Section 76 Penalty Applies to Registered GST Suppliers: GSTAT Bengaluru

Shrikrishna Subray Hegde Vs K M B Facility Management Services (GSTAT Bengaluru)

Summary: The Goods and Services Tax Appellate Tribunal (GSTAT), State Bench Bengaluru, Court II, allowed the departmental appeal in Shrikrishna Subray Hegde Vs K M B Facility Management Services, APL/17/BUR/2026, decided on 29 October 2026, holding that Section 76 of the Central Goods and Services Tax Act, 2017, applies even to a registered supplier who collects GST from customers through valid tax invoices but fails to remit the collections to the Government. The Tribunal, comprising Technical Member Sudha Koka and Judicial Member Srikanth Venkatraman, rejected the contention that Section 76 applies exclusively to unauthorised tax collections or unregistered persons. It held that the expression “every person” in Section 76(1) is sufficiently wide to include registered taxpayers who collect amounts representing GST and withhold them.

The respondent, K M B Facility Management Services, supplied security, cleaning and maintenance services to South Western Railways during April 2018 to March 2021. Although GST was charged and collected through tax invoices, the respondent filed nil GSTR-3B returns for certain periods and did not file returns for subsequent periods. The discrepancy emerged when the tax authorities compared the recipient’s GSTR-7 records with the respondent’s returns. A show cause notice dated 23 November 2021 proposed recovery of collected but unremitted GST, interest and an equivalent penalty under Section 76. The respondent subsequently deposited ₹43,63,237 through six Form GST DRC-03 payments in September 2022.

The adjudicating authority confirmed the demand, interest and penalty on 15 November 2022. The First Appellate Authority, by order dated 27 February 2026, corrected the appropriation of tax payments but deleted the penalty, reasoning that Sections 73 and 74, rather than Section 76, governed the non-payment of legitimately collected output tax by a registered supplier. The Department challenged that interpretation before GSTAT Bengaluru.

The Tribunal held that Section 76(1) imposes an obligation on every person who collects an amount representing GST to remit it to the Government, irrespective of whether the underlying supply is taxable. It relied upon R.K. Transport & Constructions Ltd. v. State of Jharkhand concerning the breadth of Section 76, distinguished GAIL (India) Ltd. v. Additional Commissioner because the tax in that case had already reached the exchequer, and referred to Supreme Court decisions on unjust enrichment and the handling of collected indirect taxes. The Tribunal considered that excluding registered suppliers from Section 76 would create an unjustified distinction between registered and unregistered persons who retain collected tax.

Accordingly, the Tribunal set aside the portion of the First Appellate Authority’s order deleting the penalty and restored the equivalent penalty imposed under Section 76 by the Order-in-Original dated 15 November 2022. The departmental appeal was allowed, and the respondent was directed to discharge the penalty dues, after adjustment of any pre-deposits, within eight weeks from the date of the order. The decision establishes that registration and issuance of valid GST invoices do not, by themselves, exempt a supplier from the consequences of collecting tax and failing to remit it to the Government.

Cases Discussed

• GAIL (India) Ltd. v. Additional Commissioner, 2026 VIL 372 MAD (Madras High Court). Distinguished because the GST component had already been remitted to the Government through another registration or business vertical, unlike the unremitted collections in the present case.
• R.K. Transport & Constructions Ltd. v. State of Jharkhand, W.P.(T) No. 1624 of 2024; 13/06/2025 (Jharkhand High Court). Relied upon for the scope of the expression “every person” under Section 76 of the GST legislation.
• Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise, (2005) 3 SCC 738 (Supreme Court). Cited concerning the doctrine of unjust enrichment and principles governing indirect tax collections.
• Commissioner of Central Excise v. Solar Pesticides (P) Ltd., (2000) 2 SCC 705 (Supreme Court). Referred to concerning the economic incidence of indirect taxation and unjust enrichment.
• A.V. Fernandez v. State of Kerala, AIR 1957 SC 657 (Supreme Court). Cited by the respondent in support of strict interpretation of fiscal statutes; the Department argued that the plain text of Section 76 nevertheless covered the present conduct.
• Nazir Ahmad v. King Emperor, AIR 1936 PC 253 (Privy Council). Relied upon by the respondent concerning compliance with prescribed statutory procedure and considered in the competing statutory interpretation arguments.

