Detailed Analysis of Section 128A: Amnesty Provisions under the Finance (No. 2) Bill 2024

Introduction

The Finance (No. 2) Bill 2024 introduced a significant amendment by incorporating Section 128A into the tax legislation. This provision aims to offer an amnesty by waiving interest and penalties in specific cases of tax proceedings under Section 73. The amendment targets the tax payable for the period from 1st July 2017 to 31st March 2020. This article delves into the intricate details of Section 128A, providing a comprehensive understanding for tax professionals.

Text of Section 128A

The newly inserted Section 128A provides a structured mechanism for waiving interest and penalties under certain conditions. The detailed provisions are as follows:

Sub-Section (1)

Section 128A(1) begins with a non-obstante clause, indicating its overriding effect over other provisions of the Act. It stipulates the waiver of interest under Section 50 and penalties in three specific scenarios:

1. Clause (a): When a notice is issued under Section 73(1) or a statement under Section 73(3), and no order under Section 73(9) has been issued.

2. Clause (b): When an order is passed under Section 73(9), provided no subsequent orders under Section 107(11) or Section 108(1) have been passed.

3. Clause (c): When an order is passed under Section 107(11) or Section 108(1), and no further order under Section 113(1) has been issued.

For each scenario, the full amount of tax payable must be settled by the date notified by the Government on the Council`s recommendations. Meeting these conditions results in no interest or penalty, and all related proceedings are deemed concluded, subject to prescribed conditions.

First Proviso

The first proviso clarifies that notices issued under Section 74(1) and orders passed or required under Section 75(2) by Proper officers, following directions from the Appellate Authority, Appellate Tribunal, or court, are treated equivalently to notices or orders under Section 73 for the purpose of clauses (a) and (b). Extracts of Section 75(2) is reproduced as under-

“(2) Where any Appellate Authority or Appellate Tribunal or court concludes that the notice issued under sub-section (1) of section 74 is not sustainable for the reason that the charges of fraud or any wilful-misstatement or suppression of facts to evade tax has not been established against the person to whom the notice was issued, the Proper officer shall determine the tax payable by such person, deeming as if the notice were issued under sub-section (1) of section 73.”

Second Proviso

The second proviso stipulates that the conclusion of proceedings is contingent upon the payment of any additional tax determined by the Appellate Authority, Tribunal, or court within three months of the order.

Third Proviso

The third proviso states that if interest and penalty have already been paid, no refunds will be issued.

Sub-Section (2)

Section 128A(2) excludes cases involving erroneous refunds from the benefits of Sub-Section (1).

Sub-Section (3)

Section 128A(3) excludes cases where appeals or writ petitions are pending before any appellate or judicial authority unless withdrawn by the taxpayer before the notified date.

Sub-Section (4)

Section 128A(4) precludes the filing of appeals under Sections 107(1) or 112(1) against orders referred to in clauses (b) or (c) of Sub-Section (1) once the specified amount is paid and proceedings are deemed concluded.

Practical Implications

The introduction of Section 128A presents a unique opportunity for taxpayers to settle disputes without incurring additional interest and penalties, provided they meet the stipulated conditions. It encourages timely resolution and compliance, thereby reducing litigation and fostering a cooperative compliance environment.

The Section 128A is summarized in one-liners as under:

1. Eligibility Condition 1: Relevant demand must pertain to FY 17-18, 18-19, or 19-20.

2. Eligibility Condition 2: Waiver applies only to demands raised under section 73 for the period 1.7.2017 to 31.03.2020.

3. Eligibility Condition 3: Payment of full tax amount before the notified date is mandatory.

4. Eligibility Condition 4: Unconditional withdrawal of pending appeals is mandatory.

5. Demand Type 1: Demands as per notice under section 73(1) without an order under section 73(9) are eligible for waiver.

6. Demand Type 2: Demands as per the original order under section 73(9) are eligible for waiver if no further appeal order is passed.

7. Demand Type 3: Demands as per the first appeal order under section 107(11) are eligible for waiver if no further order is passed.

8. Demand Type 4: Demands as per review order under Section 108(1) are eligible for waiver if no further order is passed.

9. Demand Type 5: Demands as per the Appellate Tribunal order under section 113(1) are not eligible for waiver.

10. Section 74 Demands: Demands raised under section 74 are not eligible for waiver except as specified in section 128A(1).

11. Erroneous Refunds: Waiver does not cover demands arising from erroneous refunds.

12. No Refund: No refund of interest or penalty already paid is allowed.

13. Non-Appealable Orders: Orders passed under section 73(9) or appeal orders under section 107(11) are not appealable after waiver.

14. Appealability of Waiver Order: Waiver orders issued under section 128A(1) are appealable.

15. No Proportionate Benefit: Proportionate waiver is not allowed in case of short payment.

16. Closure of Proceedings: All proceedings are deemed closed after full tax payment within the notified date, subject to additional conditions.

Conclusion

Section 128A, as introduced by the Finance (No. 2) Bill 2024, represents a significant step towards simplifying the tax compliance process and providing relief to taxpayers. By waiving interest and penalties under specific conditions, it aims to resolve disputes efficiently and minimize the burden on taxpayers.