Section 76 CGST Penalty Applies to Registered Suppliers Too: GSTAT Bengaluru

Summary: The GSTAT Bengaluru has held that Section 76 of the CGST Act, 2017 is not restricted to unregistered or unauthorised collectors. It can apply to registered suppliers who collect GST from recipients under valid tax invoices but do not remit the amount to the Government. The supplied case account identifies the proceedings as Shrikrishna Subray Hegde v. K M B Facility Management Services [APL/17/BUR/2026], reportedly decided on 29.10.2026. According to that account, the First Appellate Authority deleted the Section 76 penalty because the supplier was registered and the tax liability related to taxable supplies. The Department challenged that deletion. The Tribunal reportedly rejected the restrictive interpretation of Section 76 and restored the equivalent penalty of Rs. 43,63,237 imposed under the Order-in-Original dated 15.11.2022. The account states that the penalty was payable within eight weeks, subject to adjustment of pre-deposits. The respondent identity, appeal number and amount remain subject to confirmation from the original order.

I. Introduction: Scope of Section 76 of the CGST Act

Section 76 of the Central Goods and Services Tax Act, 2017 (“CGST Act”) deals with tax collected but not paid to the Government. It requires every person who has collected any amount as representing tax under the Act to remit that amount, irrespective of whether the underlying supplies are taxable.

Section 76 also provides for adjudication and penalty in appropriate cases. Its legislative background includes Section 11D of the Central Excise Act, 1944 and Section 73A of the Finance Act, 1994, which dealt with amounts collected as representing tax or duty.

This background has led to an argument that Section 76 is directed primarily against persons collecting tax without authority, rather than registered suppliers who fail to discharge their admitted output tax. Under that interpretation, non-payment by registered suppliers would ordinarily be addressed through Sections 73 and 74.

The GSTAT Bengaluru has rejected the proposition that registration status alone excludes a person from Section 76. The Tribunal’s interpretation focuses on the statutory expressions “every person” and “any amount” and the obligation to remit collections representing GST.

The following discussion preserves the facts and arguments contained in the supplied case account and examines the wider implications of the legal interpretation.

II. Facts, Issues and Findings in the Reported GSTAT Proceedings

A. Facts: GST Collected from South Western Railways

According to the supplied account, the Department filed an appeal against Order-in-Appeal (GST AP: 28/2024-25) dated 27.02.2026, passed by the First Appellate Authority in favour of M/s K M B Facility Management Services, a registered taxpayer supplying security, cleaning and maintenance services to South Western Railways.

Between April 2018 and March 2021, the respondent reportedly issued valid tax invoices, charged GST and collected the tax from the recipient. However, the amount was not remitted to the Government.

The respondent filed nil GSTR-3B returns for June 2018 to February 2019 and did not file subsequent returns, reportedly on incorrect professional advice.

The Intelligence Authorities detected the discrepancy by comparing GSTR-7 returns filed by South Western Railways with the respondent’s nil or unfiled GSTR-3B returns.

A Show Cause Notice under Section 76 was reportedly issued on 23.11.2021. The respondent did not contest the tax liability and discharged Rs. 43,63,237 through six DRC-03 payments in September 2022.

The Adjudicating Authority, by Order-in-Original dated 15.11.2022, reportedly confirmed tax, interest and an equivalent penalty under Section 76. One DRC-03 payment of Rs. 1,62,824 was omitted from the appropriation table.

The First Appellate Authority corrected the payment appropriation but deleted the penalty, holding that Section 76 was not applicable to registered suppliers for non-payment of taxes already admitted.

B. Legal Issue: Whether Section 76 Covers Registered Taxpayers

The principal question was whether Section 76 of the CGST Act applies to a registered supplier who charges GST under valid invoices, collects the tax from recipients, but files nil or no GSTR-3B returns and fails to remit the collections.

A related question was whether the First Appellate Authority was justified in deleting the equivalent penalty on the ground that the respondent was a registered taxpayer.

C. Arguments Advanced by the Respondent

The respondent argued that Sections 73 and 74 provide the statutory machinery for recovery of tax not paid by taxable persons.

According to the respondent, Section 76 is an anti-unjust-enrichment provision intended to address unauthorised collections. Reliance was placed on the legislative background of Section 11D of the Central Excise Act, 1944.

The respondent distinguished the expression “amount collected as tax” appearing in Section 73(11) from “amount as representing the tax” appearing in Section 76(1).

