Controversy over Section 128A: Whether waiver of interest and penalty is available in GSTR-1 vs GSTR-3B mismatch cases?
Briefing to readers
A client came to me stating that weaver of his interest and penalty denied citing Para 4 of the Circular No. 238/32/2024-GST dated 15.10.2024. I analysed it, studied about it, and gave him consultancy, as it was an interesting and a controversial case, I decided to write an article on this topic.
Let me quote the lines from above circular:
Whether the benefit provided under Section 128A will be applicable in cases, where the tax due has already been paid and the notice or demand orders under Section 73 only pertains to interest and/or penalty involved?
Where the tax due has already been paid and the notice or demand orders under Section 73 only pertains to interest and/or penalty involved, the same shall be considered for availing the benefit of section 128A. However, the benefit of waiver of interest and penalty shall not be applicable in the cases where the interest has been demanded on account of delayed filing of returns, or delayed reporting of any supply in the return, as such interest is related to demand of interest on self-assessed liability and does not pertain to any demand of tax dues and is directly recoverable under sub-section (12) of section 75.
Introduction
The benefit of Section 128A of the CGST Act is available in the cases of demand that is raised on the account of mismatch between tax liability that is reported as per GSTR-1 and GSTR-3B, provided that the demand is raised under Section 73 for the financial years 2017–18 to 2019–20, and the taxpayer pays the tax amount by 31st March 2025 (as notified vide Notification No. 21/2024–CT dated 08.10.2024).
Note: Section 73 deals with determination and recovery of tax, interest, and penalty in non-fraud cases i.e., no wilful misstatement or suppression, including short payment, non-payment, wrong ITC claims, or erroneous refunds, while section 74 deals with fraud intent.
What is section 128A?
Section 128A was inserted by the Finance (No. 2) Act, 2024, to provide waiver of interest and penalty in proceedings initiated under Section 73, subject to fulfilment of conditions like the applicability to previous FYs like 2017–18, 2018–19, and 2019–20, full tax payment on or before the notified date, the proceeding should not relate to erroneous refunds and no pending appeal unless withdrawn before notified date.
Nature of demand that is mismatch
The demand due to mismatch between GSTR-1 and GSTR-3B arises when higher tax is declared in GSTR-1 but not paid in GSTR-3B, Such a demand is typically adjudicated under Section 73, not directly under Section 75(12).
Note: Section 75(12) of the CGST Act provides that where any self-assessed tax declared in GSTR-3B remains unpaid, either wholly or partly, or interest thereon is unpaid, it can be directly recovered under Section 79 i.e. without issuing a show cause notice under Sections 73 or 74, w.e.f. 01.01.2022, prospectively “tax declared in GSTR-1 but not paid in GSTR-3B” is included in above.
Controversy that arose from CBIC circular
CBIC Circular No. 238/32/2024-GST dated 15.10.2024 (as I quoted above) attempts to exclude cases where the interest is demanded due to delayed filing or delayed reporting, deeming such dues as “self-assessed tax” recoverable under Section 75(12) and thereby ineligible under Section 128A which provided this one-time waiver of interest and penalty for demands under Section 73 for FYs 2017–18 to 2019–20, if full tax is paid by 31.03.2025, excluding cases of erroneous refunds or pending appeals.
However, this view is legally disputable, because the term “self-assessed tax” under Section 75(12) refers only to GSTR-3B, not GSTR-1, at least for the period prior to 01.01.2022 (i.e., the period Section 128A covers), and the explanation to Section 75(12), expanded its scope to include GSTR-1, that was introduced only w.e.f. 01.01.2022 via Finance Act, 2021.
Hence, for FY 2017–18 to 2019–20, GSTR-1 mismatch cases do not fall under “self-assessed tax” as per the law prevailing during that period, making it controversial.
What courts said on this matter?
Courts have consistently held that benefits conferred by statute cannot be curtailed by circulars., as they are administrative in nature, and cannot override express statutory benefits.
Let me quote few interesting case laws:
In Tata Teleservices Ltd. v. Commissioner of Customs (SC), the Hon’ble Supreme Court held that administrative circulars cannot override the express provisions of law. If there is a conflict between the statute and circular, the statute prevails, While in Sandur Micro Circuits Ltd. v. CCE, Belgaum (SC), the Court ruled that a circular cannot impose any condition which is not found in the statute. Such circulars are not binding on courts or quasi-judicial authorities.
Union of India v. Inter-Continental (India) (SC) is the case which reaffirmed that statutory provisions will override circulars in case of inconsistency. Circulars are meant only for guidance and uniformity, not to alter legal entitlements.
In Alfa Laval (India) Ltd. v. Union of India the Bombay High Court held that circulars cannot restrict substantive rights granted by the act. A delegated authority cannot issue instructions to dilute statutory provisions.
In Nutan Warehousing Co. (P.) Ltd. v. Commissioner, Central Tax the Court ruled that benefits given by law cannot be taken away by administrative clarifications or circulars. Section-specific benefits are binding unless amended by statute. And lastly in Vivo Mobile India (P.) Ltd. v. Union of India Allahabad High Court held that circulars issued by CBIC are not law and cannot impose additional restrictions beyond the scope of the statute. Statutory interpretation cannot be dictated by a circular.
Conclusion:
A demand under Section 73, arising from mismatch between GSTR-1 and GSTR-3B, where the tax is paid on or before 31st March 2025 and the case does not pertain to erroneous refund or pending litigation, will qualify for waiver of interest and penalty under Section 128A, notwithstanding CBIC’s restrictive interpretation in the Circular.
Where such mismatch demands are raised under Section 73 one can apply for waiver in FORM GST SPL-02, If denied citing Para 4 of the Circular, the same may be legally challenged as ultra vires to the CGST Act.
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Author can be contacted at aman.rajput@mail.ca.in
Author Bio
Insightful and well researched.