Government has announced the GST Amnesty Scheme

Government has announced the GST Amnesty Scheme

Section 128A of the CGST Act, 2017 — inserted by the Finance Act 2024 on the recommendation of the 53rd GST Council — gives you a one-time opportunity to close pending tax demands for the period July 2017 to March 2020 by paying only the tax due. Interest and penalty are fully waived. The scheme applies exclusively to non-fraud demands raised under Section 73. If you or your company have an open GST demand notice, order, or appeal for FY 2017-18, FY 2018-19, or FY 2019-20, this is the cleanest exit available in years.

What Section 128A Actually Covers

The waiver has two components: interest under Section 50 of the CGST Act and penalty under Section 73(9). Both are dropped entirely once the proper officer accepts your application — provided the full tax amount was paid on or before the notified deadline.

The scheme operates only within the universe of Section 73 demands — cases involving non-payment, short-payment, erroneous refund, or wrong ITC availment where there is no allegation of fraud, suppression of facts, or wilful misstatement. This is a critical threshold. If your demand was raised under Section 74 (fraud, suppression, wilful misstatement), Section 128A offers you nothing and you must continue contesting or settling through normal SCN proceedings.

The tax periods covered are 1 July 2017 to 31 March 2020 — the first three financial years of GST. These were the years of maximum confusion: transitional ITC mismatches, TRAN-1 disputes, inter-state supply classification errors, and GSTR-2A vs GSTR-3B gaps. The department issued tens of thousands of demands across these years, many of which have been sitting in appeal stacks or DRC-01A limbo since then. Section 128A is the government's attempt to clear this backlog.

Interest under Section 50 accrues at 18% per annum (24% on excess ITC claims under a proviso, now largely settled by the Supreme Court). On a demand that is five or six years old, the interest component alone can dwarf the principal. That arithmetic is what makes this scheme financially decisive.

Who Qualifies: The Four Eligible Categories

The CBIC Rules identify four distinct situations in which a taxpayer can apply:

1. Pending demand notice or order under Section 73 — the demand was raised and you have neither paid nor appealed, or have appealed and the matter is pending.
2. Cases under appeal before any appellate authority — first appellate authority (GSTAT or Commissioner Appeals), the GST Appellate Tribunal (GSTAT) as it becomes operational, High Court, or Supreme Court. You can withdraw the appeal, pay the tax, and apply.
3. Voluntary payment under Section 73(5) — if you already paid the tax through DRC-03 before the SCN was issued but interest and penalty were not settled, you qualify for waiver of the outstanding interest and penalty.
4. Rule 88C mismatch cases — where the department issued a notice for the difference between GSTR-1 and GSTR-3B and you admitted the tax liability. If the admitted tax has been paid, you can apply for waiver of interest and penalty arising from that notice.

The common thread across all four categories: tax must be fully paid first. There is no partial amnesty. If your demand is for Rs. 10 lakh in tax and you pay Rs. 8 lakh, the application will be rejected.

Excluded Cases — Do Not Proceed Without This Check

Before you invest time in filing SPL-01 or SPL-02, run a quick exclusion check:

• Section 74 demands (fraud, suppression, wilful misstatement) — entirely excluded. Period.
• Penalty under Sections 122 to 127 for separate offences (e.g., seizing goods without invoice, obstructing an officer) — these continue even if the Section 73 demand is waived.
• Demands outside the July 2017–March 2020 window — demands for FY 2020-21 onwards are not covered.
• Tax already paid is not refundable — if you overpaid tax earlier, the excess is not returned under Section 128A. The scheme is a waiver of future interest/penalty, not a credit/refund mechanism.
• ITC reversed as part of demand settlement cannot be re-availed — once ITC is reversed in compliance with a Section 73 order, the reversal stands. Section 128A does not un-reverse it.

This last point catches many practitioners off guard. If you reversed Rs. 3 lakh of ITC pursuant to a demand and now want to use Section 128A to "close" that demand, the tax (via ITC reversal) is treated as paid — and you can apply for waiver of interest and penalty — but the Rs. 3 lakh ITC does not come back.

Step-by-Step: How to File for Amnesty Relief

Step 1 — Map Your Open Demands

Log in to the GST portal (www.gst.gov.in). Navigate to Services → User Services → My Applications and check for pending DRC-01, DRC-01A, DRC-07, and DRC-08 records. Separately, cross-check with GSTIN notices received offline. Compile a list by GSTIN, period, demand amount, tax head (CGST/SGST/IGST/Cess), and current status (SCN stage, order stage, or in appeal).

Step 2 — Verify the Section 73 Classification

Open the demand order and confirm it cites Section 73, not Section 74. If the notice or order is ambiguous, obtain the full text. A demand described as "ITC mismatch" is almost always Section 73. A demand described as "suppression of turnover" or "fraudulent ITC" is Section 74.

