Understanding Section 128A: Waiver of Interest or Penalty Under CGST Act, 2017

Introduction to Section 128A of the CGST Act, 2017

Section 128A of the Central Goods and Services Tax (CGST) Act, 2017, stands out as a notable provision designed to aid taxpayers in managing inadvertent defaults regarding tax payments. This crucial component of the CGST Act allows for the waiver of interest or penalties—or both—arising from demands raised under Section 73 for specified tax periods. By offering this concession, Section 128A addresses the inadvertent non-compliance issues that taxpayers may face, which might otherwise result in significant financial strain.

The inclusion of Section 128A in the legislative framework stems from an intention to foster a more taxpayer-friendly environment. The government recognized that stringent penalty and interest provisions could deter compliance and place an undue burden on businesses, particularly those operating under good faith and dealing with unintentional errors. By implementing a waiver mechanism, the authorities aimed to balance punitive measures with corrective actions, thereby enhancing voluntary compliance and promoting a culture of integrity and responsibility among taxpayers.

The overarching purpose of Section 128A extends beyond mere financial relief. It is instrumental in the broader framework of tax administration, ensuring that the tax collection process remains smooth and fair. Through the waiver of interest and penalties, under specific conditions, the section helps to streamline tax compliance procedures and alleviate the burden on taxpayers, ultimately contributing to the efficiency and effectiveness of the taxation system.

In essence, Section 128A serves a dual purpose. On the one hand, it mitigates the immediate financial impact on taxpayers who have inadvertently defaulted. On the other, it reinforces the principles of fairness and accommodative governance, paving the way for a more supportive and transparent tax environment. As we delve deeper into the specifics of Section 128A, it becomes evident that this provision is a linchpin in promoting compliance and reducing the adversarial nature often associated with tax administration.

Eligibility Criteria and Conditions for Waiver

For taxpayers aiming to benefit from the waiver of interest or penalty under Section 128A of the CGST Act, 2017, specific eligibility criteria and conditions must be satisfied. These prerequisites are designed to ensure that only those taxpayers who have acted in good faith and made genuine errors, rather than willful defaults, can avail themselves of these waivers.

In which cases interest & penalty will be waive

Section 73(1) and (3)- Show Cause Notice

•When show cause notice issued by proper officer

•By reason of tax has not paid, ITC wrongly availed or utilized

•For any reason other than fraud

•Then SCN issued for such tax/ITC and interest U/s 50 with penalty

•Order U/s 73(9) not passed

Section 73(9)- Order passed against SCN u/s 73(1) or (3)

•When order passed against SCN notice U/s 73(1) or (3)

•By mentioned amount of tax with interest U/s 50 &

•Penalty = 10% or 10,000 whichever is more

•No order U/s 107(11) or 108(1) has been passed

Section107(11)-Appeal Order or 108(1)-Revision Order

•Section 107(11) Appeal order- Against order passed under this Act (i.e. it includes section 74)

•Section 108(1) Revision order

•But order U/s 113(1) has not passed – Appellate Tribunal

• If order of Appellate Tribunal has been passed then only remedy to go for respective courts.

•Period 1st July 2017 to 31st March 2020

OTHER POINTS

•If notice issued U/s 74(1) (i.e. fraud) and an order passed in pursuance of the direction of Appellate Authority, Tribunal or a court, accordance with U/s 75)1), then notice or order will be consider as U/s 73.

•This scheme not available in case of erroneous refund.

•Appeal or petition must be withdraw before availing benefit of scheme.

•Even assesse can not file an appeal or petition when tax already has been paid under this scheme and proceeding are deemed to be concluded.

•If interest and penalty already paid then no refund will be allowed.

Impact and Implications of Section 128A Waivers

The implementation of waivers under Section 128A of the CGST Act, 2017, represents a transformative approach within India's taxation framework. Primarily, these waivers aim to alleviate the financial burdens on compliant taxpayers, providing significant relief in scenarios where penalties or interest would have otherwise exacerbated monetary strains. This relief is not only beneficial for the taxpayers but also enhances their willingness to comply voluntarily with tax regulations, fostering a culture of compliance and trust between the taxpayers and the government.

For tax authorities, however, the inception of Section 128A waivers brings about an increase in administrative responsibilities. Evaluating each waiver application for legitimacy and ensuring that the relaxation measures are not misused necessitates substantial effort and diligence. This could potentially divert resources from other critical taxation processes, posing a challenge in maintaining optimal operational efficiency.

From an economic standpoint, the waivers introduced by Section 128A hold the potential to stimulate economic activity. By reducing the tax-related financial pressures on businesses, particularly small and medium-sized enterprises (SMEs), the provision encourages reinvestment into business operations and expansion, potentially leading to enhanced economic growth and job creation. However, if not monitored appropriately, the misuse of these waivers might lead to revenue shortfalls for the government, affecting public funding and development projects.

Real-world scenarios clearly illustrate the practical implications of Section 128A waivers. For instance, during the initial phases of GST implementation, several businesses struggled with compliance due to the new system's complexities. The waiver of interest and penalties provided under Section 128A allowed these businesses to stabilize without the fear of severe financial penalties, proving the practical utility of this legislative measure.

Nonetheless, maintaining a balanced approach is crucial. While the benefits of waivers are apparent, it is essential for both taxpayers and tax authorities to approach these provisions responsibly. Effective governance, transparent application evaluation, and continuous monitoring will ensure that the waivers serve their intended purpose without undermining the integrity of the taxation system. Thus, while Section 128A presents clear advantages, its implementation requires careful consideration and ongoing oversight to optimize its effectiveness in the tax landscape.

Conclusion

•Interest and penalty waive up to FY 2023-2024 in case of demand raised U/s 73(1) –SCN or order U/s 73(9) – { Fraud case not cover here}

•Interest and penalty waive up to 31st March 2020, in case of appeal and revision order U/s 107(11) & 108(1)- against any order even 73 or 74 { Fraud case also cover