New Section 128A – What The Future Holds for GST Amnesty Scheme

GST Council in its 53rd meeting dated 22nd June 2024 recommends waiving interest and penalties for demand notices issued under Section 73 of the CGST Act (i.e. the cases not involving fraud, suppression or wilful misstatement, etc.) for the fiscal years 2017-18, 2018-19 and 2019-20, if the full tax demanded is paid upto 31.03.2025 as below:

“Measures for facilitation of trade: 1. Insertion of Section 128A in CGST Act, to provide for conditional waiver of interest or penalty or both, relating to demands raised under Section 73, for FY 2017-18 to FY 2019-20 : Considering the difficulties faced by the taxpayers, during the initial years of implementation of GST, the GST Council recommended, waiving interest and penalties for demand notices issued under Section 73 of the CGST Act for the fiscal years 2017-18, 2018-19 and 2019-20, in cases where the taxpayer pays the full amount of tax demanded in the notice upto 31.03.2025. The waiver does not cover demand of erroneous refunds. To implement this, the GST Council has recommended insertion of Section 128A in CGST Act, 2017.”

While it is undoubtedly a major relief for taxpayers to settle several disputes relating to the past, we need to await the official notification implementing this amnesty scheme to understand the exact merits and demerits.

Meanwhile, in this article, we delve upon some of the common questions and future disputes by taxpayers anticipated in this scheme:

1. Refund of interest and penalty already paid: This query is not any new in such tax amnesty schemes. It has always been a pain point for all diligent taxpayers to suffer tax, interest, late fees & penalty when they make early settlement without continuing the disputes awaiting amnesty scheme. With increasing no. of amnesty giving relief to the taxpayers smartly awaiting amnesty vis-à-vis those proactive taxpayers, the trend is to encourage litigation rather than tax payments. Nonetheless, with such continued trend, it could equally discourage ex-chequers announcing or deferring such schemes. It would be appropriate to award interest and penalty already paid as well to encourage the early compliance intentions of taxpayers.
2. Benefit of waiver and refund thereof, if the tax amount is already paid voluntarily through DRC03 or a pre-notice intimation in ASMT 10 or DRC01A rather than actual show cause notice or order u/s 73
3. Whether scheme is applicable for litigation at all stages – notice, demand order, appeal filed, recovering proceedings, appeal order confirmed, tribunal appeal intent given?
4. Council recommendation mentions the payment of “full tax amount” – Does it refer to the entire tax amount in a single notice covering all disputes or the taxpayer can get partial relief of interest and penalty to the extend of admitted taxes on certain issues within a show cause notice. Hopefully, the actual notification should be clear on this.
5. Does the scheme cover transition credit related disputes? While it is still a question of law on whether transition credit related disputes can be raised through Sec 73 or 74, it is now a larger question if this scheme would cover such notices if at all issued u/s 73 or 74, since transition credit may not be ideally attributable towards FY 2017-18. Nonetheless, if the department beliefs and holds such notice to be valid when issued u/s 73, the benefit thereof in amnesty scheme cannot be denied.
6. If tax is discharged now through amnesty scheme, in relation to output tax liability by a supplier, whether recipient would be eligible for ITC?
7.  Is it fair not to extend this benefit for notices u/s 74?
   1. While the intention of Government not to extend this scheme for section 74 could be justified in line with the fraudulent intents of the taxpayers, most often notices are issued u/s 74 without baseless reasons for invoking sec 74. In all such cases, atleast where the taxpayer acknowledges to settle the dispute on merits, they are likely to be handicapped with interest and penalty levy. Extending the scheme benefit to such cases is likely to settle more disputes.
   2. Further, in instances where sec 74 notices are issued within the time frame to issue sec 73 notices, sec 75(2) is operational to deem such notices to be issued u/s 73. However, when such decisions take a long way beyond 31.03.2025, the taxpayer also loses the fair chances of benefiting to resolve under the amnesty scheme.
   3. Also, while the law makers have evolved over an era to acknowledge the need for introducing Sec 74A without discriminating between fraud and non-fraud cases, is it justified to give an amnesty scheme only for Section 73, drawing back and forth without an alignment of policy level decisions.

On these lines, it would be fair and appropriate to cover the notices u/s 74 as well in the amnesty scheme.

    8. Is it fair not to extend this benefit for erroneous refunds?

1. 1. Interest on erroneous refund: In most scenarios, erroneous refund is an encashment of ITC and it is noticeable that such ITC, unless pertains to ineligible credit, should not attract interest since it is not ‘compensatory’ in nature. Even in the case of ineligible credit, when the ineligible credit perse which is utilised to discharge tax liability in lieu of cash payment is entitled for amnesty scheme benefit, the same benefit cannot be denied merely because it has been encashed through refund. 
   2. Penalty on erroneous refund: Such erroneous refunds, especially when obtained through a specific application made in RFD01, verified and sanctioned by an officer, should ideally not attract penalty, when all the information was already made available to the officer in the original instance and it is only a reverification of the same to instigate proceedings for erroneous refund. Hence, penalty being a punishment imposed for quasi criminal proceedings, is thus penal in nature and not automatic unlike in the case of interest. Hence it is all the more justifiable to extend this amnesty benefit of penalty waiver for erroneous refunds as well, in order to settle the litigations.

BOTTOMLINE:

The above points could be apparent issues one can foresee in this scheme and the actual issues in the future tax litigation could be much more than this.

With the larger interest of achieving the real benefit of tax dispute settlements, it is highly recommended that the Government should carefully consider the above issues and frame the scheme. Any imbalances in extending the benefit would result in unwarranted disputes which otherwise a taxpayer might want to settle. An arbitrary discrimination in extending the amnesty scheme without rationale for every classification, would lead to a question of law under Article 14 wherein “The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”