Step 3 — Compute the Tax Due

The payment must cover 100% of the tax component only. Use the demand order as the base. If you believe the tax itself is wrong (e.g., the rate applied is incorrect), you need to decide whether to dispute before applying or accept the figure and apply. There is no scope for partial acceptance under Section 128A.

Step 4 — Pay the Tax via DRC-03

Go to Services → Ledgers → Electronic Liability Ledger → Payment towards Demand. Select the relevant demand reference and pay the tax amount. Generate and retain the Form DRC-03 acknowledgement with the ARN. This ARN is required at the SPL-01/SPL-02 filing stage. Do not pay through the regular tax challan (PMT-06) — it must be routed as a DRC-03 demand payment so the system maps it to the specific demand.

Step 5 — Withdraw Any Pending Appeal

If your case is pending before the first appellate authority or the High Court, file a formal withdrawal application before that authority. Obtain a withdrawal order or a certified copy of the withdrawal filing. You will need to attach this to SPL-02.

Step 6 — File SPL-01 or SPL-02

• SPL-01: Use when no appeal or further proceedings are pending — the demand is at the order stage or the SCN stage only.
• SPL-02: Use when you are withdrawing an appeal or when proceedings are pending before an appellate forum.

File on the GST portal within the notified window (see "Deadline" note below). Attach the DRC-03 ARN and, if applicable, the appeal withdrawal proof.

Step 7 — Track the Officer's Response

The proper officer must issue SPL-05 (acceptance) or SPL-07 (rejection) within the period notified under the rules. Once SPL-05 is issued, the demand is closed and the outstanding interest/penalty is extinguished. If SPL-07 is issued, you have the right to make a representation; the officer should give you a reasonable hearing before final rejection.

Understanding the Forms: SPL-01, SPL-02, SPL-05 and SPL-07

Keep all these documents in your compliance file permanently. They are your evidence that the demand is closed. In the event of a future audit or scrutiny, the absence of SPL-05 while showing the demand as "closed" in your books will trigger questions.

Worked Example: A Manufacturer's Rs. 8 Lakh Demand

Background: XYZ Components Private Limited, a mid-sized manufacturer, received a Section 73 demand order in January 2023 for FY 2018-19. The demand arose from ITC claimed on invoices that did not appear in the supplier's GSTR-1. Tax demanded: Rs. 8,00,000 (CGST + SGST combined). Interest and penalty were added in the order.

Interest computation:

• Rate: 18% per annum
• Period: 1 April 2019 (return due date) to 30 June 2025 (assumed payment date under amnesty) = approx. 75 months ≈ 6.25 years
• Interest = Rs. 8,00,000 × 18% × 6.25 = Rs. 9,00,000

Penalty computation:

• Under Section 73(9): 10% of tax = Rs. 80,000 (or Rs. 10,000 minimum — 10% applies here)

Total demand without amnesty: Rs. 8,00,000 + Rs. 9,00,000 + Rs. 80,000 = Rs. 17,80,000

Under Section 128A: Pay only Rs. 8,00,000 via DRC-03, file SPL-01, and receive SPL-05.

Effective saving: Rs. 9,80,000 — the interest and penalty are extinguished entirely.

For XYZ, the decision calculus is straightforward: the legal merits of the ITC dispute are debatable (supplier non-compliance is a grey area post-Deem Distributors and the Circular No. 183/15/2022-GST), but the cost of continued litigation — Rs. 9.8 lakh in waived charges, plus lawyer fees, officer time, and mental bandwidth — is simply not worth the exercise.

A second, smaller example: A solo professional running a service partnership (two partners) for FY 2017-18 receives a demand of Rs. 1,20,000 for IGST on a cross-border B2B service incorrectly classified as intra-state. Interest at 18% over 7 years = Rs. 1,51,200. Penalty = Rs. 12,000. Total demand = Rs. 2,83,200. Under amnesty, pay Rs. 1,20,000 and close the matter. Saving: Rs. 1,63,200.

Other Amnesty Windows Running Alongside Section 128A

Section 128A is not the only live relief measure in 2026. Two others deserve your attention:

1. Late fee waiver for pending GSTR-9 and GSTR-9C CBIC has periodically notified a reduced / capped late fee for annual returns of FY 2017-18 to FY 2022-23. The cap has been set at Rs. 20,000 per financial year (as per the most recent notification — verify the current cap on the GST portal). If your GSTR-9 or GSTR-9C for any of these years is still pending, file now and take the reduced late fee before the window closes.