The respondent also relied on A.V. Fernandez v. State of Kerala, AIR 1957 SC 657 (Supreme Court), concerning strict interpretation of taxing statutes, and Nazir Ahmad v. King Emperor, AIR 1936 PC 253 (Privy Council), concerning compliance with prescribed statutory procedure.

D. Arguments Advanced by the Department

The Department contended that Section 76(1) contains no restriction limiting its application to unregistered persons or unauthorised collections.

It argued that excluding registered suppliers would produce an anomalous result under which an unregistered person retaining GST collections could face Section 76 proceedings, while a registered supplier committing the same default could claim immunity from that provision.

E. Findings: Meaning of “Every Person” and “Any Amount”

The Tribunal rejected the contention that Section 76 applies exclusively to unregistered persons or collections made without authority.

It interpreted the expression “every person” in Section 76(1) to include registered taxpayers. The expression “any amount” was understood broadly enough to cover GST collected under genuine tax invoices but not remitted to the Government.

The Tribunal reasoned that registration status cannot, by itself, confer immunity where a supplier has collected amounts representing GST and withheld them.

F. Reliance on R.K. Transport & Constructions Ltd.

The Tribunal referred to M/s R.K. Transport & Constructions Ltd. v. State of Jharkhand, W.P.(T) No. 1624 of 2024, decided on 13.06.2025 (Jharkhand High Court).

In that case, the Jharkhand High Court considered the statutory obligation relating to GST collected but not remitted and the scope of the expression “every person” under Section 76.

The Bengaluru Tribunal drew support from that interpretation while addressing the argument that a registered supplier should be excluded from Section 76.

G. Distinction from GAIL (India) Ltd.

The Tribunal also considered GAIL (India) Ltd. v. Additional Commissioner, 2026 VIL 372 MAD (Madras High Court).

In GAIL (India) Ltd., the Madras High Court held that Section 76 could not be invoked to demand the GST component again where it had already been remitted to the Government through another GST registration.

The Tribunal distinguished that situation from a case where the supplier had collected GST but had not remitted it within the prescribed period and discharged the liability only after departmental intervention.

H. Fiduciary Nature of GST Collections

The Tribunal treated amounts collected as tax as funds that the supplier was obliged to remit to the Government.

The supplied account records reliance on Commissioner of Central Excise v. Solar Pesticides (P) Ltd., (2000) 2 SCC 705 (Supreme Court) and Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise, (2005) 3 SCC 738 (Supreme Court).

These decisions concern unjust enrichment principles. Their application to the fiduciary character of GST collections formed part of the Tribunal’s reported reasoning.

The Tribunal considered the retention of tax collected from recipients, accompanied by nil or unfiled returns, inconsistent with the supplier’s statutory obligation to remit that amount.

I. Final Order: Equivalent Penalty Restored

The Tribunal held that the First Appellate Authority’s interpretation excluding registered suppliers from Section 76 was unsustainable.

The independently indexed ruling confirms that the Department’s appeal was allowed and the equivalent penalty was restored.

According to the supplied account, the restored penalty was Rs. 43,63,237, with payment directed within eight weeks and adjustment of pre-deposits. These case-specific figures and directions require verification against the original order.

III. Relevant Statutory Provision: Section 76 of the CGST Act

A. Obligation to Remit Tax Collected

Section 76(1) applies notwithstanding contrary provisions or orders and addresses amounts collected from another person as representing tax under the CGST Act but not paid to the Government.

The material statutory wording includes:

“…every person who has collected from any other person any amount as representing the tax under this Act, and has not paid the said amount to the Government, shall forthwith pay the said amount to the Government…”

B. Adjudication and Penalty Under Section 76

Section 76 provides a specific procedure for determining amounts collected but not remitted. Where the statutory conditions are satisfied, the proper officer may determine the amount payable and impose the prescribed penalty after following the applicable adjudication requirements.

The provision must be applied to the facts of each case. Its scope should not be confused with an automatic penalty for every delayed GST payment.

IV. Implications of the GSTAT Ruling

A. Registration Does Not Exclude Section 76

The principal implication is that registration status alone does not prevent the Department from invoking Section 76 where GST has been collected from recipients but not remitted.

The Tribunal’s interpretation places emphasis on the collection and non-remittance of amounts representing GST rather than solely on whether the supplier held a valid registration.

B. Payment Through DRC-03 After Notice

Payment through Form DRC-03 after departmental proceedings does not necessarily eliminate exposure to penalty under Section 76.

