GST relief: No need to pay interest and penalty on GST tax demand; conditional waiver from November 1, 2024

The Ministry of Finance has notified various sections including 128A of the Goods and Services (GST) Act with effect from 01.11.2024.

Announced in Budget 2024, section 128A is a new section that provides some relief to individuals and companies registered under GST. This relief which is a conditional waiver scheme, allows total waiver of interest and penalty for specified non-fraudulent GST demand notices related to FY 2017-18 to 2019-20. Do note that this scheme only waives off the interest and penalty amount, you still need to pay the tax demand amount.

Read: Notification no. 17/2024 – Central Tax dated 27.09.2024

According to a notification dated September 27, 2024 by the Ministry of Finance “In exercise of the powers conferred by clause (b) of sub-section (2) of section 1 of the Finance (No. 2) Act, 2024 (15 of 2024), the Central Government hereby appoints. —

(a) the date of publication of this notification in the Official Gazette, as the date on which the provisions of sections 118, 142, 148 and 150 of the said Act shall come into force; and

(b) the 1st day of November 2024, as the date on which the provisions of sections 114 to 117, 119 to 141, 143 to 147, 149 and 151 to 157 of the said Act shall come into force.”

Who is eligible for GST conditional waiver scheme?

According to the explanatory memorandum to Budget 2024, the newly inserted section 128A provides for “waiver of interest or penalty or both relating to demands raised under section 73 for certain tax periods.” Section 73 relates to non-fraud GST demand notices.

Siddharth Surana, chartered accountant and PGDM – IIM Bangalore said, “The amnesty scheme under Section 128A is primarily designed to cover demands raised under Section 73, which pertains to non-fraudulent situations. These may include errors in return filing or reporting of transactions, delays in filing, and genuine cases involving short payment of tax or excess claims of input tax credits, particularly where the issue stems from alternate interpretations of the evolving GST law. It is important to recognize that during the early phases of GST implementation, the legislation was still developing, and many provisions were unclear to taxpayers. As such, the introduction of this amnesty scheme, which offers a waiver of interest and penalty in specific cases, is aimed at encouraging compliance while avoiding excessive financial strain on taxpayers who acted in good faith.”

Surana earlier said, “The Finance Bill introduces Section 128A, which provides a waiver of interest and penalties for non-fraudulent taxpayers being assessed only under Section 73 for the periods FY 2017-18, 2018-19, and 2019-20. The taxpayer must not be assessed on grounds of alleged fraud, willful misrepresentation, or suppression of facts.”

How does this GST conditional waiver work?

Experts say that if you need to benefit from this GST conditional waiver scheme then you need to agree with the tax demand pay it and stop all pending litigation. Once your case is accepted under this scheme and you paid the tax demand amount, the tax notice will be extinguished.

Surana said, “The waiver of interest and penalty is conditional and is subject to payment of tax amount under dispute by 31 March 2025.”

According to Surana, “It is important to note that this scheme does not extend to cases of erroneous refunds, where a taxpayer may have claimed and received refunds they were not entitled to. Additionally, Section 74 cases are excluded from the scope of this amnesty scheme. Section 74 deals with situations involving fraud, willful misrepresentation, or suppression of facts, which are considered serious contraventions. Extending the waiver benefits to such cases would compromise the integrity of the tax compliance system. By excluding fraudulent cases, the amnesty scheme ensures that only genuine, non-fraudulent taxpayers are provided an opportunity to regularize their tax liabilities in a fair and equitable manner.”

Echoing the same, Apoorv Phillips, Senior Associate, Sirmacs Consultancy Services (Law Firm) said, “Those GST registered taxpayers who have already paid the interest and penalty amount will not get a refund under this scheme.”

According to EY India, the Budget 2024 has waived off interest and penalty granted in ‘non-fraud’ GST cases for FY 2018-19 to 2019-20. The following scenarios will be covered under this waiver scheme:

• Notice issued but the order has not been passed, or
• Order passed by GST Proper Officer, but Appellate Authority or Revisional Authority has not passed the order, or
• The order passed by Appellate Authority or Revisional Authority, but Tribunal has not passed the order
• The waiver will not be available in case of erroneous refunds.

“The impact of the waiver scheme can be far-reaching. It encourages compliance, especially for smaller businesses or taxpayers who may have struggled with the initial complexities of the GST regime. The scheme is likely to clear out many pending cases, improving overall tax administration and recovery. For taxpayers, this reduces the financial burden while allowing them to regularize their affairs. However, it could also lead to increased scrutiny in the future as tax authorities focus more on fraud-related cases (under Section 74), which are excluded from this relief. In essence, while it boosts short-term collections, it may also signal stricter enforcement ahead,” says Surana.

“Since the launch of GST various amnesty schemes have been introduced, and in all scheme the similarity is the neglect of the honest tax payers and the appeasement of the lethargic ones. If a lethargic and stubborn tax payer was to pay tax, it would had been paid already, but the Government is bent on appeasing them, while the honest ones who have already paid tax with interest and penalty are pondering on the moot question, what was our fault.? Needless to point out, the scheme itself is defective,” says CA Hardik Kakadiya President, Chartered Accountants Association Surat (CAAS).

Source: The Economic Times