Waiver of interest and penalty cannot be denied solely

Waiver of interest and penalty cannot be denied solely for depositing tax under the wrong head if the full liability was discharged within the statutory timeframe.

Issue

Whether the tax authority was justified in rejecting the petitioner’s application for waiver of interest and penalty under Section 128A of the CGST/TNGST Act solely because a portion of the tax demand was inadvertently deposited under the wrong tax head (IGST instead of CGST/SGST), despite the entire tax liability being discharged on time.

Facts

Demand Adjudication: An Order-in-Original was passed against the assessee under the standard demand provisions (Section 73, not involving fraud), determining a specific tax liability.
Timely Payment: The assessee deposited the entire demanded tax amount within the prescribed statutory timeline.
Wrong Head Remittance: Out of the total payment, an amount of ₹3.69 lakhs was accidentally deposited under the Integrated Goods and Services Tax (IGST) head, even though there was no actual IGST liability.
Waiver Rejection: The assessee filed an application seeking a waiver of interest and penalty under the conditional amnesty scheme, citing full payment of the principal tax. The tax authority rejected the application due to the wrong head payment.
Writ Petition: Aggrieved by the rejection, the assessee filed a writ petition before the High Court to challenge the authority’s order.

Decision

Substance Over Procedure: The High Court held that while concessionary statutory provisions require strict compliance regarding the substance of the condition (paying the full tax), procedural aspects allow for “substantial compliance.”
Liability Discharged: The court observed that the entire tax liability stood effectively discharged within the statutory time limits, satisfying the core objective of the waiver scheme.
Rejection Unsustainable: Denying the waiver benefit purely due to an inadvertent error in the remittance head was ruled unsustainable in law.
Remand and Rectification: The High Court set aside the rejection order and remanded the matter back to the tax authority for fresh consideration, directing them to provide the assessee an opportunity to correct the head-wise payment entry.

Key Takeaways

Substantial Compliance Matters: If a taxpayer pays 100% of the tax due within the deadline, a purely clerical or technical error—like selecting the wrong tax ledger head—should not strip away statutory amnesty benefits.
Wrong Head is Rectifiable: Depositing tax under an incorrect head (e.g., IGST instead of CGST) is a curable procedural defect, especially when read alongside Section 77, which deals with tax wrongfully collected and paid to the Central or State Government.
Amnesty Intent Preserved: The primary intent of waiver provisions like Section 128A is the recovery of principal tax revenue; once the revenue is secured on time, minor structural adjustments in accounting should be permitted.

HIGH COURT OF MADRAS

Ayiswarya Polymers

Assistant commissioner of GST and Central Excise

Senthilkumar Ramamoorthy, J.

WP No. 22814 of 2026
W.M.P. Nos. 24747 & 24748 of 2026

JUNE 25, 2026

G. Sudhakar for the Petitioner. K.S. Ramasamy, Sr. SC for the Respondent.

ORDER

1. An order in original was issued on 30.12.2022. Pursuant thereto, the petitioner made payments on 27.03.2023 and 06.09.2024. It is common ground that the entire tax demand under said order in original was discharged. The petitioner, however, erroneously remitted a sum of Rs.3,69,334/- in the wrong head, i.e., IGST, instead of CGST and SGST. On that basis, the application for waiver under Section 128-A of applicable GST enactments was rejected. Said order is challenged herein.

2. Mr.K.S.Ramasamy, learned standing counsel, accepts notice on behalf of the respondent. He submits that no case is made out for interference because the petitioner admittedly made payment under the IGST head instead of CGST and SGST.

3. Under Section 128-A, a person is eligible to apply for waiver if such person pays the full amount of tax payable as per the show cause notice or order under Section 73 or appellate order under Section 107. In the case at hand, the agreed position is that the entire tax liability was discharged, albeit by making payment under the wrong head.

4. Learned counsel for the petitioner asserts that this was merely a clerical error in as much as the petitioner has no IGST liability. This factual possession is not controverted by the respondent. Learned counsel for the respondent, however, adds that the statute and the rules framed therein do not enable transfer from one head to the other.

5. A provision for waiver or exemption is required to be construed strictly with regard to substantive requirements. As regards procedural requirements, substantial compliance is sufficient. This principle was affirmed by the Supreme Court in cases such as Commissioner of Customs (Import), Mumbai v. Dilip Kumar & Company 69 GST 239 (SC)/(2018)9 SCC 1.

6. Given the fact that the petitioner remitted the full tax upon receipt of an order under Section 73 within the time limit specified in that regard, I am of the view that there is substantial compliance. Consequently, the matter warrants reconsideration. To enable such re-consideration, the impugned order is set aside and the matter is remanded for re-consideration. After providing a reasonable opportunity to the petitioner, the application for waiver shall be re-considered after taking note of the observations contained in this order. A fresh order shall be issued within three months from the date of receipt of a copy of this order. The petitioner shall comply with any procedural requirements in order to ensure that the tax is remitted into the appropriate head.

7. The writ petition is disposed of on the above terms. Consequently, connected writ miscellaneous petitions are closed. There shall be no order as to costs.