Facts of the Case:

In this case, the petitioner challenged an order rejecting its application for waiver of interest and penalty under Section 128A of the GST enactments. An assessment order pertaining to the financial year 2018-19 had been passed on 25.04.2024 under Section 73 of the GST law.  Before any appellate order was passed, the petitioner filed an application on 19.02.2025 seeking waiver of interest and penalty under the newly inserted Section 128A, which grants relief in specified cases relating to demands raised under Section 73 for the period from 01.07.2017 to 31.03.2020.

The tax authorities rejected the application on the ground that the petitioner had allegedly availed Input Tax Credit (ITC) from non-existent taxpayers, cancelled dealers, and return defaulters, thereby treating the petitioner as ineligible for the benefit of Section 128A. Aggrieved by the rejection, the petitioner approached the High Court contending that the reasons assigned by the department did not fall within any of the disqualifications contemplated under Section 128A.

Issue:

Whether an application for waiver of interest and penalty under Section 128A can be rejected on the ground that the taxpayer had allegedly availed ITC from non-existent or defaulting suppliers, when the demand itself had been raised under Section 73 and the statutory conditions prescribed under Section 128A were otherwise satisfied?

Held That:

The High Court held that the rejection of the waiver application was legally unsustainable. The Court observed that the assessment order had been passed under Section 73 and the petitioner had sought relief under Section 128A(1)(b), which specifically applies where an order under Section 73(9) has been passed and no appellate order has yet been issued.

The Court noted that the relevant tax period fell within the period covered by Section 128A. It further held that the reason cited in the rejection order i.e. , availment of ITC from non-existent taxpayers, cancelled dealers and return defaulters could not be a valid ground for denying the statutory benefit under Section 128A. If the department genuinely believed that the case involved fraud, wilful misstatement or suppression of facts, proceedings ought to have been initiated under Section 74 and not under Section 73.

Since the demand had admittedly been raised under Section 73, the authorities could not import allegations ordinarily associated with Section 74 proceedings to deny the benefit available under Section 128A. Consequently, the Court set aside the rejection order and directed the respondent authority to reconsider the waiver application afresh in light of the observations made by the Court and pass a fresh order within thirty days.

Case Name: A Gurusamy Proprietor of Tvl Best Lab Instruments Furnitures Versus State Tax Officer (ST), Chenani dated 16.06.2026