The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru Bench, has held that the waiver of interest and penalty under Section 128A of the Central Goods and Services Tax Act, 2017 cannot be extended merely because the underlying transactions or debit notes may have originated in an earlier financial year.
The bench of Prabhakaran P M (Judicial Member), and Ravi Jesuraj (Technical Member) ruled that where the disputed Input Tax Credit (ITC) was actually availed for the first time in December 2020, the resulting demand pertains to that tax period and falls outside the statutory period covered by Section 128A.
The appellant/assessee engaged in the business of trading in garments manufacturing, was registered under the Karnataka GST law. Its GST registration was subsequently cancelled with effect from March 31, 2021.
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During scrutiny of the taxpayer’s returns for FY 2020-21, the GST authorities noticed a difference between the ITC claimed in GSTR-3B and the ITC reflected in GSTR-2A for December 2020. The authorities identified excess IGST ITC of ₹68,573, CGST ITC of ₹2,46,747 and SGST ITC of ₹2,46,747. The taxpayer was initially issued Form GST ASMT-10 under Section 61, followed by an intimation in Form GST DRC-01A.
Subsequently, a show cause notice in Form DRC-01 was issued under Section 73 proposing recovery of the excess ITC of ₹5,62,067, together with interest of ₹3,23,753 under Section 50 and penalty of ₹69,350.
The taxpayer paid the entire disputed excess ITC of ₹5,62,067 through Form DRC-03 on January 9, 2025. However, it did not pay the interest or penalty proposed in the notice.
The adjudicating authority thereafter passed an order under Section 73(9), confirming the interest and penalty on account of excess availment of ITC in GSTR-3B as compared with GSTR-2A.
Before the appellate authorities, the taxpayer argued that although the excess ITC was reported in December 2020, the underlying transactions and debit notes actually pertained to FY 2018-19.
According to the taxpayer, the relevant liability had been discovered while finalising the accounts for FY 2019-20. Since the taxpayer could not go back and amend the returns for FY 2018-19, the relevant details were subsequently declared and the tax liability was discharged in December 2020.
The taxpayer therefore contended that the liability should be treated as pertaining to FY 2018-19 rather than FY 2020-21 for purposes of Section 128A. It also submitted that the tax had been voluntarily paid after discovery of the error and that there was no intention to evade tax.
The taxpayer further argued that a debit note issued during FY 2018-19 had already been reported in the GSTR-1 for that period and was subsequently reported again in GSTR-1 for December 2020, resulting in duplication.
On this basis, it sought waiver of interest and penalty under Section 128A.
The First Appellate Authority dismissed the taxpayer’s appeal.
It held that the appellate jurisdiction under Section 107 is confined to examining the legality, propriety and correctness of the order appealed against. According to the authority, determining whether the liability actually belonged to FY 2018-19 would require a fresh examination of facts, verification of debit notes and determination of liability relating to a different financial year.
The authority therefore concluded that the taxpayer could not use the appellate proceedings to re-characterise the tax period forming the subject matter of the original proceedings.
It also held that the beneficial nature of Section 128A could not override the statutory jurisdictional limitations governing an appeal.
Before GSTAT, the Revenue argued that the excess ITC was detected during scrutiny of the taxpayer’s returns for FY 2020-21 by comparing GSTR-2A with GSTR-3B.
The Department maintained that the excess ITC confirmed in the adjudication order pertained to FY 2020-21 because the credit had been claimed in the GSTR-3B returns for that period.
The Revenue further submitted that Section 128A provides relief only for the period from July 1, 2017 to March 31, 2020. Since the disputed ITC was availed in December 2020, the taxpayer could not claim the benefit of the statutory waiver.
The Tribunal examined Section 128A, which was introduced by the Finance (No. 2) Act, 2024 with effect from November 1, 2024.
The provision provides for waiver of interest under Section 50 and penalty in specified proceedings under Section 73 where the demand pertains to the period from July 1, 2017 to March 31, 2020, subject to fulfilment of the statutory conditions and payment of the full amount of tax within the prescribed period.
GSTAT emphasised that eligibility under Section 128A is not determined merely by the fact that the taxpayer has paid the disputed tax.
According to the Tribunal, the statutory conditions have to be cumulatively satisfied. In particular, the demand must arise from a notice, statement or order covered by Section 128A and must pertain to the specified period of July 1, 2017 to March 31, 2020 or a part thereof.
The Tribunal observed that the fact that the Section 73 notice was issued on the basis of the GSTR-3B filed for December 2020 was not, by itself, conclusive of the period to which the demand pertained.
It therefore examined the returns and documents produced before it to determine whether the disputed ITC of ₹5,62,067 represented ITC availed during an eligible period or whether it was credit availed for the first time in December 2020.