2. Restoration of cancelled GST registrations Taxpayers whose registration was cancelled for non-filing of returns can apply for restoration, subject to filing all pending returns and paying tax + interest. The CBIC has granted ad hoc restoration windows through suo motu Circular-based relief. Check the portal for the current window if your registration was cancelled between FY 2017-18 and FY 2022-23.

3. GST Appellate Tribunal pre-deposit requirement As GSTAT benches become operational, taxpayers filing appeals before the Tribunal must pay 20% of the remaining disputed amount as pre-deposit (on top of the 10% already paid before the first appellate authority). If your matter is at this stage and your legal position is strong, the pre-deposit is a sunk cost you may want to preserve rather than forfeit by withdrawing for amnesty. However, if your position is weak, Section 128A gives you an exit before GSTAT proceedings impose further cost.

Common Mistakes That Kill Your Application

Practitioners see the same errors repeatedly. Avoid these:

• Paying via the wrong challan route: Paying tax through PMT-06 without linking to the demand reference means the DRC-03 is unlinked. The system will not recognise the payment as satisfying the demand. Always pay towards demand through the Electronic Liability Ledger.
• Filing SPL-01 when SPL-02 is required: If any appeal is pending — even if informally — the proper officer will reject SPL-01 on the ground that proceedings are outstanding. Always check the appellate status before choosing the form.
• Partial payment: Even Rs. 1 short of the full tax demand is a valid ground for SPL-07. Round up, not down.
• Not obtaining the appeal withdrawal order before filing SPL-02: The appellate authority may take time to issue the formal withdrawal order. Do not file SPL-02 until you have documentary proof of withdrawal in hand.
• Assuming interest runs only on base tax: Interest under Section 50 runs on the net tax payable which can include reversals. Get the exact interest figure from the demand order; do not self-compute using a simple formula if the original demand has prior partial payments.
• Missing the deadline and assuming an automatic extension: CBIC has extended this deadline before, but there is no guarantee of a further extension. Treat the current notified deadline as final when planning your cash flow. As of the date of this article, verify the operative deadline on the GST portal under Services → User Services → Circulars / Notifications.
• Confusing DRC-03 acknowledgement with DRC-07: DRC-07 is the demand order issued by the department. DRC-03 is your voluntary payment form. The SPL application requires the DRC-03 ARN, not the DRC-07 reference.

Amnesty vs. Litigation: A Decision Framework

For demands where the law is settled against you — mismatched ITC where the supplier defaulted, services taxed at a wrong rate that the CBIC has since clarified, or transitional ITC claims that courts have consistently disallowed — take the amnesty. The interest and penalty saving is large, the outcome of litigation is predictable, and the management cost of keeping the matter alive is real.

For demands that raise substantive interpretation questions affecting your FY 2020-21 and later years — for example, a demand that challenges your place-of-supply classification in a way that recurs every year — litigation may be worth preserving. Winning a High Court order in your favour for FY 2018-19 creates binding precedent that protects you going forward. Paying under amnesty for FY 2018-19 and then losing the same issue for FY 2021-22 in a fresh demand is the worst of both worlds.

A practical decision rule: if the demand amount is under Rs. 10 lakh and the legal position is anything less than clearly in your favour, the amnesty almost always wins on a net present value basis. If the demand exceeds Rs. 50 lakh and raises a genuinely live legal question, obtain a formal legal opinion before withdrawing appeals.

One more consideration: GSTAT operationalisation. For demands currently before the first appellate authority where the officer's order went against you, there is now a credible second-level tribunal. If you believe the first appellate authority wrongly decided the issue, do not withdraw and apply for amnesty reflexively — evaluate whether GSTAT is likely to give you a better outcome.

Key Takeaways

• Section 128A waives only interest and penalty — the full tax must be paid by the notified deadline. There is no partial amnesty.
• The scheme covers July 2017 to March 2020 (FY 2017-18 to FY 2019-20) for Section 73 non-fraud demands only. Section 74 (fraud) cases are completely excluded.
• Payment must flow through DRC-03 linked to the specific demand — a mis-routed payment via PMT-06 will not qualify the application.
• Use SPL-01 if there is no pending appeal; use SPL-02 if you are withdrawing an appeal — form choice error is a common rejection ground.
• The interest saving on a 5–7 year old demand routinely exceeds the principal tax — compute the full demand before deciding whether amnesty or litigation serves you better.
• ITC reversed to satisfy a demand is not re-credited under the scheme — factor this into your cost comparison with litigation.
• Check the GST portal regularly for the current operative deadline — CBIC has extended this scheme before, but relying on an assumed extension is a risk you should not take with a live demand.

Always verify the current deadline, form availability, and any CBIC clarification circulars on `www.gst.gov.in` before filing. Rule numbers, form designs, and procedural steps are subject to amendment by CBIC notification.