Ease of Doing Business in real sense by CBIC's Latest Instruction on Interest & Penalty Appeals

[DrJoshua Ebenezer]

The CBIC has issued Instruction No. 02/2025-GST, bringing much-needed clarity to cases where the department has filed appeals solely on disputes related to interest and penalty under Section 128A of the CGST Act, 2017. This move aligns with the government’s broader objective of reducing unnecessary litigation and easing compliance burdens for taxpayers.

 Background

Section 128A of the CGST Act, 2017, read with Rule 164 of the CGST Rules, 2017, provides for waiver of interest and/or penalty in cases where demands under Section 73 relate to the financial years 2017-18, 2018-19, and 2019-20. Despite this provision, field formations sought clarification on whether a taxpayer remains eligible for relief under Section 128A if the department has filed an appeal disputing the calculation of interest or the imposition of penalties.

Clarification Issued now

If a taxpayer has fully paid the tax amount and only interest or penalty is being contested, they remain eligible to avail the benefits of Section 128A. Pending or ongoing departmental appeals should not prevent a taxpayer from claiming this relief.  The intent of Section 128A is to minimize litigation and ease the compliance process, ensuring businesses do not suffer due to procedural complexities.

If the department has already filed an appeal solely challenging interest or penalty, the proper officer should withdraw it if the taxpayer meets the conditions of Section 128A. If the matter is still under review, the department should accept the adjudicating authority’s order instead of proceeding with an appeal.

Implications for Taxpayers

Businesses no longer have to fight unnecessary appeals where only interest or penalty is in question. Clarity on tax obligations, ensures that if the principal tax amount has been cleared, the process for settling interest/penalty disputes is streamlined. Officers are instructed to withdraw or avoid unnecessary appeals, reducing delays and compliance costs.

Several court rulings have upheld the principle of minimizing litigation in similar cases. Some notable judgments include:

1. M/s Steel Authority of India Ltd. v. Commissioner of Central Excise (2019) – The Supreme Court held that procedural lapses should not burden taxpayers unduly if tax liability has been discharged.
2. M/s DLF Ltd. v. Union of India (2022) – The Delhi High Court ruled that the intent of taxation laws must be to facilitate compliance rather than penalize taxpayers over technical issues.
3. M/s Bharat Heavy Electricals Ltd. v. CCE (2023) – Reaffirmed that where tax has been paid and only penalty is under dispute, relief should be granted to the taxpayer under applicable provisions.

 The CBIC’s latest instruction is a welcome step toward reducing unnecessary disputes, improving compliance efficiency, and ensuring that businesses can operate without prolonged legal battles. Taxpayers who have cleared their principal tax liability but face appeals on interest/penalty should proactively approach tax authorities to seek withdrawal of such appeals under this directive.

This move is another stride toward India’s goal of making GST a simplified, transparent, and business-friendly tax regime.