/or interest is disputed by the taxpayer while the overdue tax liability has been paid, the benefit of s. 128A can be claimed. In the same vein, instead of the taxpayer, if the department disputes the penalty and/or interest either on the grounds of arithmetic miscalculation of interest or proportionality of penalty, the benefit of s. 128A shall be extended to the taxpayer.

Furthermore, the Proper officers have been granted the discretion to withdraw any departmental appeals filed against taxpayers who meet the conditions set forth in s. 128A of the CGST Act. This shall include cases where the dispute revolves around incorrect interest calculations or improper penalty assessments. In cases where an order under s. 73 of the CGST Act is under review, and the criteria listed under s. 128A is met, and the same may be accepted instead of further contentions.

Our Analysis

The legislative intent behind these provisions was to simplify compliance processes against unintended mistakes in discharging tax liabilities and reduce litigation. This instruction emphasizes that technical complexities should not deprive taxpayers of the benefits of a benevolent provision. Ensuring that disputes over issues like interest miscalculations or proportion of penalties do not escalate to needless litigation in cases where the pending tax liability has already been discharged and no significant loss of revenue occurs, advances a taxpayer-centric interpretation.

Taxpayers will no longer be required to engage in unnecessary litigation when disputes are limited to interest or penalties under s. 73, as the same shall be liable to be waived under s. 128A of the CGST Act. This further clarification to the Circular ensures that once the principal tax liability has been settled, the process for addressing interest and penalty disputes is streamlined. Tax officers have been instructed that they may withdraw or avoid pursuing unwarranted appeals, thereby reducing delays and lowering compliance costs for taxpayers.

This aligns with broader regulatory objectives of clarity, fairness, and efficiency in tax administration. It will also help address the litigation arising out of transitional challenges faced during the introductory days of the GST laws.

End Notes

[i] Instruction No. 2/2025- GST [CBIC-20016/39/2024 GST-Section], Dated 7.2.2025.

[ii] Circular No. 238/32/2024- GST, dated 15.10.2024.

Authored by Aayan Birla at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.