Too Late? Condonation, Rectification, Waiver and Compounding Under GST

The previous three parts were about keeping inside the periods. This one is about the client who did not, and what is left.

The honest answer is: less than most people assume, and more than nothing.

The outer limit is hard, and the Limitation Act will not help

Once three months and one month have run under section 107, the Appellate Authority has no power left. It cannot condone a day more, because section 107(4) gives it one month and no discretion beyond that.

Nor can section 5 of the Limitation Act be pressed into service. That has been settled since Singh Enterprises v. Commissioner of Central Excise, Jamshedpur, (2008) 3 SCC 70, and Commissioner of Customs and Central Excise v. Hongo India (P) Ltd, (2009) 5 SCC 791, and was applied to a comparable tax appeal in Assistant Commissioner (CT) LTU, Kakinada v. Glaxo Smith Kline Consumer Health Care Ltd, 2020 SCC OnLine SC 440.

Those three are cited against taxpayers every week, and they are correctly cited. The question that actually decides the matter is a different one: what, if anything, will the High Court do about it.

On that, the High Courts have divided

The strict view: nothing. In M/s Ravi Plumbing and Construction v. Union of India, decided 30 January 2026, the Gujarat High Court put it without qualification:

this Court cannot exercise its jurisdiction under Article 226 of the Constitution of India condoning the delay. Thus, the writ petition fails and the same is dismissed.

The Patna High Court reached the same place in M K Traders v. State of Bihar, decided 14 July 2026, holding that a writ petition "shall not be entertained, if it is filed beyond the statutory period of filing of appeal", and dismissing a petition brought nearly three years after the order. The Court noted that the legislature had deliberately restricted the margin allowed to the Appellate Authority and to the Tribunal, and that section 162 bars the jurisdiction of the civil court.

The practical view: a second chance, bought with money. In Tvl. Royal Paints v. Assistant Commissioner (ST), decided 21 July 2026, the Madras High Court condoned nothing and said so. It disposed of the writ by giving liberty to file an appeal

subject to the Petitioner depositing 25% of the disputed tax in cash or from the Petitioner's Electronic Cash Register within a period of thirty (30) days

and directed that if the condition were not met, the matter would proceed as if the writ had been dismissed in limine today.

That is not condonation and should not be pleaded as condonation. It is a discretionary indulgence on terms, and the terms are heavy: twenty-five per cent of the disputed tax in cash, which is more than the ten per cent a timely appeal would have cost.

So the advice is uncomfortable but simple. Do not plan on any of this. Where the outer limit has gone, find out which line binds your officer before you decide whether there is anything to do, and if you are in a jurisdiction that gives liberty on terms, draft the application as an application for liberty on terms rather than as a plea to condone.

What is condonable, and by whom

Two of those rows are worth reading twice. The High Court's power under section 117(2) has no outer limit at all — a 180-day appeal is in a materially better position than a first appeal. And nothing condones the department's delay, which is the subject of Part 2 of this series.

Rectification: narrow, quick, and often overlooked

Section 161 lets the authority that passed an order correct an error apparent on the face of the record, either on its own motion or when the affected person brings it to notice.

The periods are short and asymmetric. The affected person must raise it within three months of the issue of the order. The authority cannot rectify after six months — except where the correction is purely clerical or arithmetical, "arising from any accidental slip or omission", where no outer limit applies at all. And if the rectification would make things worse for you, the authority must observe natural justice first.

That second proviso is the useful one. An arithmetical error in a demand can be corrected long after six months, and there is no reason to treat a wrong total as something only an appeal can fix.

The route also has a practical value beyond correction. In Richpeace Unlimited v. Commissioner, decided 7 July 2026, the Karnataka High Court was faced with a taxpayer who said the tax said to be short-offered had in fact been voluntarily paid. Rather than entertain the writ, the Court set out section 161, recorded the State's submission that such a case would fall within a rectification of a clerical or accidental error, gave the taxpayer liberty to apply, deferred proceedings under the adjudication order, and made a bank attachment in FORM GST DRC-13 subject to the taxpayer maintaining a minimum balance of fifty per cent pending the rectification application.

