The Andhra Pradesh High Court has stayed coercive recovery of interest and penalty arising from an assessment order after noting the taxpayer’s contention that the disputed tax liability had already been discharged through available Input Tax Credit (ITC).
The bench of Justice R. Raghunandan Rao and Justice T.C.D. Sekhar directed the State Tax authorities to verify whether any interest or penalty actually remains payable before proceeding with recovery.
The petitioner challenged an urgent notice dated 15 April 2026, issued pursuant to a GST DRC-07 order dated 4 February 2025, through which the department sought recovery of ₹12,42,726 towards interest and penalty relating to delayed payment of CGST and SGST for the period July 2017 to March 2018.
According to the petitioner, the tax dues for the relevant period had already been discharged by utilizing Input Tax Credit available in its electronic credit ledger during the period from 24 January 2024 to 21 May 2024. It was argued that since the tax liability stood satisfied through ITC adjustment, no further amount towards interest or penalty was legally recoverable. The writ petition also questioned the sustainability of demanding interest under Section 50(3) and imposing penalty under Section 74 of the CGST/APGST Act, 2017, in cases where ineligible ITC may have been availed but was never utilized.
After hearing both sides, the Division Bench observed that the controversy required factual verification by the tax authorities regarding whether the tax dues had in fact been cleared and whether any consequential interest or penalty continued to survive.
Instead of adjudicating the merits of the dispute at this stage, the Court granted liberty to the petitioner to submit a detailed representation before the competent authority within one week. The concerned State Tax authority has been directed to examine whether the tax dues had already been discharged within the permissible period and thereafter determine whether any interest or penalty remains payable.
The Court further directed that such verification should preferably be completed within three weeks from the date of receipt of the representation.
The High Court ordered that no further coercive recovery action shall be taken pursuant to the assessment order dated 4 February 2025 or the urgent recovery notice dated 15 April 2026 until the petitioner’s representation is decided by the authorities.
The interim protection ensures that recovery proceedings remain in abeyance while the department re-examines the factual position regarding payment of tax and the consequent liability towards interest and penalty.
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