Gujarat High Court Quashes GST Amnesty Rejection After Portal Adjustments Reduce Tax Liability To Nil

The Gujarat High Court on 28 October allowed a writ petition filed by R.J. Technologies, quashed the rejection of its application in Form GST SPL-02, and directed the authority to process the application within twelve weeks.

A Bench of Justices A.S. Supehia and Vaibhavi D. Nanavati held that tax authorities cannot reject an application for waiver of interest and penalty under Section 128A of the Central Goods and Services Tax (CGST) Act, 2017, without considering adjustments accepted on the GST portal that reduce the outstanding principal tax liability to nil. The judges observed:

“Upon an overall consideration of the facts and the applicable statutory provisions, we are of the opinion that respondent No.4 has failed to properly appreciate the material facts and the effect of the adjustment effected through Forms GST DRC-03A, which had been accepted on the GST portal. The impugned order dated 02.07.2025, rejecting the petitioner's application in Form GST SPL-02 dated 25.03.2025 under Section 128A of the CGST Act, has, therefore, been passed without proper application of mind.”

The dispute arose from a mismatch between the Input Tax Credit (ITC) reflected in R.J. Technologies' Forms GSTR-3B and GSTR-2A for FY 2017-18. On 4 October 2019, the company paid Rs. 31,14,653 through Form GST DRC-03, representing the ITC balance available at the time of reversal. It submitted that it had inadvertently mentioned FY 2018-19 in the form, although the payment related to FY 2017-18.

Subsequently, the company made further payments towards other discrepancies and paid interest on delayed tax payments. An order-in-original dated 30 November 2023 confirmed a demand, and Form GST DRC-07 dated 15 March 2024 reflected a demand of Rs. 34,42,611 for FY 2017-18.

Following the introduction of Rule 142(2B) of the CGST Rules, which provides a mechanism to adjust payments made through Form GST DRC-03 against specific demands, R.J. Technologies filed two Forms GST DRC-03A on 18 January 2025.

The first form adjusted the payment of Rs. 31,14,653 made in 2019, while the second appropriated the pre-deposit towards the balance liability in the Electronic Liability Register. Both adjustments were accepted on the GST portal, reducing the outstanding principal tax liability for FY 2017-18 to nil.

On 25 March 2025, the company applied in Form GST SPL-02 under Section 128A of the CGST Act read with Rule 164 of the CGST Rules, seeking a waiver of interest and penalty under the GST amnesty scheme. After the authority issued a notice proposing rejection, R.J. Technologies submitted a reply explaining that the payment had already been adjusted through Form GST DRC-03A.

The authority rejected the application on 2 July 2025, reasoning that the payment of Rs. 31,14,653 through Form GST DRC-03 could not be treated as payment towards the tax liability for FY 2017-18. The company challenged the rejection before the High Court.

R.J. Technologies argued that the adjustments accepted on the GST portal had reduced its outstanding principal tax liability to nil, satisfying the statutory requirement under Section 128A.

It relied on Section 49(7) of the CGST Act and Rule 85 of the CGST Rules concerning the maintenance and crediting of the Electronic Liability Register, contending that the authority could not disregard adjustments already reflected in the register.

The company also relied on Circular No. 238/32/2024-GST dated 15 October 2024, which addresses the treatment of amounts paid through Form GST DRC-03 and subsequently adjusted through Form GST DRC-03A. It argued that the rejection was contrary to the applicable circular and defeated the objective of Section 128A, which provides relief through the waiver of interest and penalty on eligible tax demands.

The Revenue opposed the petition, submitting that the payment of Rs. 31,14,653 related to a different financial year and had not been accepted as an eligible payment by the adjudicating or appellate authorities. It maintained that the demand had been determined in accordance with law and that the authority had rightly rejected the application.

The Court observed that Section 128A required payment of the entire principal tax amount covered by the relevant demand to qualify for the waiver. It noted that the DRC-03A adjustments had been accepted on the GST portal and that payments of Rs. 31,14,653 and Rs. 3,44,262 had been adjusted against the demand of Rs. 34,42,611. Consequently, the Electronic Liability Register reflected no outstanding tax liability.

Further, the Bench held that the authority had to consider the legal effect of the adjustments recorded in the Electronic Liability Register before deciding the company's application. It directed the authority to accept and process the Form GST SPL-02 application and pass a consequential order in accordance with law within twelve weeks.

Accordingly, the High Court directed that if the portal did not permit the application to be processed, the authority must accept a fresh application in physical or electronic form and decide it in accordance with law.

Counsel for Petitioner: Uchit N. Sheth, Advocate

Counsel for Respondents: Utkarsh R. Sharma, Senior Standing Counsel