The Goods and Services Tax Appellate Tribunal (GSTAT), Hyderabad, has held that restoration of a GST registration following the filing of pending returns and payment of tax does not absolve a taxpayer from paying the corresponding interest, late fee and penalty mandated under Rule 23(1) of the Central Goods and Services Tax Rules, 2017.
The Bench of A.P. Ravi (Judicial Member) and Duvvuri Krishna Srinivas (Technical Member) modified the order of the First Appellate Authority to preserve the department’s right to recover interest and late fee and imposed a penalty of ₹10,000 on the taxpayer. The Tribunal, however, did not restore the cancellation of registration as requested by the Department.
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The appeal was filed by the Department under Sections 112(3) and 112(4) of the CGST Act against an order dated October 14, 2021 passed by the First Appellate Authority. The dispute concerned an infrastructure-development business whose GST registration had been cancelled after it failed to furnish GSTR-3B returns continuously for six months.
According to the order, the Department issued a show-cause notice proposing cancellation on January 9, 2020. The proper officer subsequently cancelled the registration with effect from November 12, 2020. In appeal, the taxpayer stated that it had filed all the pending returns immediately after issuance of the notice and had paid the tax due for the relevant period.
The First Appellate Authority accepted the taxpayer’s plea and revoked the cancellation. At the same time, it directed the proper officer to verify whether the returns had actually been filed and the relevant tax had been paid.
The Department approached the GSTAT contending that the appellate authority had incorrectly confined its verification to the filing of returns and payment of tax. It argued that the proviso to Rule 23(1) expressly requires payment not only of tax but also of interest, penalty and late fee connected with those returns before revocation of cancellation can be sought.
The Department therefore requested the Tribunal to set aside the appellate order and restore the original cancellation order. Departmental Representative K. Sai Prasad submitted that the taxpayer had not paid the applicable interest, late fee and penalty and that the order restoring registration was consequently unsustainable.
No one appeared for the taxpayer before the Tribunal. The Bench recorded that three separate opportunities had been provided, but the respondent neither appeared nor filed cross-objections or any supporting material. Observing that the rule of audi alteram partem requires a fair opportunity of hearing but does not compel a court or tribunal to wait indefinitely, the Bench proceeded to decide the appeal on the available record.
The central question before the GSTAT was whether the First Appellate Authority could restore the registration without ensuring or directing verification of the payment of interest, late fee and penalty in addition to tax.
The Tribunal examined Rule 23(1), which governs applications for revocation of cancellation of registration. Its first proviso stipulates that where registration has been cancelled for failure to furnish returns, an application for revocation cannot be filed unless the pending returns are furnished and the tax due under those returns is paid along with the applicable interest, penalty and late fee.
The Bench held that liability arising from the delayed returns was not confined to the principal tax. Interest, late fee and penalty were substantive statutory obligations forming an integral part of the legal framework governing return filing and payment of tax.
It observed that the First Appellate Authority had considered the filing of returns and payment of tax but had not expressly dealt with the proviso to Rule 23(1). This omission, according to the Tribunal, affected the completeness and legality of the appellate exercise because the State’s claim to the ancillary dues remained live and enforceable.
The Tribunal accordingly held that the First Appellate Authority had erred by ignoring the requirements of Rule 23(1). Restoration of registration could not be treated as extinguishing the taxpayer’s liability for interest, late fee and penalty.
The GSTAT nevertheless found that the direction issued by the First Appellate Authority—to verify payment of tax and filing of returns—appeared intended to secure compliance with Rule 23, even though the provision was not expressly cited. Therefore, the restoration order did not have to be set aside in its entirety.
The Bench stated that the Department remained at liberty to recover interest under Section 50 of the CGST Act and late fee under Section 47. It further observed that admitted public dues must ordinarily be recovered through the statutory mechanism under Section 79 of the Act.
According to the Tribunal, Section 79 provides the appropriate machinery for recovery of admitted tax arrears and ancillary amounts. The Department must invoke and exhaust that mechanism instead of asking the appellate forum to exercise its jurisdiction merely to facilitate collection.
This part of the ruling draws a distinction between determining that an amount remains legally payable and the procedure by which the Department may recover it. While the liabilities survived restoration of registration, their collection had to follow the recovery process laid down in the CGST Act.
The Tribunal noted that the taxpayer had paid only the tax and filed the outstanding returns. It held that the Department could collect the applicable interest and late fee under the existing statutory provisions. In addition, the Bench imposed a total penalty of ₹10,000—₹5,000 under the central tax component and ₹5,000 under the state tax component.
Consequently, the First Appellate Authority’s order was modified to the extent that it had failed to account for interest, late fee and penalty. The Department’s appeal was disposed of without any order as to costs.
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