FULL TEXT OF THE ORIGINAL ORDER OF GSTAT BENGALURU

I. INTRODUCTION

1. At the heart of this dispute lies a simple yet fundamental question of commercial integrity and statutory interpretation: When a registered commercial entity collects money from its service recipients under the explicit banner of the Goods and Services Tax, but chooses to pocket or withhold those public monies instead of remitting them to the State exchequer, does the conduct fall within the punitive and remedial sweep of Section 76 of the CGST Act, 2017? The respondent-taxpayer would have us believe that Section 76 is a narrow, esoteric provision reserved exclusively for unauthorized actors or shady fly-by-night operators who collect taxes without legal standing, leaving registered defaulters safely tucked away under general assessment provisions. This Tribunal is called upon to examine whether the text, texture, and teleology of Section 76 permit such an artificial immunity. An indirect tax regime is built on trust, transparency, and a strict fiduciary compact between the citizen and the state. When that compact is broken by collecting tax and filing nil returns, the law must speak with clarity and firmness. It is through this prism that we examine the competing arguments of the Revenue and the Respondent.

II. CHRONOLOGY OF EVENTS

• April 2018 – March 2021: The Respondent provided taxable output services (security, cleaning, and maintenance) to South Western Railways, issued valid tax invoices charging GST, and collected the tax from the recipient, but filed nil or no GSTR-3B returns.
• 23.11.2021: Intelligence authorities issued a Show Cause Notice (SCN) proposing recovery of unremitted tax under Section 76 of the CGST Act, along with interest under Section 50/76 and an equivalent penalty under Section 76.
• 14.09.2022 & 21.09.2022: The Respondent discharged the admitted GST liability through six voluntary payments via Form GST DRC-03 totaling Rs. 43,63,237/-.
• 15.11.2022: The Adjudicating Authority passed the Order-in-Original confirming the demand, interest, and penalty under Section 76, while inadvertently omitting one DRC-03 payment of Rs. 1,62,824/- in the appropriation table.
• 27.02.2026: The First Appellate Authority passed the Order-in-Appeal (GST AP: 28/2024-25), rectifying the payment ledger to include all six DRC-03 challans, but erroneously setting aside the penalty under Section 76 on the premise that Section 76 does not apply to registered suppliers who defaulted on admitted tax collections.
• October 2026: The Department filed the present appeal before this Tribunal challenging the deletion of the penalty, followed by written submissions, rebuttals, and final hearings.

III. BRIEF FACTS OF THE CASE

3. The Respondent is a registered taxpayer under the CGST Act, 2017, engaged in supplying taxable services (security, cleaning, and maintenance) to South Western Railways. For the period spanning April 2018 to March 2021, the Respondent duly issued tax invoices charging GST and collected the same from service recipients. However, due to inadvertence and incorrect professional advice, the Respondent filed nil GSTR-3B returns for June 2018 to February 2019 and failed to file returns for subsequent periods, omitting to remit the collected tax to the Government.

4. Intelligence authorities detected the anomaly upon cross-verifying GSTR-7 returns filed by South Western Railways (reflecting tax deducted at source and consideration paid) against the Respondent’s nil/unfiled GSTR-3B returns. Consequently, a Show Cause Notice dated 23.11.2021 was issued under Section 76.

5. During adjudication, the Respondent did not dispute the tax liability and deposited the entire admitted tax of Rs. 43,63,237/- via six voluntary Form GST DRC-03 challans in September 2022. The Adjudicating Authority confirmed the tax demand, interest, and penalty under Section 76, but missed one DRC-03 entry. The First Appellate Authority corrected the payment ledger to give full credit for all six DRC-03 challans, but erroneously held that Section 76 was inapplicable, leading to the deletion of the penalty. Hence, the Department is in appeal before this Tribunal.

IV. DEPARTMENT’S GROUNDS OF APPEAL

6. Misinterpretation of Section 76(1): The Appellate Authority erred in law by reading down Section 76(1) to exclude registered taxpayers who have collected tax under valid invoices but failed to deposit it.

7. Textual Mandate Ignored: Section 76(1) explicitly employs the words “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, irrespective of whether the supplies in respect of which such amount was collected are taxable or not.” The statute does not condition the operation of Section 76 on the collection being unauthorized or performed by an unregistered person.

8. Harmonious Construction Violated: The concluding non-ambiguous phrase “irrespective of whether the supplies… are taxable or not” makes the taxability or the validity of the initial invoice collection non-determinative for the immediate deposit obligation.

V. RESPONDENT’S REPLY & ADDITIONAL SUBMISSIONS

9. Special Provisions vs. General Provisions: The Respondent contended that Sections 73 and 74 constitute the specific machinery for “tax not paid or short paid” by a “person chargeable with tax,” whereas Section 76 is a special anti-unjust-enrichment code meant for collections made without authority or by persons not authorized to levy tax (akin to Section 11D of the Central Excise Act, 1944).