Where the complaint is arithmetical rather than legal, that is a faster and cheaper road than an appeal with a pre-deposit.

The section 128A waiver, and the line the courts have drawn

Section 128A waives interest and penalty on demands raised under section 73 for the period 1 July 2017 to 31 March 2020, where the full tax is paid on or before the date notified by the Government. Where it applies, the proceedings are deemed concluded.

Those dates are now behind us, and the detail matters because applications are still being fought over. By Notification No. 21/2024-Central Tax dated 8 October 2024 the date for payment of the tax was fixed as 31 March 2025. The waiver application had to be filed in FORM GST SPL-01, where no order had issued, or FORM GST SPL-02, where one had, on or before 30 June 2025. Section 128A(3) required any pending appeal or writ petition to have been withdrawn on or before the notified date. A rejection comes in FORM GST SPL-07. The Board's Circular No. 238/32/2024-GST dated 15 October 2024 governs the working of the scheme.

Four further limits sit in the section itself and are easy to miss. It does not reach an amount payable on account of an erroneous refund — section 128A(2). Where interest or penalty has already been paid, no refund of it is available — the third proviso to section 128A(1). Once the proceedings are concluded under the scheme, no appeal lies against the order under section 107 or section 112 — section 128A(4). And it does not reach section 74 demands as such. The first proviso brings a section 74 notice back in only where an appellate authority, the Tribunal or a court has caused the demand to be re-determined under section 75(2) — the provision discussed in Part 2, under which a failed fraud charge is re-determined as if the notice had been issued under section 73.

And it does not reach interest on self-assessed tax. That was decided in Dhull Earth Movers Co v. Union of India, where on 9 September 2026 a Bench of Ashwani Kumar Mishra CJ and Rohit Kapoor J of the Punjab and Haryana High Court dismissed a writ petition claiming the waiver. The Board's circular of 15 October 2024 had clarified that where tax is already paid and the section 73 notice or order relates only to interest or penalty, the benefit is available — but not

where the interest has been demanded on account of delayed filing of returns, or delayed reporting of any supply in the return, as such interest is related to demand of interest on self-assessed liability and does not pertain to any demand of tax dues and is directly recoverable under sub-section (12) of Section 75.

In that case no section 73 proceedings had been initiated at all; the taxpayer had simply paid admitted tax late and been charged interest under section 50. The Court held the distinction between disputed tax and self-assessed tax to be a valid classification and rejected the challenge under Article 14.

The practical rule: section 128A is for disputed tax that has been demanded under section 73. It is not an amnesty for paying your own returns late.

Where the taxpayer did what the scheme required and the portal did not cooperate, the courts have been accommodating. In JMJ Plastics v. Appellate Deputy Commissioner (ST), decided 21 November 2025, the Madras High Court found credible the explanation that the chartered accountant had tried and failed to upload the waiver application on 31 March 2025 — the last date of the scheme and the close of the financial year, when, as the Court put it, "the server may have collapsed". It adopted the approach taken in M/s Sun Tamil Nadu Security Management Services Private Limited, W.P.(MD) No. 21330 of 2025, where it had been held that

As there is substantial compliance with the scheme under Section 128A ... the delay in withdrawing the appeal should not be put against the Petitioner. The scheme has to construed liberally keeping the object for which Section 128A was inserted in the respective GST enactments.

In Kuddus Ali v. Union of India, decided 31 August 2026, the taxpayer had paid in time but could not upload FORM GST SPL-01 because of a system error, and the authorities had no power under the standard operating procedure to process a waiver application manually. The Calcutta High Court directed them to treat the application filed manually and dispose of it by a reasoned order.

And in Big Peat Company v. State Tax Officer, decided 23 March 2026, a rejection in FORM GST SPL-07 was set aside and remanded, the Court holding that where an amount had been described as penalty in a summary proceeding and the error was ascertainable, "the mistake cannot be perpetuated while considering the application under Section 128A".

