The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench at Lucknow, has set aside a ₹23.40 lakh penalty imposed for the inadvertent omission of business-to-consumer (B2C) sales from monthly GST returns, noting that the turnover was recorded in the books, disclosed in the annual return, and the entire tax liability of ₹2.34 crore was voluntarily paid before issuance of the show cause notice.
The Bench of Narendra Kumar (Judicial Member) and Alok Chopra (Technical Member) however, declined to extinguish the interest liability merely because the tax had been paid voluntarily. It directed the proper officer to recompute the ₹75.23 lakh interest demand after verifying the month-wise tax liability, payment dates and relevant electronic ledger balances.
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The dispute concerned certain B2C sales for the financial year 2020–21 that were omitted from the monthly GSTR-1 and GSTR-3B returns. The business maintained that the omission resulted from a clerical error and that the transactions had been duly accounted for in its books and disclosed in the annual return and reconciliation records in GSTR-9/9C.
After identifying the discrepancy, Aditi Enterprises voluntarily discharged the corresponding tax liability of ₹2.34 crore through Form GST DRC-03 on March 4, 2022, before any show cause notice was issued.
The adjudicating authority subsequently confirmed interest of ₹75,23,100 and penalty of ₹23,40,000 through an order dated February 28, 2025. The first appellate authority upheld the demands on November 14, 2025, prompting the business to approach the Tribunal.
The appeal challenged the combined interest and penalty demand of ₹98,63,100.
Appearing for the business, Advocate Hitendra Kumar submitted that the tax had been paid on self-ascertainment before issuance of the show cause notice. The taxpayer relied on Sections 73(5) and 73(6) of the CGST Act to contest the subsequent proceedings and penalty.
It argued that the omission was bona fide, involved no intention to evade tax, and had been corrected through disclosure in the annual return.
The taxpayer also disputed the calculation of interest, contending that the authorities had failed to properly consider the balances available in its Electronic Credit Ledger and Electronic Cash Ledger during the relevant period.
It submitted that the DRC-03 payment was already available on the GST portal and should have been reconciled with the relevant ledger records before the demand was confirmed.
The department maintained that the tax had been discharged belatedly on March 4, 2022, and that interest was consequently payable under Section 50.
It also contended that the Electronic Credit Ledger did not contain sufficient input tax credit at the relevant time and defended the penalty imposed under Section 73.
During the Tribunal proceedings, however, the department confirmed the correctness of the taxpayer’s month-wise reconciliation and acknowledged that the tax liability had been discharged before issuance of the show cause notice.
The Tribunal attached significance to the distinction between turnover omitted from monthly returns and transactions kept outside the books.
On examining the reconciliation and supporting material, it found that the disputed sales were recorded in the books of account and disclosed in the annual return. The discrepancy therefore concerned the reporting of turnover in the monthly returns.
The Bench also noted that the department had verified the reconciliation and had not disputed the correctness of the underlying figures.
Although technical difficulties prevented the department from uploading its verified report on the portal, its representative acknowledged during the hearing that the sales summary and Electronic Credit Ledger had been examined and that the tax had been paid before the show cause notice.
The Tribunal treated the taxpayer’s voluntary payment, disclosure of turnover and verified reconciliation as material circumstances when assessing the penalty.
The Tribunal held that Section 73(5) applied to the facts of the case.
It noted that the entire ₹2.34 crore tax liability had already been discharged before issuance of the show cause notice and that the department had accepted the reconciliation furnished by the taxpayer.
In these circumstances, the Bench found that imposing a penalty merely for inadvertent non-reporting of turnover in the monthly returns was unjustified.
It accordingly set aside the ₹23.40 lakh penalty, comprising ₹11.70 lakh each under CGST and SGST, referring to the protection under Section 73(6).
The relief was based on the specific facts established before the Tribunal, including the accounting and annual disclosure of the turnover, the verified reconciliation, and voluntary payment before the notice.
The Tribunal separately rejected the taxpayer’s contention that payment of tax before issuance of the show cause notice meant that no interest could arise.
It explained that interest is a statutory consequence of delayed payment and must be determined under Section 50 of the CGST/SGST Act read with the applicable provisions of Rule 88B.
The Bench noted that the DRC-03 payment covered the tax liability without payment of interest or penalty. Since the liability related to the financial year 2020–21 and was discharged on March 4, 2022, Section 50 was attracted.
Nevertheless, the Tribunal found that the existing interest demand could not be sustained without proper verification of its calculation.
The Bench held that the dispute could not be resolved simply by taking the entire ₹2.34 crore tax liability as the basis for calculating interest.
Instead, the computation had to account for the liability attributable to each month, the respective due dates, the actual date of discharge, and the amount, if any, required to be paid through the Electronic Cash Ledger in accordance with the statutory provisions.
It directed the proper officer to verify the omitted B2C turnover month by month and examine both the Electronic Credit Ledger and Electronic Cash Ledger for the relevant period.
The Tribunal therefore set aside the ₹75,23,100 interest demand to the extent of its existing computation and ordered a fresh determination under Section 50 read with Rule 88B.
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