Karnataka High Court: Time Limit for GST Interest & Penalty Waiver Under Section 128A is Directory, Not Mandatory

Overview of the Judgment

The Karnataka High Court has delivered a significant ruling in the matter of Sri Laxmi Borewell Agencies v. Assistant Commissioner of Central Tax & Anr., holding that the three-month window prescribed for filing a waiver application under Section 128A of the Central Goods and Services Tax Act, 2017 is directory in nature and not a mandatory hard deadline. The Court concluded that an application filed beyond the stipulated period cannot be rejected on the sole ground of delay, particularly where the circumstances surrounding the non-filing are genuine and attributable to procedural lapses on the part of the authorities.

This ruling carries considerable practical relevance for assessees who have discharged their full tax dues under Section 73 of the CGST Act but have encountered difficulties in filing waiver applications within the prescribed timeline.

Background and Factual Matrix

M/s. Sri Laxmi Borewell Agencies (hereinafter "the Petitioner") is a registered entity under the GST framework, engaged in providing work contract services, specifically the drilling of bore wells. During the course of audit proceedings conducted by the Assistant Commissioner of Central Tax & Anr. (hereinafter "the Respondent"), a show cause notice was issued and subsequently an Order-in-Original was passed, confirming a demand for interest under Section 50(1) of the CGST Act, 2017.

Key Facts at a Glance

  • The Petitioner had fully discharged the tax liability identified during audit proceedings by making payment through FORM GST DRC-03.
  • The Order-in-Original confirming the interest demand was allegedly neither served upon the Petitioner nor uploaded on the GST portal, leaving the Petitioner unaware of the confirmed demand.
  • Upon eventually learning of the outstanding demand, the Petitioner promptly filed an application under Section 128A of the CGST Act seeking waiver of the interest liability.
  • The application was filed on July 18, 2025, which was beyond the prescribed deadline of March 31, 2025 (the notified date under Notification No. 21/2024-Central Tax dated October 08, 2024).
  • The department rejected the waiver application through FORM GST SPL-07 dated November 03, 2025, solely on the ground that it was time-barred.
  • Aggrieved by this rejection, the Petitioner filed WP No. 102773 of 2026 (T-Res) before the Karnataka High Court, seeking quashing of the rejection order and consequential reliefs.

Contentions of the Parties

Petitioner's Submissions

  • The entire tax demand had already been paid through DRC-03 prior to the filing of the waiver application, satisfying the fundamental pre-condition under Section 128A.
  • The Order-in-Original was never properly served or made accessible on the GST portal, making it impossible for the Petitioner to respond within the prescribed timeline.
  • Rejecting the waiver application purely on the basis of delay, without examining the merits, is arbitrary and inconsistent with the legislative intent behind Section 128A.
  • The language of Rule 164(6) of the CGST Rules, 2017 employs the word "may", which inherently indicates a directory provision rather than a mandatory one.

Respondent's Submissions