Compounding: what it is actually for

Compounding does not settle a demand. It buys off the prosecution and leaves the tax exactly where it was. Offer it only where prosecution under section 132 is a live risk.

Who decides. The Commissioner, and nobody below him — section 138(1). The application goes to him in FORM GST CPD-01 under rule 162(1), either before or after prosecution has been instituted. He calls for a report from the jurisdictional officer and passes his order in FORM GST CPD-02 within ninety days of receiving the application, either allowing it on payment of a compounding amount and granting immunity from prosecution, or rejecting it.

What must be paid first. The third proviso to section 138(1) is the sentence to read to the client before anything else:

compounding shall be allowed only after making payment of tax, interest and penalty involved in such offences.

The compounding amount sits on top of all of that. There is no negotiated reduction of the demand, and a client who expects one should be disabused early.

How much. Section 138(2) sets the band at a minimum of 25% of the tax involved and a maximum of 100%, but the Act's ceiling is not the operative figure. The table in rule 162(3A), inserted by Notification No. 38/2023-Central Tax dated 4 August 2023, fixes the amount by reference to the offence and to which limb of section 132(1) it is punishable under:

The percentages run on the tax evaded, or the input tax credit wrongly availed or utilised, or the refund wrongly taken. Where the conduct falls into more than one row, the proviso fixes the amount at the higher of them. So the practical maximum is seventy-five per cent, not the hundred per cent the section allows.

What happens after the order. Rule 162 is strict about the sequence, and each step has a consequence.

The application cannot be rejected without a hearing: rule 162(4) requires an opportunity of being heard before it is decided, and the grounds of rejection to be recorded. It cannot be allowed at all unless the tax, interest and penalty have been paid — rule 162(5), which puts the third proviso to section 138(1) beyond argument.

Once the order in FORM GST CPD-02 is received, the applicant has thirty days to pay the compounding amount and furnish proof of payment to the Commissioner — rule 162(6). Miss that, and rule 162(7) does not merely allow the Commissioner to reconsider:

In case the applicant fails to pay the compounding amount within the time specified in sub-rule (6), the order made under sub-rule (3) shall be vitiated and be void.

The immunity is not final either. Under rule 162(8) the Commissioner may withdraw it at any time if satisfied that the person concealed material particulars or gave false evidence in the compounding proceedings, whereupon he may be tried for that offence, or for any other appearing to have been committed in connection with those proceedings, as if no immunity had been granted.

When it is not available at all. Section 138(1) bars compounding for a person accused of the offence in section 132(1)(b) — the issue of an invoice without any underlying supply; for a person already allowed to compound once in respect of the offences in clauses (a) to (f), (h), (i) and (l) of section 132(1); and for anyone convicted under the Act. The case in which a client most often asks about compounding is therefore frequently the one in which it cannot be had.

What it buys. On payment, no further proceedings under the Act for that offence, and any criminal proceedings already begun "shall stand abated" — section 138(3). For a client facing arrest that is the only thing on this page that matters. It does not touch the civil demand, the interest, or the appeal.

If the time has gone

1. Establish which High Court binds your officer, and whether it gives liberty on terms or nothing at all. 2. If it gives liberty on terms, ask for liberty on terms — not for condonation, which no court can grant beyond the statutory outer limit. 3. Check whether the complaint is arithmetical. If it is, section 161 has no outer limit for a clerical or arithmetical slip, and no pre-deposit. 4. Check the order's own date against Part 2. A late order is not a condonation problem; the proceedings are already concluded. 5. For 2017-18 to 2019-20, check whether section 128A reaches the demand — section 73, disputed tax, not interest on your own late returns. 6. Raise compounding only where prosecution is live, and tell the client at the outset that tax, interest and penalty are payable before it can even be considered.

This is the last of four notes on GST time limits. The others cover what to check when the notice lands, the time the department has to pass the order, and the appeal ladder and its two pre-deposits. > This note is general information drawn from the Act, the Rules and reported > decisions, and is not advice upon any particular matter. The limits stated are > those in force on 11 October 2026. The outcome in any case depends upon its > own record, and on the view taken by the High Court having jurisdiction.