The Madras High Court has held that taxpayers cannot be denied waiver of interest and penalty merely because the underlying liability relates to self-assessed tax.
The bench of Justice Senthilkumar Ramamoorthy has ruled that the time limits prescribed under Rule 164 of the CGST Rules are mandatory, and that once a waiver application is approved in Form GST SPL-05, the GST authorities cannot subsequently declare the approval void except in the specific circumstances contemplated by Rule 164.
G.Natarajan, the counsel for the assessee contended that Section 128A was introduced with effect from November 1, 2024, to provide a conditional waiver of interest and penalty relating to specified GST demands raised under Section 73 for the period from July 1, 2017 to March 31, 2020. The legislative background recorded in the judgment shows that the GST Council considered the difficulties faced by taxpayers during the initial years of GST implementation and recommended relief from interest and penalties, subject to payment of the full tax demanded.
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The provision covers specified proceedings initiated under Section 73, including notices and orders, provided the taxpayer satisfies the statutory conditions and pays the full amount of tax within the notified period. It also contains a mechanism for cases originally initiated under Section 74 but subsequently directed to be treated under Section 73.
The controversy before the High Court arose primarily because several waiver applications were rejected on the ground that the interest related to delayed filing of GSTR-3B returns or other self-assessed liabilities. The Department relied substantially upon Paragraph 4 of CBIC Circular No. 238/32/2024-GST dated October 15, 2024, which treated such liabilities as falling within Section 75(12) and therefore outside the scope of the waiver.
The High Court rejected the contention that Section 128A contains an implied exclusion of cases involving self-assessed tax.
The Court drew a distinction between a situation where the Department directly proceeds with recovery under Section 75(12) without invoking Section 73 and a case where the Department actually initiates proceedings under Section 73 for determination of liability.
According to the Court, initiation of proceedings under Section 73 is a sine qua non for invoking Section 128A. Where the Department proceeds directly under Section 75(12), the taxpayer cannot invoke the amnesty provision. However, once the Revenue chooses to determine liability under Section 73, the taxpayer can seek the Section 128A waiver even where the liability relates to self-assessed tax.
This distinction became crucial in the batch because several taxpayers had received Section 73 proceedings concerning interest arising from delayed GSTR-3B filing. The Court found that rejecting their waiver applications merely because the underlying liability was self-assessed was legally unsustainable where the statutory requirements of Section 128A and Rule 164 were otherwise satisfied.
A major finding of the judgment is that the scope of Section 128A cannot be curtailed through CBIC Circular No. 238.
The Court held that the statutory provision must be interpreted on the basis of its text and context and that an implied exclusion of self-assessed tax cannot be read into Section 128A. Consequently, an administrative circular cannot restrict the benefit which Parliament has provided through the statute.
The ruling therefore gives considerable importance to the statutory language of Section 128A over an interpretation contained in the departmental circular.
The Court also examined the controversy surrounding the time limit for filing waiver applications under Rule 164(6).
Taxpayers had argued that the use of the word “may” meant that the three-month period for filing an application was merely directory. The High Court rejected that interpretation. It held that the provision must be read as a whole and that the word “may” merely gives a taxpayer the option to apply for the waiver; once the taxpayer chooses to apply, the prescribed time limit becomes applicable.
The Court further examined the entire scheme of Rule 164, including the prescribed timelines for show-cause notices, replies and final orders. Where no show-cause notice is issued, the order is required within three months of receipt of the application. Where a show-cause notice is issued, the rule prescribes the corresponding outer time limit for disposal.
Importantly, Rule 164(14) provides that if the proper officer fails to pass an order within the prescribed period, the waiver application is deemed to have been approved and the proceedings are deemed concluded. The High Court held that the timelines in Rule 164, including the application-filing timeline under sub-rule (6), are mandatory and not merely directory.
Another significant issue concerned cases where the Department initially accepted a taxpayer’s waiver application and issued Form GST SPL-05, but subsequently issued another order declaring the earlier approval void.
The High Court held that once a waiver application has been accepted through Form GST SPL-05, the approval cannot subsequently be declared void under Section 161 or otherwise unless the case falls within the specific circumstances contemplated by Rule 164(16) or Rule 164(17).
Rule 164(16) concerns cases where an additional tax amount required under the second proviso to Section 128A is not paid within the prescribed period. Rule 164(17) deals with specified interest or penalty relating to erroneous refund or periods outside the statutory waiver period, where the required payment is not made within the stipulated time.
The Court consequently found several subsequent “void orders” legally unsustainable. A separate category of cases involved taxpayers whose waiver applications had initially been approved through SPL-05 before the Department later cancelled those approvals, including on the ground that the waiver related to delayed returns or was contrary to Circular No. 238.
The judgment emphasises that the deemed-approval mechanism under Rule 164 is not an empty procedural formality.
The Court observed that the waiver process is deliberately time-bound and that the rule prescribes a drastic consequence—deemed approval and conclusion of proceedings—if the officer fails to pass the order within the prescribed period. At the same time, the Court clarified that deemed approval operates only where the applicant satisfies the substantive eligibility requirements under Section 128A.
Thus, the Department cannot defeat the statutory scheme simply by failing to pass an order within the prescribed period and then attempting to treat the delay as inconsequential.
While the judgment is favourable to eligible taxpayers, the Court did not hold that every delayed or defective application automatically qualifies for waiver.
It specifically held that deemed approval is available only to an applicant satisfying the substantive conditions of Section 128A. The Court also considered the doctrine of substantial compliance, observing that procedural requirements forming part of the essence of the scheme cannot simply be ignored.
Accordingly, taxpayers must still satisfy the statutory requirements concerning the relevant tax period, payment of the full tax amount, withdrawal of pending appeals or writ petitions where required, and other prescribed conditions.
Applying these principles to the individual cases, the Court found that the largest category consisted of taxpayers whose applications otherwise satisfied Section 128A and Rule 164 but were rejected because the interest related to self-assessed tax arising from delayed filing of GSTR-3B returns.
The Court held that these rejections were untenable.
The Court also set aside orders declaring earlier SPL-05 approvals void where the statutory conditions for making such approvals void under Rule 164(16) or (17) were absent.
The Court ultimately allowed a substantial number of writ petitions, setting aside the respective rejection orders or void orders and holding that the concerned petitioners were entitled to waiver under Section 128A. Where consequential orders had been issued pursuant to orders incorrectly declaring earlier SPL-05 approvals void, those consequential orders were also set aside.
However, the Court dismissed several other petitions, including W.P. Nos. 9766, 21378, 16441, 22085, 22087, 22688, 38025 and 11327 of 2026, reflecting that the relief under Section 128A remains subject to fulfilment of its substantive and procedural requirements.
The Madras High Court’s ruling provides an important clarification on the operation of the GST Amnesty Scheme. Self-assessed tax does not automatically fall outside Section 128A once the Revenue has invoked Section 73 to determine the liability. At the same time, a taxpayer cannot invoke Section 128A where the Department proceeds directly with recovery under Section 75(12) without initiating Section 73 proceedings.
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