The Goods and Services Tax Appellate Tribunal (GSTAT), Bengaluru Bench, has held that an appeal against a demand consisting solely of disputed interest does not require a tax-linked pre-deposit where no tax is in dispute and no liability has been clearly admitted. It also ruled that an appellate authority must hear the taxpayer before dismissing an appeal on limitation, authorisation or payment-related objections.
However, the bench of Prabhakaran P.M. (Judicial Member) and Ravi Jesuraj S. (Technical Member) rejected the contractor’s contention that its Government customer’s refusal to reimburse an increase in GST relieved it of interest on delayed payment. Partly allowing the appeal, it reduced the overall interest demand from ₹44,46,989 to ₹43,94,495.
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The Raichur-based company executes works contracts, including lift irrigation and electrical works, for Government undertakings in Karnataka. The dispute arose from an audit of its records for financial year 2021–22.
According to the Tribunal’s findings, the applicable GST rate on the works contracts in question increased from 12% to 18% from January 1, 2022, following the removal of “Government Entity” from the relevant concessional entries through Notification No. 15/2021-Central Tax (Rate).
The company nevertheless raised invoices between January and March 2022 charging GST at 12%. It subsequently paid a differential tax of ₹1,32,90,600 each under CGST and SGST through Form GST DRC-03 between October 2022 and June 2023.
The adjudicating authority’s order dated August 13, 2024, confirmed interest of ₹21,96,829 under each tax head on those delayed payments. It also demanded ₹27,841 in CGST interest and ₹25,490 in SGST interest on delayed cash payments through GSTR-3B.
An excess input tax credit demand was dropped, and the adjudication order ultimately confirmed no tax or penalty.
The company filed its first appeal on December 4, 2024, with a delay of 21 days. The first appellate authority dismissed it on February 19, 2026, without a hearing, citing delay, inadequate proof of the signatory’s authority and non-payment of allegedly admitted interest.
The Tribunal held that Section 107(8) requires an opportunity of hearing whether an appeal is being decided on merits or on a preliminary objection. Each objection in this case involved factual matters on which the company should have been heard.
The bench observed that a hearing enables a party to correct mistaken factual assumptions. Here, the finding concerning the absence of a condonation petition was contrary to the record.
Even if the request for adjournment had been rightly refused, the Tribunal said, the authority had to provide another hearing date before dismissing the appeal. It consequently held that the appellate order violated Section 107(8) and the principles of natural justice.
The Tribunal found that a verified petition seeking condonation had been filed with the appeal.
It held that neither the Act nor Rule 108 prescribes a separate condonation application or an affidavit. Form GST APL-01 itself requires the taxpayer to disclose the period of delay and the reasons for it.
The company explained that its consultant had been unwell and that time was required to gather supporting documents. The Tribunal considered this explanation plausible and uncontradicted, finding no indication of a deliberate attempt to delay proceedings.
Since the delay fell within the additional one-month period permitted under Section 107(4), the Tribunal condoned the 21-day delay. It nevertheless clarified that condonation is discretionary and requires sufficient cause.
The company’s General Manager had signed and verified the appeal. A notarised General Power of Attorney dated January 6, 2017, authorised him to represent the company and sign and file applications in tax matters.
The Tribunal held that the officer possessed the company’s authority and that any omission to submit proof with the first appeal was curable. The company’s conduct in continuing the proceedings also supported that authority.
If the appellate authority doubted the signatory’s authorisation, it should have identified the defect and sought proof instead of dismissing the appeal without hearing the company.
The first appellate authority treated the company’s calculation of interest at ₹21,96,829 under each head as an admission requiring full payment under Section 107(6)(a).
The Tribunal disagreed. Read as a whole, the company’s reply disputed liability and supplied the calculation in the alternative, qualifying it with the words “even assuming” that interest was payable.
An admission must be clear and unequivocal, the bench held. Correcting the Department’s arithmetic while disputing liability does not amount to admitting the demand.
The Tribunal also considered the company’s earlier audit submission. Although it stated an interest figure, the company simultaneously sought relief from the entire liability. Acceptance of a method of computation did not, in that context, establish an admission that the interest was legally payable.
The Tribunal explained that Section 107(6)(a) covers admitted amounts of tax, interest, fine, fee and penalty, whereas Section 107(6)(b) links the percentage pre-deposit specifically to the remaining tax in dispute.
Since the adjudication order confirmed no tax, there was no disputed tax amount on which the pre-deposit could be calculated. The company also admitted no amount within the meaning of clause (a).
Consequently, the first appeal could not be rejected for failure to pay an admitted amount or a pre-deposit.
On the substantive issue, the Tribunal upheld interest on the differential GST. It held that interest under Section 50 is compensatory and follows delayed payment of tax. Subsequent payment through DRC-03 does not extinguish that liability.
The company’s claim that its customer had not paid the increased GST, forcing it to use its own funds, explained its financial hardship but did not alter its statutory obligation.
The supplier’s liability arises according to the statutory time of supply, rather than whenever the customer chooses to pay. Any contractual claim for reimbursement must be pursued against the customer and cannot postpone the Government’s entitlement to tax.
The Tribunal also rejected the retention-money argument. On the facts, running account bills had been issued for the full value of measured work. The provisions governing continuous supply determine when an invoice must be issued; they do not defer tax on an invoice already issued.
Contractually deferred retention money remained part of the consideration and did not constitute a deduction from the value of the supply.
The company alternatively sought a reduced interest computation by treating the consideration as inclusive of GST under Rule 35.
The Tribunal rejected that plea because the invoices separately stated the taxable value and charged GST at 12%. The customer’s refusal to pay the additional 6% could not convert an expressly tax-exclusive value into a tax-inclusive amount.
It therefore confirmed differential-tax interest of ₹43,93,658, comprising ₹21,96,829 each under CGST and SGST.
The company succeeded on the GSTR-3B interest calculation. It had produced a reconciliation and a return showing payment of ₹24,451 each under CGST and SGST for the delayed March 2022 return.
The adjudicating authority failed to address that documented claim. The Tribunal held that silence on a specific claim did not satisfy the requirement to state reasons under Section 75(6).
The Revenue also identified no error in the reconciliation when asked during the hearing.
Accepting the reconciled outstanding amounts, the Tribunal reduced GSTR-3B interest from ₹53,331 to ₹837—CGST ₹418 and SGST ₹419.
It did not add the ₹63 IGST balance shown in the company’s working because the original order had confirmed no IGST interest and the demand could not be enhanced in the company’s own appeal.
The Tribunal set aside the first appellate order, condoned the delay and upheld the validity of the appeal. It decided the merits itself because the record was complete and both parties had fully argued their cases.
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