Procedure for department Apppeal filed against interest and/or penalty only related to Section 128A of CGST Act : CBIC Instruction No. 02/2025-GST

Key Bullet Points: Departmental Appeals Related to Section 128A of CGST Act, 2017 (Interest/Penalty Only)

• Background: Instruction clarifies the procedure for departmental appeals related to interest and/or penalty under Section 128A of the CGST Act, 2017, following previous circular 238/32/2024-GST. Section 128A allows for waiver of interest/penalty under certain conditions for FY 2017-18, 2018-19, and 2019-20.
• Clarification: This instruction addresses situations where tax is paid, but the department appeals only the interest calculation or penalty amount (imposed, not imposed, or imposed incorrectly).
• Eligibility for Section 128A Benefit: Even if the department has appealed or is in the process of appealing only the interest/penalty, the taxpayer is still eligible for the benefits of Section 128A, provided the full tax amount has been paid and other conditions of the section are met. The intent is to reduce litigation.
• Action for Proper Officer: If the tax is paid, and the department’s appeal is only about interest/penalty (wrong calculation, wrong imposition, or non-imposition), the proper officer should:
  • Withdraw the appeal if already filed.
  • Accept the order under Section 73 if it’s still under review.
• Reporting Difficulties: Any implementation issues should be reported to the Board.

• Scenario:

  • Taxpayer: ABC Ltd.
  • Tax Period: FY 2018-19
  • Tax Due: ₹1,00,000 (fully paid by ABC Ltd.)
  • Interest: ₹10,000 (disputed by ABC Ltd.)
  • Penalty: ₹5,000 (not imposed, but department believes it should have been)

  Department’s Action:

  The department agrees that the tax amount is correct and has been paid. However, they believe the interest was calculated incorrectly (too low) and that a penalty should have been imposed. They file an appeal specifically challenging the interest calculation and the non-imposition of the penalty.

  ABC Ltd.’s Position:

  ABC Ltd. believes the interest calculation is correct and no penalty is due. They wish to avail the benefit of Section 128A to avoid further litigation on these relatively small amounts.

  Application of the Instruction:

  According to Instruction No. 02/2025-GST, even though the department has filed an appeal, ABC Ltd. is still eligible for the benefits of Section 128A because:

  1. The full tax amount has been paid.
  2. The department’s appeal is only regarding the interest and penalty.

  Action by the Proper Officer:

  The proper officer should:

  • Withdraw the department’s appeal.
  • Grant ABC Ltd. the benefit of Section 128A, meaning any potential additional interest or penalty will be waived.

  Outcome:

  This example demonstrates how the instruction clarifies that taxpayers should not be denied the benefits of Section 128A simply because the department has appealed a minor aspect of the assessment (interest/penalty) when the tax itself has been paid. This helps reduce unnecessary litigation and aligns with the intent of Section 128A.