What is Section 128A and Why Was It Introduced?
Section 128A of the CGST Act was inserted by the Finance (No. 2) Act 2024 as a targeted amnesty provision to address the massive accumulation of unresolved GST demand notices from the initial years of GST implementation. When GST was introduced in July 2017, many businesses made genuine errors in understanding the new law — wrong rate applications, ITC classification errors, transitional credit mismatches, and registration-related defaults were common. These errors generated a wave of Section 73 demand notices that have remained pending in appeal or litigation for years.nnThe scale of this problem was significant — crores of rupees in GST demand were locked in disputes where the underlying tax may have been relatively modest but accumulated interest (at 18% per annum) and penalties had ballooned the total demand multiple times. Section 128A provides a way out: pay only the principal tax demand, and get complete waiver of the interest and penalty component. For many businesses, this could mean saving 50% to 90% of the total demand amount.nnThe amnesty is limited to Section 73 cases (non-fraud, non-suppression) for the financial years FY 2017-18, 2018-19, and 2019-20. Cases involving fraud, wilful misstatement, or suppression under Section 74 are explicitly excluded. Cases that have already been decided in favour of the taxpayer (where the demand was dropped) are not eligible. Cases where the demand has been fully paid (including interest and penalty) are also outside the scheme — the relief only applies to outstanding demands.
Who Is Eligible for the GST Amnesty Scheme?
The eligibility criteria for Section 128A amnesty are specific and must be carefully verified before applying. First, the demand must relate to tax periods FY 2017-18 (1 July 2017 to 31 March 2018), FY 2018-19, or FY 2019-20. Demands for FY 2020-21 onwards are outside the scheme. Second, the demand must have been issued under Section 73 — the non-fraud section. Demands under Section 74 (fraud and suppression) are not covered and remain subject to the full penalty structure.nnThird, the demand must be at one of three stages: (a) a demand order (DRC-07) has been passed by the Proper Officer under Section 73(9), or (b) an order passed by the Appellate Authority against which no further appeal is pending, or (c) the matter is pending before any court (High Court or Supreme Court) where an order has been stayed. In all three cases, the taxpayer can opt for amnesty by paying the underlying tax. Fourth, the taxpayer must not have already paid the demand in full including interest and penalty — if the full amount has been paid, there is nothing to waive.nnA critical eligibility condition is that the amnesty cannot be availed for demands where the demand itself is disputed solely on the grounds that the tax was not payable at all — if the taxpayer maintains that no tax was due, they cannot use Section 128A (which requires paying the tax) while simultaneously contesting the tax liability. Businesses where the demand involves partially disputed tax and undisputed tax can use Section 128A for the undisputed portion.
| Criterion | Eligible | Not Eligible |
|---|---|---|
| Tax period | FY 2017-18, 2018-19, 2019-20 | FY 2020-21 onwards |
| Demand section | Section 73 (non-fraud) | Section 74 (fraud/suppression) |
| Demand status | Pending order or pending appeal | Already fully paid including interest and penalty |
| Nature of dispute | Tax payable but interest/penalty disputed | Tax itself disputed as not payable |
| Appeal stage | Any stage including High Court/SC if stayed | Final orders where demand dropped by department |
How to Apply for GST Amnesty — Forms SPL-01 and SPL-02
The application for the Section 128A amnesty is filed on the GST portal using specific forms prescribed by the CBIC. The CBIC issued detailed guidelines for Section 128A implementation through Circular 238/2024 and subsequent clarifications specifying the exact procedure.nnFor cases where the demand order has been issued by the Proper Officer but no appeal has been filed, Form GST SPL-01 is used. The taxpayer files SPL-01 indicating the demand order details, the tax amount being paid under the amnesty, and the waiver being claimed. The underlying tax must be deposited through the Electronic Cash Ledger (DRC-03 payment) before or along with the SPL-01 application. Form GST SPL-02 is used for cases pending before the Appellate Authority or courts — the taxpayer first withdraws the appeal or requests a court order allowing them to avail the amnesty, then files SPL-02 with proof of payment.nnThe last date to avail the amnesty under Section 128A was originally 31 March 2025 but has been extended to 31 March 2026 through CBIC notifications. Businesses must ensure their application and tax payment are completed before this deadline. Once the Proper Officer verifies the payment and application, an order under Section 128A is passed confirming the waiver of interest and penalty. The order closes the demand permanently — no further interest accrues and no penalty is recoverable for that demand.
Calculating Savings Under Section 128A
The financial benefit of Section 128A amnesty can be substantial, particularly for demands from FY 2017-18 that have been accruing 18% interest for seven or more years. The total demand for a business that received a Rs.10 lakh tax demand in FY 2017-18 would now include: principal tax Rs.10 lakh, plus interest at 18% per annum for 7 years = Rs.12.6 lakh in interest alone, plus 10% to 100% penalty = Rs.1 lakh to Rs.10 lakh. Total demand could be Rs.23 lakh to Rs.33 lakh. Under Section 128A, the business pays only Rs.10 lakh and the Rs.13 lakh to Rs.23 lakh in interest and penalty is fully waived.nnThe saving percentage increases dramatically for older demands. A demand from Q1 FY 2017-18 (July 2017) has been accruing interest for approximately 8 years by March 2025. At 18% per annum, the interest alone has grown to 144% of the principal. For every Rs.1 lakh of principal tax, the accumulated interest is Rs.1.44 lakh — making the total demand Rs.2.44 lakh or more with penalty. Section 128A allows this entire demand to be settled for just Rs.1 lakh.nnBusinesses should prioritise reviewing all pending Section 73 demand orders for FY 2017-18 to 2019-20 before 31 March 2026. Many businesses have these demands parked in appeal or stayed by courts without active monitoring. A CA-led review of all pending GST demands for these years — assessing which are Section 73 eligible, computing the tax-only payment required, and identifying cases where the business should withdraw appeals to avail amnesty — is strongly recommended before the deadline.
Common Types of Demands Eligible for Section 128A
Several categories of GST demands from FY 2017-18 to 2019-20 are commonly eligible for Section 128A amnesty. Understanding these categories helps businesses identify potential amnesty cases in their GST portfolio.nnTransitional credit disputes (TRAN-1 and TRAN-2) were among the most common sources of demand notices in the early GST years. Many businesses claimed transitional credits that were later disputed by the department — excess TRAN-1 credits, credits claimed without adequate documentation, and credits of taxes that were not eligible for transition. Where the department issued Section 73 demands for excess transitional credit, these are eligible for Section 128A amnesty on the tax component.nnITC classification errors from FY 2017-18 to 2019-20 are another major category. Businesses that claimed ITC on blocked credits (health insurance, motor vehicles for personal use) before the provisions were fully understood, claimed ITC from unregistered suppliers before the Section 9(4) suspension, or claimed ITC without adequate GSTR-2A support in the early months when the system was new — these demands under Section 73 are eligible for amnesty. Rate mismatch demands — where the business applied 12% or 18% instead of 28%, or applied 5% instead of 12% — are also eligible if issued under Section 73.
