Controversy over Section 128A: Waiver of Interest and Penalty in GSTR-1 vs GSTR-3B Mismatch Cases

With the rapid digitization of GST compliance, the GST authorities have started issuing notices based on data mismatches between GSTR-1 and GSTR-3B. Many taxpayers have found themselves in trouble due to inadvertent mismatches between the outward supply reported in GSTR-1 and the tax paid in GSTR-3B.
To address this issue and provide relief to genuine taxpayers, the Government introduced Section 128A through Finance Act, 2023. But the application of this provision has sparked controversy, especially over whether interest and penalty can be waived in GSTR-1 vs GSTR-3B mismatch cases.

Section 128A was inserted to empower the Government to waive interest and penalties in certain cases by way of notification. This provision allows relaxation in cases of short payment or non-payment of tax due to unintentional errors, like data mismatches.

✅ Key Highlights of Section 128A:
1. Introduced by Finance Act, 2023.
2. Empowers the Government to waive interest, late fees, or penalties (in whole or in part) by notification.
3. Relief is applicable only in specified cases and subject to certain conditions.
4. Purpose: To promote voluntary compliance and reduce litigation.

📊 GSTR-1 vs GSTR-3B Mismatch – What’s the Issue?

🔹GSTR-1 is the return for outward supplies – i.e., sales invoices issued.
🔹GSTR-3B is the summary return where actual tax is paid.
🔹In some cases, taxpayers report higher sales in GSTR-1 but pay lesser tax in GSTR-3B due to errors, adjustments, or cash flow issues.

⚠️ Consequence:
The GST portal considers this a mismatch, triggering notices for demand of differential tax along with interest and penalty.

📌 Controversy over Waiver – Is Section 128A Applicable Here?

There is no explicit clarification yet on whether the relief under Section 128A can be automatically availed in mismatch cases. The controversy arises because:
1. Section 128A is an enabling provision – Waiver must be notified by the Government, and is not automatic.
2. No specific notification has been issued yet for mismatch cases under GSTR-1 and GSTR-3B.
3. Taxpayers argue that mismatch due to bona fide errors should be covered under this provision.
4. The Department insists that interest and penalty are mandatory, especially under Sections 50 and 122 of the CGST Act.

What courts said on this matter?
Courts have consistently held that benefits conferred by statute cannot be curtailed by circulars., as they are administrative in nature, and cannot override express statutory benefits.

Let me quote few interesting case laws:
In Tata Teleservices Ltd. v. Commissioner of Customs (SC), the Hon’ble Supreme Court held that administrative circulars cannot override the express provisions of law. If there is a conflict between the statute and circular, the statute prevails,
Union of India v. Inter-Continental (India) (SC)