AUGUST 27, 2024

By M E Arunachaleswaran

THIS article attempts to capture a couple of issues that cropped up consequent to introduction of Section 128A under Central Goods and Services Act, 2017 (hereinafter referred to as CGST Act, 2017) and debated in the taxing circle. The issues in question are -

1)Whether the waiver from payment of interest and penalty would apply to the notices issued under Section 73 ibid or it would also cover the notices issued under Section 74 ibid?

2)Whether the waiver applies to the amount already paid and appropriated in the order prior to the introduction of Section 128A ibid or only after the introduction of the said Section 128A ibid;

3)Whether the condition to withdraw the appeal would apply to appeal filed only to contest the interest charged and the penalty imposed.

With regard to the first issue mentioned in the para supra viz., whether the said section would cover demand raised under Section 74 of CGST Act, 2017, the opinion that the said Section could cover Order passed under Section 74 arose by interpreting the provisions of clause(c) of sub-section (1) of the said Section. Perusal of the said clause(c) would reveal that it did not mention Section 73, which is referred to in clause(a) and clause(b). If clause(c) is seen in isolation, this may lead to an impression that it would cover orders passed under Section 74. However, it is pertinent to mention that perusal of clause (a) would reveal that it refers to notice issued under Section 73(1) or statement issued under Section 73(3) but no order under section 73(9) ibid has been passed. Similarly, clause(b) refers to Order passed under section 73(9) (of clause(a)) but Order under Section 107(11) or Section 108(1) is not passed. Clause (c) covers Order passed under Section 107(11) or section 108(1) (referred to clause(b)) but no order under section 113(1) is passed. Therefore, it is seen from the scheme of things that clause(a) to clause(c) is interlinked with the notice issued section 73 and hence the intention of Section 128A ibid is to allow the benefit only to the demand raised under section 73 ibid.

If the provisions of clause(c) are extended to give scope to an interpretation that it covers demand raised under section 74 ibid, it means that the demand raised under section 74 would be covered only from the stage after an Order in appeal/revision is passed. This means that the demand raised under section 74 would not be covered at the stage of Show Cause Notice or Order in Original. It follows that the demand under Section 73 would get covered right from the Show Cause Notice stage whereas the demand raised under section 74 would get covered only after an Order in appeal or Order in revision is passed. If the demand raised under Section 74 could be covered after an Order in Appeal or Revision is passed there is no justification as to why it should not be covered at the Show Cause Notice stage or Order in Original stage itself.

Moreover, the first proviso of the said section speaks about the provisions of Section 75(2) of CGST Act, 2017 which deals with a situation where the Appellate Authority/Tribunal concludes that the notice issued under Section 74 is not sustainable. In such a situation, the Proper Officer has to determine the tax liability deeming as if the notice is issued under section 73(1) ibid. The first proviso states that the said notice or order mentioned under section 75(2) is covered under clause(a) or (b) of section 128A(1) ibid. This in other words confirms that notice issued under section 74 is not covered under the said section.

In this connection, I refer to the MEMORANDUM EXPLAINING THE PROVISIONS IN THE FINANCE BILL, 2024 issued by the Government of India wherein it is clearly mentioned that Section 128A in the CGST Act is being inserted, to provide for a conditional waiver of interest and penalty in respect of demand notices issued under section 73 of the said Act for the Financial Years 2017-18, 2018-19 and 2019-20, except the demand notices in respect of erroneous refund. This makes it explicit that the provisions of Section 128A of the Act cover only the notices issued under Section 73 of CGST Act, 2017. It is a settled legal position that the Finance Minister's speech or the Memorandum explaining the Finance Bill could be referred to gather intention behind the statute.

In the case of K.P. Varghese v. Income-tax Officer - 2002-TIOL-128-SC-IT, the supreme Court, based on the earlier judgment in the case of Baleshwar Bagarti v. Bhagirathi Dass [1908] ILR 35 Cal 701/703 expounded the principle of administrative construction, i.e., contemporaneous construction placed by administrative or executive officers charged with executing a statute, as follows: -

"It is a well-settled principle of interpretation that courts in construing a statute will give much weight to the interpretation put upon, it, at the time of its enactment and since, by those whose duty it has been to construe, execute and apply it."

Hence, the scope of section 128A explained in the Memorandum cited in the para supra clearly spells out that it covers only the notices issued under Section 73 ibid. Hence, the interpretation that the said section would cover the demand raised under section 74 ibid is clearly against the intention of the statute.

With regard to the second issue viz., whether the payment referred to only those made after the introduction of the said section or would also cover the amount already paid consequent to an order or issuance of notice under Section 73 ibid, it is relevant to mention that sub section (1) mentions that the amount payable has to be paid on or before the date to be announced. It can be canvassed that the intention of introducing section 128A is to give relief from payment of interest and penalty, if the tax payable is paid without contesting the liability and the liability falls within the period covered therein. Of course, the demand should be pending in appeal/adjudication. This leads to a conclusion that the amount paid prior to this date can also be considered as payment under this section, provided the demand pertains to 1st July, 2017 to 31st March, 2020 and the demand is raised in the notice or Order in Original or Order in Appeal or Order in Revision covered by clause(a)/(b)/(c).

The next question is whether the benefit of this Section could be extended only if the appeal filed is withdrawn. The intention behind prescribing a condition that the appeal filed is to be withdrawn while also paying the tax liability is that the tax liability should be accepted without contesting on merits. In the circumstances, in case an appeal is pending before an Appellate Authority or Appellate Tribunal or Court which is filed only to contest the charging of interest and imposition of penalty [and not on merits], then the Court or Appellate Tribunal or Appellate Authority may take a view that the benefit of waiver of interest and penalty could be extended provided it relates to the period covered under the said section.

In any case, when the communication for declaring the date for the purpose of this section is issued, it would provide more clarity on this issue.

(The author is Superintendent of CEX & CGST, CHENNAI and the views expressed in the article are strictly personal.)