• Dated 26^th October, 2026

GSTAT Holds Interest under Section 50(1) Payable Only up to Tax Credit Date; Penalty Upheld for Payment Beyond 30-Day Period under Section 73(8)

BRIEF FACTS:

The M/s Kanthwal Services, a registered supplier of manpower recruitment services, was subjected to scrutiny of its GST returns for FY 2017–18. During the scrutiny, the Department identified a mismatch of ₹1,11,75,979 between the tax paid as per GSTR-9 and the tax payable as per the financial statements. The Department also alleged non-payment of interest on account of delayed payment of tax during the financial year.The taxpayer explained that its GSTR-3B for September 2017 had initially been filed with the correct sales figures and tax liability. However, owing to a technical glitch on the GST portal, the return subsequently reflected nil liability. The error was corrected through the return for March 2019.

After adjusting the amounts already paid, a residual short-payment of ₹4,58,289 was identified. The taxpayer also disputed the computation of interest, particularly for September 2017, on the ground that the entire tax liability for that month had already been deposited through six challans between 16 January 2018 and 15 February 2018, before filing the GSTR-3B on 3 March 2018.

The Department issued a show cause notice dated 27 September 2023 under Section 73, proposing recovery of the short-paid tax, interest of ₹30,38,939 for September 2017, interest of ₹43,56,622 for the remaining months, and penalty under Section 122(2)(a) read with Section 73. On 11 December 2023, before the adjudication order was passed, the taxpayer paid the residual tax of ₹4,58,289 along with an equal amount of interest through Form GST DRC-03. However, the adjudicating authority passed the order on 18 December 2023 without considering this payment and confirmed the demand.The first appellate authority set aside the tax demand already discharged, recomputed the total interest liability at ₹40,47,151, allowed credit for ₹15,00,000 already paid, and upheld the penalty of ₹45,829. Both the Department and the taxpayer challenged aspects of this order before the GSTAT.

ASSESSEE'S CONTENTION:

The assessee contended that the short-paid tax of ₹4,58,289 along with an equal amount of interest had been deposited through Form GST DRC-03 before the passing of the order-in-original, and therefore, confirming the same demand again would result in double recovery. It further submitted that interest under Section 50(1) of the CGST Act should be calculated only up to the date on which the amount was credited to the Government account through Form GST PMT-06 and not up to the subsequent date of debit from the Electronic Cash Ledger upon filing the return. Regarding September 2017, the assessee attributed the discrepancy to a technical glitch on the GST portal and contended that, since the entire tax liability had been deposited through challans before filing the return, interest should be restricted to the respective challan-credit dates. It also sought a further adjustment of ₹4,58,289 against the outstanding interest liability of ₹25,47,151 and challenged the penalty of ₹45,829 on the ground that the default arose from a bona fide reconciliation issue without fraud or deliberate suppression. Relying on Hindustan Steel Ltd. v. State of Orissa, the assessee argued that the penalty was unjustified and that Section 122(2)(a) was not applicable to proceedings under Section 73 of the CGST Act.

DEPARTMENT'S CONTENTION:

The Department contended that the tax demand of ₹4,58,289 should not have been set aside merely because the assessee had deposited the amount through Form GST DRC-03 before the passing of the order-in-original, as the short-payment had existed during the relevant period and was liable to be confirmed along with applicable interest and penalty. Regarding interest under Section 50(1) of the CGST Act, the Department argued that interest should be calculated up to the date of debit from the Electronic Cash Ledger upon filing the return, rather than the date on which the amount was credited to the Government account through Form GST PMT-06. Accordingly, it sought restoration of the original interest demands of ₹30,38,939 for September 2017 and ₹43,56,622 for the remaining months of FY 2017–18. The Department further contended that the assessee had failed to pay the tax and applicable interest within 30 days of issuance of the show cause notice dated 27 September 2023, as the payment was made only on 11 December 2023. Consequently, the penalty of ₹45,829 imposed under Section 122(2)(a) read with Section 73 of the CGST Act was justified and mandatory.

DECISION:

The GSTAT, Delhi, held that the tax demand of ₹4,58,289 was rightly set aside, as the assessee had already discharged the tax liability along with an equal amount of interest before the passing of the order-in-original, and confirming the same demand again would result in double recovery. The Tribunal further held that interest under Section 50(1) of the CGST Act was payable only up to the date on which the tax amount was credited to the Government account through Form GST PMT-06 and not until the subsequent debit from the Electronic Cash Ledger upon filing the return. Accordingly, the total interest liability for FY 2017–18 was upheld at ₹40,47,151, leaving a balance of ₹25,47,151 after adjusting the ₹15,00,000 already paid. However, the Tribunal rejected the assessee's request for a further adjustment of ₹4,58,289, as the amount represented interest on the short-paid tax and could not be adjusted against the separate interest liability for delayed payment of tax. The Tribunal also upheld the penalty of ₹45,829 under Section 122(2)(a) read with Section 73, holding that the assessee was not entitled to immunity under Section 73(8) because the tax and interest were paid beyond the statutory 30-day period from the issuance of the show cause notice. Accordingly, the Department's appeal and the assessee's cross-objection were both dismissed, and the order-in-appeal was affirmed.

BTA's COMMENT:

The GSTAT, Delhi, held that the tax demand of ₹4,58,289 was rightly set aside, as the assessee had already discharged the tax liability along with an equal amount of interest before the passing of the order-in-original, and confirming the same demand again would result in double recovery. The Tribunal further held that interest under Section 50(1) of the CGST Act was payable only up to the date on which the tax amount was credited to the Government account through Form GST PMT-06 and not until the subsequent debit from the Electronic Cash Ledger upon filing the return. Accordingly, the total interest liability for FY 2017–18 was upheld at ₹40,47,151, leaving a balance of ₹25,47,151 after adjusting the ₹15,00,000 already paid. However, the Tribunal rejected the assessee's request for a further adjustment of ₹4,58,289, as the amount represented interest on the short-paid tax and could not be adjusted against the separate interest liability for delayed payment of tax. The Tribunal also upheld the penalty of ₹45,829 under Section 122(2)(a) read with Section 73, holding that the assessee was not entitled to immunity under Section 73(8) because the tax and interest were paid beyond the statutory 30-day period from the issuance of the show cause notice. Accordingly, the Department's appeal and the assessee's cross-objection were both dismissed, and the order-in-appeal was affirmed.

Case Reference- LALDEO RAJAK Versus KANTHWAL SERVICES [APL/79/DEL/2026, decided on 15-10-2026]

Author: Madhurima Bose