Chapter 22: Alternative Dispute Resolution

The Settlement Commission is a mechanism introduced to provide a speedy, transparent, and conciliatory resolution of tax disputes, focusing on voluntary disclosure and early settlement.

Statutory Basis: Sections 127 to 138 of the CGST Act, 2017 (introduced via Finance Act, 2019, but later proposed for phase-out under the new GST Appellate Settlement framework).

Purpose:

To allow taxpayers to disclose undisclosed tax liabilities voluntarily.

To avoid prolonged litigation and reduce burden on courts.

To promote a settlement-based compliance culture rather than punitive enforcement.

Constitution:

Composed of a Chairperson and Members (as notified by the Government).

Typically headed by a former judicial officer or senior tax authority.

Eligibility to Apply:

The case must be pending before an adjudicating authority.

Taxpayer must make a full and true disclosure of additional liability before the Settlement Commission.

Application cannot be made for cases involving:

Search or seizure (with seized goods/documents).

Fraudulent ITC involving fake invoices.

Cases already adjudicated or appealed.

Procedure:

Effect of Settlement Order:

Final and binding on both taxpayer and department.

Immunity may be granted from penalty and prosecution if full disclosure and payment are made.

Failure to pay within time → order becomes void and case reverts to adjudication.

Compounding provides an opportunity for taxpayers to avoid prosecution by paying a compounding amount, thereby saving time, cost, and litigation.

Statutory Basis: Section 138 of the CGST Act, 2017 and Rule 162 of the CGST Rules.

Purpose:

To encourage voluntary compliance and decriminalisation of minor or first-time offences.

Who Can Apply:

Any person accused or liable to be prosecuted under GST law.

Not available for repeat offenders or serious crimes like issuance of fake invoices or obstruction of officers.

Procedure:

Compounding Amount:

Minimum: ₹10,000 or 50% of tax involved (whichever higher).

Maximum: ₹30,000 or 150% of tax involved (whichever higher). (Subject to notification under Rule 162 and periodic revision.)

Offences Generally Eligible for Compounding:

Failure to issue invoice.

Wrongful availment or utilisation of ITC (non-fraudulent).

Collection of tax but non-payment to Government.

Obstruction to officer (non-violent).

Not Eligible:

Habitual offenders (convicted twice).

Offences involving fake invoices or fraud.

Cases involving goods confiscation under Section 130.

Effect: Once compounded → prosecution closed, and person treated as not convicted under GST law.

Amnesty Schemes are special one-time settlement initiatives announced by the Government to provide relief to taxpayers in backlog or litigation situations.

Objective:

To clear old disputes and pending returns.

To promote compliance without heavy penalties.

To give businesses a “fresh start” opportunity.

Notable Examples under GST:

Key Features of Amnesty Schemes:

One-time waiver of penalty, interest, or late fees.

Applicable only for specified periods and categories of defaults.

Requires voluntary compliance (payment of principal tax).

Strict adherence to prescribed deadlines — extension not guaranteed.

Example: A taxpayer who failed to file GSTR-9 for FY 2021–22 could file under the 2023 Amnesty Scheme with zero late fees, if filed within the specified window.