The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru State Bench, has held that Section 76 of the Central Goods and Services Tax Act, 2017 applies to registered taxpayers who collect GST from customers but fail to deposit it with the Government, even where the collections were made through valid invoices for taxable supplies.
The Bench of Srikanth Venkatraman (Judicial Member) and Sudha Koka (Technical Member) restored the penalty equivalent to the tax amount imposed on assessee and rejected the contention that Section 76 is confined to unauthorised collections or collections made by unregistered persons.
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The order directed the respondent to discharge the penalty dues within eight weeks, after adjustment of any pre-deposits.
The respondent supplied security, cleaning and maintenance services to South Western Railways during April 2018 to March 2021. It issued invoices charging GST and collected the tax from the service recipient.
However, it filed nil GSTR-3B returns for June 2018 to February 2019 and failed to file returns for subsequent periods, resulting in non-remittance of the collected tax. The order records the respondent’s explanation that the defaults arose from inadvertence and incorrect professional advice.
Intelligence authorities detected the discrepancy by comparing South Western Railways’ GSTR-7 returns, reflecting tax deducted at source and consideration paid, with the supplier’s nil or unfiled GSTR-3B returns.
A show cause notice dated November 23, 2021 proposed recovery under Section 76, along with interest and a penalty equivalent to the amount involved.
The respondent did not dispute the tax liability. The detailed order records that it discharged the admitted GST liability of approximately ₹43.63 lakh through six Form GST DRC-03 challans in September 2022.
The adjudicating authority subsequently confirmed the tax demand, interest and penalty under Section 76. However, it omitted one DRC-03 payment of ₹1,62,824 while recording the appropriation of payments.
As described in the detailed judgment, the first appellate authority corrected the payment record to recognise all six challans but set aside the Section 76 penalty. It considered that the provision did not apply to a registered supplier’s failure to remit tax collected under authorised invoices.
The Revenue challenged the deletion of the penalty before GSTAT.
The respondent contended that Sections 73 and 74 provide the machinery for recovering tax not paid or short paid by a person chargeable with tax. It argued that Section 76 addresses a different situation involving money collected as tax without legal authority.
Drawing a distinction between the expressions “amount collected as tax” and “amount as representing the tax,” the respondent maintained that genuine output tax collected by a registered supplier should be dealt with under the ordinary demand provisions.
It also relied on principles governing strict interpretation of fiscal statutes and argued that the Department could not invoke Section 76 where the default fell within Sections 73 or 74.
The Department countered that Section 76 contains no restriction limiting its application to unregistered persons, unlawful invoices or excess collections. According to the Revenue, the provision directly addresses the retention of money collected in the name of GST.
The Tribunal rejected the respondent’s restrictive interpretation.
It reasoned that the expressions “every person” and “any amount” have a wide scope. In the Bench’s interpretation, they include tax collected by a registered entity under valid invoices and subsequently withheld from the Government.
The Tribunal also relied on the provision’s reference to collections irrespective of whether the underlying supplies are taxable. It held that the validity of the original collection does not remove the obligation to deposit the amount.
Excluding registered suppliers, the Bench reasoned, would create an unjustified distinction under which unregistered collectors could face action while registered taxpayers retaining collected GST would escape the provision.
The determining consideration was therefore the collection and non-remittance of tax, rather than the supplier’s registration status.
The Bench referred to the Jharkhand High Court’s decision in M/s R.K. Transport & Constructions Ltd. v. State of Jharkhand, decided on June 13, 2025.
As discussed in the Tribunal’s order, that decision explained the scope of “every person” under Section 76 and recognised action against a person who receives GST but fails to remit it. The Tribunal relied on that reasoning to reject the argument that registration insulates a tax collector from Section 76.
The Bench also examined GAIL (India) Ltd. v. Additional Commissioner. It described that case as concerning an attempt to demand tax again when the amount had already reached the Government through another registration or business vertical of the same entity.
The present dispute was distinguishable because the collected tax had remained unpaid until the subsequent DRC-03 deposits following departmental intervention.
The Tribunal emphasised that a business collecting indirect tax holds the money for the Government. It treated the retention of those collections, coupled with nil or unfiled returns, as a breach of that responsibility.
The order also referred to Supreme Court decisions concerning unjust enrichment and indirect taxation to support its reasoning about the obligations attached to tax collections.
On the facts before it, the Bench concluded that the first appellate authority’s exclusion of registered suppliers from Section 76 was legally unsustainable.
The Tribunal allowed the departmental appeal and set aside the portion of the first appellate order deleting the penalty.
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