The legal consequences depend on the statutory provision invoked, the stage of payment, the nature of the collection and the facts established in adjudication.

This distinction is important because payment of the underlying tax and liability for penalty are separate questions.

C. Difference Between Section 76 and Sections 73 and 74

Sections 73 and 74 deal with determination of tax not paid, short paid or otherwise falling within their respective statutory conditions for the relevant periods.

Section 76 specifically addresses amounts collected as representing tax but not paid to the Government.

The interaction between these provisions may require careful examination where the same transactions are considered under more than one statutory mechanism. Taxpayers should assess the precise allegations, the statutory period and the possibility of overlapping demands or penalties.

D. Reconciliation of GSTR-1, GSTR-3B and GSTR-7

The case illustrates how recipient-side GST data may reveal differences between amounts collected by suppliers and amounts discharged through their returns.

Registered suppliers should reconcile GSTR-1, GSTR-3B, GSTR-7 wherever applicable, invoices, books of account and electronic ledgers.

Nil returns should not be filed where taxable outward supplies and corresponding liabilities are required to be declared.

E. Compliance Measures for Registered Suppliers

Businesses should ensure that GST collected through invoices is deposited within the prescribed time, subject to applicable adjustment and payment provisions.

They should maintain complete records of invoices, tax collections, return filings, payments through electronic ledgers and DRC-03 challans.

Where delayed payment has occurred, management should promptly assess interest, penalty exposure and the appropriate statutory procedure rather than assuming that subsequent payment automatically concludes the matter.

V. Conclusion: Registered Suppliers Must Remit GST Collected

The GSTAT Bengaluru has interpreted Section 76 of the CGST Act as extending to registered suppliers who collect GST but fail to remit it to the Government.

The Tribunal rejected the proposition that Section 76 is restricted to unregistered persons or unauthorised collections. It treated the statutory expressions “every person” and “any amount” as broad enough to cover collections made under genuine invoices.

The ruling also highlights the distinction between GST already deposited with the Government and GST collected from recipients but withheld until departmental intervention.

For registered taxpayers, proper invoicing and valid GST registration do not substitute for timely payment of the tax collected. Businesses should reconcile GSTR-1, GSTR-3B and applicable GSTR-7 information, maintain complete payment records and address discrepancies promptly.

The relationship between Section 76 and other demand and penalty provisions remains an important issue for future judicial consideration. The application of this ruling must therefore be assessed against the statutory language and the facts of each case.

Cases Discussed

1. GAIL (India) Ltd. v. Additional Commissioner, 2026 VIL 372 MAD (Madras High Court) — Section 76 distinguished where the GST component had already reached the Government.
2. R.K. Transport & Constructions Ltd. v. State of Jharkhand, W.P.(T) No. 1624 of 2024, decided on 13.06.2025 (Jharkhand High Court) — Scope of Section 76 and the obligation to remit GST collections.
3. Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise, (2005) 3 SCC 738 (Supreme Court) — Unjust enrichment principles.
4. Commissioner of Central Excise v. Solar Pesticides (P) Ltd., (2000) 2 SCC 705 (Supreme Court) — Incidence of tax and unjust enrichment.
5. A.V. Fernandez v. State of Kerala, AIR 1957 SC 657 (Supreme Court) — Strict interpretation of taxing statutes.
6. Nazir Ahmad v. King Emperor, AIR 1936 PC 253 (Privy Council) — Requirement to follow prescribed statutory procedure.

References

1. GSTAT Bengaluru, Section 76 ruling reported as 2026-VIL-267-GSTAT-BLR and 2026 (10) TMI 2007.
2. Shrikrishna Subray Hegde v. K M B Facility Management Services, APL/17/BUR/2026, reportedly dated 29.10.2026 — original order required for confirmation.
3. Central Goods and Services Tax Act, 2017, Sections 73, 74 and 76.
4. R.K. Transport & Constructions Ltd. v. State of Jharkhand, W.P.(T) No. 1624 of 2024, decided on 13.06.2025.
5. GAIL (India) Ltd. v. Additional Commissioner, 2026 VIL 372 MAD.
6. Commissioner of Central Excise v. Solar Pesticides (P) Ltd., (2000) 2 SCC 705.
7. Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise, (2005) 3 SCC 738.
8. A.V. Fernandez v. State of Kerala, AIR 1957 SC 657.
9. Nazir Ahmad v. King Emperor, AIR 1936 PC 253.