The Bombay High Court has held that the percentage-based pre-deposit required for filing an appeal before the Goods and Services Tax Appellate Tribunal does not extend to disputed interest alone when the entire underlying tax has already been paid.
The Bench of Justice M. S. Karnik and Justice Sandesh D. Patil consequently quashed recovery communications and bank notices seeking recovery of ₹22.12 crore in interest, holding that the proceedings violated the statutory protection available under Section 112(9) of the CGST/MGST Act.
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The bench directed the authorities to withdraw the bank notices, communicate their withdrawal immediately to the banks, and lift debit restrictions imposed solely pursuant to those notices. The merits of the interest demands remain open for determination by the Tribunal.
The petitioner/assessee is a company engaged in the construction, maintenance and repair of highways and internal roads under contracts awarded by authorities including NHAI, MSRDC and PWD.
State GST officers examined the company’s GSTR-3B returns during January 2026 and alleged delays in payment of tax relating to certain services and invoices.
A show cause notice dated January 22, 2026, proposed recovery of interest under Section 50. After the company submitted its reply, the adjudicating authority passed an order dated April 16, 2026, confirming the interest demand and issuing a summary in Form DRC-07.
The company challenged the order before the First Appellate Authority, which rejected its appeal on July 13, 2026. It subsequently approached the GST Appellate Tribunal under Section 112.
The three petitions concerned interest demands relating to financial years 2023–24, 2024–25 and 2025–26. The aggregate demand was ₹22,12,15,180.
While the appeals were pending, the department issued recovery intimations dated September 4 and September 23, 2026.
The company responded that recovery should not proceed and also invoked the three-month period under Section 78. Nevertheless, on September 29, 2026, the department issued five notices to banks under Section 79(1)(c), directing them to remit money held for the company towards the interest demands.
The company contended that repeated restrictions on its bank accounts disrupted business operations. It approached the High Court seeking enforcement of the statutory stay arising from its pending Tribunal appeals.
Senior Advocate Darius Shroff, appearing for the company, submitted that the entire underlying tax had been paid and the remaining dispute concerned interest.
The company argued that Sections 107(6) and 112(8) require payment of admitted dues and a prescribed percentage of disputed tax. They do not require a percentage-based pre-deposit of disputed interest where interest alone is under challenge.
It further submitted that, once the applicable appeal requirements were fulfilled, recovery of the balance demand stayed under Sections 107(7) and 112(9).
The company also raised disputes concerning payments withheld by service recipients, alleged deficiencies in services, pending proceedings and consequential accounting and tax adjustments. It maintained that payments made in the circumstances did not amount to acceptance of the interest demand.
The State defended the recovery action on the ground that interest under Section 50 is compensatory and arises because tax revenue was unavailable to the Government during the period of delay.
According to the department, subsequent payment of tax discharged the principal liability but did not extinguish the interest arising from delayed payment.
The State also distinguished disclosure of outward supplies in GSTR-1 from discharge of tax liability through GSTR-3B. It argued that delayed reporting of invoices could not shift the statutory time of supply or postpone the due date for tax payment.
Relying on the provisions governing self-assessed tax and recovery, the department contended that interest on delayed payment was recoverable and questioned the maintainability of an appeal confined to such liability.
The High Court examined Sections 107 and 112, which govern appeals before the First Appellate Authority and the Tribunal.
It explained that the statutory scheme requires full payment of the portion of tax, interest, fine, fee and penalty admitted by the appellant. The percentage-based pre-deposit, however, is calculated with reference to the remaining disputed tax, subject to the applicable statutory provisions.
The Bench found that the provisions did not require a deposit towards disputed interest where interest alone was under challenge and the entire tax had been paid.
It also noted that the First Appellate Authority had not insisted on a pre-deposit of interest. The Tribunal had similarly accepted the appeals and issued acknowledgments without requiring such a deposit.
On the central issue, the Court held that the percentage-based requirement under Section 112(8)(b) did not extend to disputed interest alone, particularly when the entire underlying tax stood discharged.
The Court explained that Section 112(9) provides a deemed stay of recovery of the balance amount until disposal of the appeal once the applicable requirements of Section 112(8) have been satisfied.
In the present case, the underlying tax had been paid, and the demands remaining before the Tribunal concerned disputed interest. The department’s recovery action therefore ran contrary to the statutory stay.
The Bench did not question the general power under Section 79(1)(c) to issue notices to banks or other persons holding money for a taxable person. The issue was whether that power could be exercised to recover the identified demands despite the protection under Section 112(9).
It held that the recovery proceedings could not continue in those circumstances.
The High Court did not decide whether the interest demands were correct.
It expressly left the applicable tax base, payment dates and computation of interest for adjudication in the pending Tribunal appeals.
The company’s submissions that it had made payments under protest, that payments should not be treated as acceptance of liability, and that it was entitled to a refund of approximately ₹80 crore were also left open. The Court expressed no opinion on those claims.
The ruling therefore protects the company against recovery during the appeals; it does not cancel the underlying interest demands on their merits.
Allowing the petitions, the High Court quashed the recovery communications dated September 4 and September 23, 2026, and the consequential bank notices dated September 29, 2026, insofar as they sought recovery of interest demands covered by the pending GSTAT appeals contrary to Section 112(9).
It declared that, upon compliance with the applicable requirements of Section 112(8), recovery of the balance amounts stood stayed until disposal of those appeals.
The authorities were directed to withdraw the bank notices, inform the respective banks forthwith, and ensure that debit restrictions imposed solely under those notices were lifted to restore ordinary banking operations.
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