After examining the records, GSTAT found that the disputed ITC was actually claimed in GSTR-3B for December 2020. It was not a case where ITC had been availed in FY 2018-19 and subsequently carried forward through the monthly returns.
The Tribunal accordingly held that the demand confirmed under Section 73 pertained to the ITC claim made in December 2020 and did not constitute a demand pertaining to the period covered by Section 128A.
The taxpayer had also relied upon the decision of the Karnataka High Court in Wipro India Ltd. v. Assistant Commissioner of Central Tax, W.P. No. 16175 of 2022 (T-RES), decided on January 6, 2023.
The taxpayer relied upon the decision to contend that the authorities should adopt a justice-oriented approach in cases involving ITC mismatches and extend the benefit of the relevant circular to transactions involving earlier periods.
GSTAT, however, distinguished the decision.
The Tribunal noted that Wipro India Ltd. concerned the application of a CBIC circular dealing with reconciliation of ITC mismatch, whereas the present dispute concerned the statutory conditions governing the waiver under Section 128A.
It held that the circular could not be interpreted as enlarging the period expressly specified by Parliament in Section 128A.
GSTAT went on to hold that the statutory period specified under Section 128A could not be enlarged by an adjudicating or appellate authority beyond the period expressly prescribed by the legislature.
The Tribunal characterised the waiver under Section 128A as a limited statutory relief introduced for a specific period under the GST framework. In the absence of a statutory provision extending its operation, the benefit could not be applied to tax liabilities pertaining to a period outside the prescribed statutory window.
This finding forms the central legal takeaway from the ruling: the historical origin of a transaction is not, by itself, sufficient to bring a demand within Section 128A where the disputed ITC was actually availed for the first time outside the statutory eligibility period.
The Tribunal also examined the taxpayer’s GSTR-1, GSTR-3B and GSTR-9 records.
It noted that for December 2020, the taxpayer declared CGST and SGST outward tax liability of ₹6,47,120 each and reported ITC of ₹68,573 IGST, ₹3,10,236 CGST and ₹3,10,236 SGST in Table 4C of GSTR-3B.
The output tax liability was discharged partly through utilisation of the reported ITC and partly through the cash ledger. Subsequently, scrutiny of the returns revealed a difference of ₹5,62,067 between the ITC claimed in GSTR-3B and the ITC available in GSTR-2A.
The taxpayer accepted the discrepancy and paid the disputed ITC through DRC-03, leaving only the interest and penalty in dispute.
On this factual record, GSTAT concluded that the notice, tax demand and pending dispute relating to interest and penalty all pertained to December 2020.
The taxpayer submitted that it was unable to file an application under Section 128A because the authorities had treated the liability as relating to FY 2020-21 instead of FY 2018-19.
GSTAT rejected this contention.
The Tribunal noted that the taxpayer had not actually filed Form SPL-01 seeking the benefit of the Section 128A scheme and therefore could not contend that such an application had been rejected by the authorities.
More importantly, the Tribunal found that the disputed ITC had not been availed in FY 2018-19 and carried forward through subsequent monthly returns. Rather, according to the records, the ITC was availed for the first time in December 2020.
The taxpayer also relied upon CBIC Circular No. 238/32/2024-GST and the decision of the Orissa High Court in Samita Panda v. Commissioner of CT & GST, 2025 (33) Centax 34 (Ori.).
The taxpayer argued that the amnesty scheme should be applied substantively and should not be defeated on technical or procedural grounds where the taxpayer had acted bona fide and promptly discharged the tax liability.
GSTAT, however, found that the circular did not dispense with the fundamental statutory requirement that the demand must pertain to the period specified in Section 128A.
The Tribunal also cautioned that the taxpayer should avoid attributing expressions to a statutory circular or judicial decision which do not actually appear in the relevant text.
An important observation was made by GSTAT regarding the taxpayer’s alternative contention.
The Tribunal noted that if the taxpayer’s claim were accepted at face value and the underlying liability genuinely traced back to a February 2019 debit note, then, in principle, interest and penalty would have to run from the earlier period.
However, the show cause notice and the original adjudication order had not computed interest or penalty from that earlier period.
This observation further underscored the difficulty in treating the disputed demand as a FY 2018-19 liability when the actual proceedings were founded upon the ITC claim made in December 2020.
GSTAT Bengaluru ultimately held that the taxpayer failed to establish that the disputed excess ITC demand confirmed under Section 73(9) pertained to the period July 1, 2017 to March 31, 2020.
The Tribunal found that the demand arose from the ITC claim made in December 2020 and therefore fell outside the temporal scope of Section 128A.
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