GST Waiver Scheme (Section 128A): A Relief or A Reward For Non-Compliance?

INTRODUCTION – AMNESTY: A WAIVER OR A POLICY LOOPHOLE?

The Central government after due approval of all the states of the country had introduced a waiver of Interest and Penalty for the FY 2017-18, 2018-19, and 2019-20, i.e. the initial 3 years of introduction of a completely new tax law in the country-G.S.T. As publicized, the primary objective behind such a waiver was to provide relief to the taxpayers for the initial period of introduction of such a revolutionary yet complex tax structure throughout the country, wherein unintentional human errors were bound to have occurred, both from the taxpayers side as well as administrative side including but not limited to the technicalities in the GST Common Portal.

The other likely objective could have been to reduce pending litigation before the GST Appellate Tribunal, which is expected to be functional in the year 2025. Without such measures, the Ld. Tribunal would be overburdened with work right from day one, leading to inefficiencies and unnecessary costs, including increased litigation expenses.

Furthermore, many taxpayers who, due to lack of proper guidance or knowledge, unintentionally committed errors were willing to pay their taxes, but they were unable to do so due to the excessive burden of interest and Penalty. In fact, the revenue department, started issuing notices for the FY 2017-18 from somewhere around mid-2022. Thus, a tax payable of Rs. 100.00 pertaining to F.Y 2017-18, would have to be paid in the year 2022, with an interest of around 70% on Rs. 100 (interest charged @ 18% p.a), making a total burden of around 1.7 times of Rs.100, i.e. Rs. 170 as total demand, if paid, which is technically an unjustified cost/burden for the businesses. Had the department started scrutinizing the returns in 2018 or 2019 itself, these errors would have been identified earlier and could have been resolved with a significantly lower interest burden.

Thus, keeping these factors in mind the GST Council in its 53rd Meeting held in New Delhi on 22 June 2024 for the very first time, introduced the insertion of section 128A of the CGST Act 2017 in the public domain. This recommendation of the council was welcomed by the taxpayers, tax professionals, and other stakeholders with great enthusiasm.

However, as time progressed, necessary changes in the Act and Rules were made and also circulars were issued to clarify various queries/confusions.

Nonetheless. The GST Common portal took its own sweet time to make the forms (GST-SPL-01 and GST SPl-02) available to taxpayers to avail the scheme. These forms were supposed to be effectively functional from 01/01/2025, yet these forms even after being released on time had lots of technical defects and bugs, which are still being looked upon by the technical experts at GSTN.

But the real question is, whether the waiver actually proved to fulfill all the objectives as well as expectations with which it was introduced.

WINNER AND LOSERS: DID THE WAIVER CREATE A UNEVEN FIELD?

Let’s dive deep together to analyze this and find the answer to it.

On one hand, the scheme proved worthy for the disobedient, non-compliant taxpayers, while the obedient, compliant taxpayers felt penalized and cheated for having fulfilled their obligations on time, making them feel disadvantaged.

The scheme clearly restricts refunds of interest & Penalties for those who have already paid the same. Thus, for the taxpayers who had voluntarily paid the amount, felt like making a mistake by being obedient and duly discharging their liabilities on time.

For some taxpayers, the revenue had already recovered the demanded interest and penalties by attaching their bank accounts or by directly collecting dues from their debtors, etc. Those interest/Penalties recovered forcefully by the department are also non-refundable. Such coercive steps by the revenue appeared discriminatory and unjustified for taxpayers, as the coercively recovered amounts, will not be refunded.

If the government truly intended to avoid being harsh on the taxpayers for the initial years, then taxpayers with notices or Orders under section 74 should also be granted waiver with some additional conditions.

Tax professionals and trade bodies would widely acknowledge that the CGST Authorities, routinely invoke section 74, often without justified reasoning. It is very unfortunate that even reconciliation issues like the difference between GSTR 2A and GSTR-3B, for the initial years (when GSTR2A was not even available) are being adjudicated u/s 74. All proceedings as a result of the Audit undertaken u/s 65 by the CGST Audit Commissionerate are being initiated and concluded u/s 74 as an unsaid/undebatable rule of the system. It is not a situation that the central government is unaware of these ground-level misuse of section 74, but they prefer to turn a blind eye since, comparatively a higher revenue inflows, through such practice, even though unjustified. Even cases, where section 74 has been misapplied remain outside the purview of the waiver scheme, and, the saga of litigation for such taxpayers continues. The waiver scheme failed to address the misuse of section 74 and also did not acknowledge that not all taxpayers with notice u/s 74 are “frauds”.

The scheme shall have maintained some type of balance amongst all the taxpayers.

Another key issue arises with the penalties under section 122(1) and/or section 125 of the CGST Act. If these penalties were levied along with a notice u/s 73, then they qualify for the waiver. However, if the revenue issues separate orders for penalty u/s 122 or section 125, such orders do not qualify for the waiver, creating an inconsistency in the scheme.

This again is discriminatory and against the intention of the scheme. However, due to unguided field-level implementation, the taxpayers will have to face the burden of this.

The government had amended the rules just 4 calendar days before the tax payment deadline. Such last-minute amendments and clarifications, not only create new confusion amongst taxpayers but also clearly indicate that the practical ground-level issues are still under the discovery stage and many are yet unanswered or unresolved.

To conclude the scheme was good, but had the due dates been extended along with some research and solutions on ground-level problems, the scheme would have achieved the intention/motive with which it was introduced and also have built up trust by the taxpayers on the revenue.

CONCLUSION- Does Honesty pays in Taxation?

This brings us to the fundamental question–does the principle of “Honesty is the best policy” truly hold in the realm of taxation? After having analyzed the scheme, one may argue that in reality, the system seems to reward non-compliance rather than timely adherence to rules. Perhaps, in the field of taxation, the lesson shall be “dishonesty/disobedience is the best strategy”.