The Goods and Services Tax Appellate Tribunal (GSTAT), Delhi, has held that interest under Section 50(1) of the Central Goods and Services Tax Act, 2017 stops accruing once the tax amount is credited to the Government’s account through a cash challan, even if the corresponding return is filed and the electronic cash ledger is debited later.
The Bench of Arun Kumar Singal (Judicial Member) and Sanjeev Kumar Jain (Technical Member) rejected the Department’s attempt to restore an interest demand of ₹73.95 lakh against the assessee. It upheld the first appellate authority’s computation of interest at ₹40.47 lakh for financial year 2017–18.
Buy Now: 160+ GST E-Magazine September 2026
After adjusting ₹15 lakh already paid, the Tribunal sustained the outstanding interest liability of ₹25,47,151. It also upheld a penalty of ₹45,829, finding that the taxpayer had paid the admitted tax shortfall after the 30-day period available under Section 73(8).
The order, dated October 15, 2026, dismissed both the Department’s appeal and the taxpayer’s cross-objection seeking further relief.
The respondent/assessee is a proprietorship engaged in manpower recruitment services, faced scrutiny of its GST returns for July 2017 to March 2018.
The audit raised a discrepancy between the tax reflected as paid in the annual return and the liability arising from the financial statements. After accounting for payments already made, the Department identified a residual tax shortfall of ₹4,58,289. It also raised separate demands for interest on delayed monthly tax payments.
A central part of the dispute concerned September 2017. The taxpayer maintained that it had filed GSTR-3B on March 3, 2018 with the correct turnover and tax liability, but a subsequent technical error on the GST portal caused the return to reflect no liability. According to the taxpayer, the discrepancy was discovered later and corrected through the March 2019 return.
The record showed that the entire September 2017 tax amount of ₹1,07,18,605 had been deposited through six challans between January 16 and February 15, 2018, before the March 3, 2018 return filing.
The show cause notice dated September 27, 2023 proposed recovery of the residual tax shortfall, interest of ₹30,38,939 relating to the September 2017 liability, and interest of ₹43,56,622 for delayed payments in other months. It also proposed interest on the residual shortfall and a penalty.
The adjudicating authority confirmed these demands in December 2023.
On appeal, the Joint Commissioner recognised the taxpayer’s earlier payments and recomputed interest by considering the dates on which the amounts had actually been deposited. For September 2017, this reduced the interest to ₹5,22,204. The appellate authority fixed the overall interest liability for delayed monthly payments at ₹40,47,151.
Challenging that decision before GSTAT, the Department argued that depositing money into the electronic cash ledger did not itself discharge the tax liability. It contended that payment occurred only when the ledger was debited upon filing the return and that interest should continue until that event.
The taxpayer argued that interest could not continue after the money had reached the Government’s account.
The Tribunal accepted the taxpayer’s position on the interest cut-off date.
Examining Sections 49 and 50, it reasoned that payment through Form GST PMT-06 brings the money into the Government’s account. The subsequent debit in the electronic cash ledger, when the return is filed, does not justify continuing interest for the intervening period.
The Bench relied on decisions including Vishnu Aroma Pouching Pvt. Ltd., Eicher Motors Ltd., Arya Cotton Industries, Bangalore International Airport Ltd. and Symphony Ltd., as discussed in its order.
It noted that the Department had not placed before it any contrary judgment of the jurisdictional High Court or the Supreme Court.
The Tribunal consequently held that, for tax deposited in cash through Form GST PMT-06, interest runs from the statutory due date until the amount is credited to the Government’s account, rather than until the later ledger debit.
The Bench also referred to the amendment to Rule 88B effective from July 10, 2024 concerning amounts credited to the electronic cash ledger on or before the return due date but debited when a belated return is filed.
It expressly recognised that the amendment addressed a narrower situation than the present dispute, where the relevant deposits were made after the due date.
Nevertheless, the Tribunal considered the amendment consistent with the underlying principle that money already received by the Government should not be treated as remaining unpaid merely because the return is filed later.
The Tribunal upheld the September 2017 interest computation of ₹5,22,204, calculated from the due date of October 20, 2017 to the respective challan payment dates.
For the remaining months, it found no instance in the record of cash having reached the Government’s account materially before the corresponding return was filed. It accepted the first appellate authority’s month-wise recomputation, including its correction of the December 2017 due date to January 22, 2018.
The Bench therefore upheld the total interest liability of ₹40,47,151 and rejected the Department’s request to restore ₹73,95,561.
After giving credit for ₹15 lakh paid in March 2023, it confirmed the balance of ₹25,47,151.
The Tribunal separately rejected the Department’s challenge to the setting aside of the ₹4,58,289 principal tax demand.
The taxpayer had deposited this amount, together with an equal sum towards interest, through DRC-03 on December 11, 2023—seven days before the adjudication order. However, that order did not consider the payment and proceeded as though the tax remained outstanding.
The Tribunal reasoned that a demand under Section 73 cannot serve as a means to recover an amount already received by the Government. Since the particular tax shortfall had been discharged before adjudication concluded, no fresh recovery of that amount survived.
The taxpayer sought an additional reduction of ₹4,58,289 from the outstanding interest balance, relying on the interest component of its December 11, 2023 payment.
The Tribunal rejected this request because that payment related to interest on the residual tax shortfall. The ₹40,47,151 computation concerned the separate liability arising from delayed monthly tax payments.
Allowing the December payment to reduce both liabilities would give credit twice for the same sum, the Bench held.
The Tribunal also rejected the taxpayer’s challenge to the ₹45,829 penalty.
It observed that Section 73(8) allows proceedings to conclude without penalty where tax and applicable interest are paid within 30 days of the show cause notice. Here, the notice was issued on September 27, 2023, while payment of the residual tax and related interest was made on December 11, 2023.
Although payment preceded the adjudication order, it fell outside the statutory period for penalty immunity.
The Bench held that Section 73(9) and Section 122(2)(a) prescribe the same penalty formula—10% of the tax or ₹10,000, whichever is higher—and rejected the contention that invoking the provisions together was impermissible in this case.
It also distinguished the taxpayer’s reliance on Hindustan Steel Ltd. v. State of Orissa, holding that the statutory penalty consequence could not be avoided merely because the dispute was bona fide or did not involve dishonest intent.
GSTAT dismissed the Department’s appeal and the taxpayer’s cross-objection. It directed assessee to pay the outstanding interest of ₹25,47,151, if not already paid, together with the penalty of ₹45,829, within 30 days of communication of the order. No costs were awarded.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
