GST Update: Taxability of Vouchers & Department Appeals – Key Clarifications

Introduction

The Central Board of Indirect Taxes and Customs (CBIC) has issued Instruction No. 02/2025-GST on February 7, 2025. This instruction clarifies the procedure for department appeals involving interest and penalty disputes under Section 128A of the CGST Act, 2017.

Many businesses face challenges when tax amounts are fully paid, but disputes over interest or penalty persist. The latest CBIC instruction aims to simplify appeal processes and ensure that eligible taxpayers receive relief without unnecessary litigation.

If you handle GST appeals, tax disputes, or compliance matters, this update is crucial for you.

Understanding Section 128A of the CGST Act, 2017

What Is Section 128A?

Section 128A provides a waiver for interest, penalty, or both related to demands under Section 73 of the CGST Act for financial years 2017-18, 2018-19, and 2019-20. This relief applies if the taxpayer meets the required conditions.

In Circular No. 238/32/2024-GST (issued on October 15, 2024), CBIC clarified several doubts regarding this provision. Now, the latest instruction further simplifies the appeal process for cases involving interest and penalty disputes.

Key Clarifications from CBIC’s Instruction No. 02/2025-GST

✅ 1. Taxpayers Can Avail Section 128A Benefits Even If the Department Has Filed an Appeal

• If the tax amount is fully paid, but the department has filed an appeal concerning interest or penalty, the taxpayer can still avail benefits under Section 128A.
• The appeal status should not prevent eligible taxpayers from receiving relief.

✅ 2. Wrong Interest or Penalty Calculation Should Not Lead to Prolonged Litigation

• If the department has appealed due to incorrect interest calculation or non-imposition of penalty, the proper officer may withdraw the appeal.
• If a demand order under Section 73 is under review, it should be accepted instead of contested.

✅ 3. Focus on Reducing Litigation and Ensuring Compliance

• The primary goal of this clarification is to reduce unnecessary legal disputes.
• Businesses that have paid their tax dues should not be burdened with extended litigation over technical errors in interest or penalty calculations.

Impact on Businesses and Tax Professionals

🏢 For Businesses & Taxpayers

• Relief from unnecessary penalties and interest disputes when tax payments are already settled.
• Faster resolution of tax appeals, reducing compliance burdens.
• Lower legal costs and administrative hassles.

🏛 For GST Consultants & Tax Professionals

• Clearer guidelines to help clients handle appeals related to interest and penalties.
• More opportunities to advise businesses on compliance strategies under Section 128A.

📑 For GST Officers & Authorities

• Simplified instructions to withdraw unnecessary appeals where the tax amount is fully paid.
• Better focus on critical tax compliance matters instead of technical disputes.

Next Steps for Taxpayers

1️⃣ Review pending appeals to check if your case qualifies for Section 128A relief.
2️⃣ Consult a GST expert to ensure proper compliance and avoid unnecessary penalties.
3️⃣ Communicate with tax authorities to withdraw disputes where tax dues are fully settled.

The latest CBIC instruction offers clarity and relief for businesses, tax professionals, and GST officers. Stay informed, comply with the updated rules, and avoid unnecessary litigation.

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This article is only a knowledge-sharing initiative and is based on the Relevant Provisions as applicable and as per the information existing at the time of the preparation. In no event, RMPS & Co. or the Author or any other persons be liable for any direct and indirect result from this Article or any inadvertent omission of the provisions, update, etc if any.

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