10. Distinct Legislative Terminology: Section 73(11) uses the phrase “amount collected as tax,” whereas Section 76(1) uses “amount as representing the tax.” This variance proves that Section 76 targets colorable or unauthorized collections, not genuine output tax defaulted by a registered person.

11. Exclusionary Doctrine: Relying on doctrines like generalia specialibus non derogant and strict interpretation of fiscal statutes (A.V. Fernandez v. State of Kerala, AIR 1957 SC 657; Nazir Ahmad v. King Emperor, AIR 1936 PC 253), the Respondent argued that the Department cannot arbitrarily invoke Section 76 when the default pertains to registered output tax squarely covered under Section 74.

VI. DEPARTMENT’S REBUTTAL & COUNTER-ARGUMENTS

12. Demolishing the “Anti-Unjust-Enrichment Only” Fallacy: The Respondent attempted to restrict Section 76 of the CGST Act by drawing historical parallels to Section 11D of the Central Excise Act, 1944,and Section 73A of the Finance Act, 1994, arguing that Section 76 is exclusively an anti-unjust-enrichment mechanism meant for collections made without authority of law or by unregistered persons. The Department countered that importing unstated historical or legacy limitations into a completely new,codified statute like the CGST Act is a cardinal rule of misinterpretation. Unlike old excise provisions that hinged strictly on “excess collections” or “exempt goods,” the text of Section 76(1) of the CGST Act uses wide, sweeping, and unambiguous language: “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…” The provision does not contain any qualifying words restricting its operation only to “unauthorized” or “illegal” collections. If a registered person collects tax under valid invoices but pockets or withholds the money by filing nil returns, the amount collected squarely fits the definition of “an amount representing the tax”.

13. Dismantling the Legislative Intent Distinction (Section 73(11) vs. Section 76(1)): The Respondent argued that the legislature used different terminology—employing “amount collected as tax” under Section 73(11) while using “amount as representing the tax” under Section 76(1)—thereby carving out a separate niche where Section 76 excludes genuine output tax. The Department demolished this argument by emphasizing that the linguistic variation actually broadens, rather than restricts, the scope of Section 76.The phrase “representing the tax” encompasses everything collected under the color, label, or guise of tax—whether it is self-assessed tax, wrongly calculated tax, or invoiced output tax that was collected from clients (such as South Western Railways) and subsequently withheld from the exchequer. To read a restriction into the phrase that excludes registered taxpayers would create an absurd statutory immunity:unregistered fraudsters would be caught under Section 76, while registered corporate defaulters who issue legal invoices and collect crores of rupees but fail to file returns would escape it. Tax statutes cannot be interpreted to reward registration status while defaulting on actual remittances.

14. Eradicating the Myth of Mutual Exclusivity (Sections 73/74 vs. Section 76): The Respondent relied on generalia specialibus non derogant to argue that Sections 73 and 74 constitute exclusive special machinery for registered persons, prohibiting the Revenue from invoking Section 76. The Department firmly established that Section 76 functions as a special provision targeting the custody and immediate remittance of public monies collected in the name of tax. Where a taxpayer collects money from a service recipient representing GST, holds it in trust, and fails to deposit it, the primary wrong is the retention of collected tax. The non-obstante and inclusive texture of Section 76— reinforced by the concluding mandate that it applies “irrespective of whether the supplies in respect of which such amount was collected are taxable or not”—ensures that the Department is not left helpless when defaults involve active collection coupled with deceptive return filings (nil/unfiled returns).

15. Distinguishing the Respondent’s Case Law: While the Respondent cited A.V. Fernandez and Nazir Ahmad to assert that taxation must fall strictly within the letter of the law, the Department retorted that the strict letter of Section 76 explicitly covers the Respondent’s exact conduct. The Respondent collected tax from South Western Railways under valid invoices and failed to pay it over. The literal interpretation of Section 76 captures this failure precisely. The Department did not stray outside the four corners of the statute; rather, it invoked the exact provision designed to penalize the retention of unremitted tax collections.

VII. TRIBUNAL’S REASONING AND ANALYSIS

We have carefully evaluated the rival contentions, the statutory provisions, the written counter filed by the Respondent, the rejoinder of the appellant in written on the counter of Respondent, and the judicial precedents cited by both parties and the submissions of the Departmental AR and the respondents Counsel during the oral hearings. Our considered legal findings are as below:

16. Scope and Interpretation of Section 76 of the CGST Act: We have heard both sides extensively and perused the statutory provisions and judicial pronouncements. The foundational contention of the Respondent—that Section 76 applies only to unauthorized collections by unregistered persons or amounts collected without legal authority—is fundamentally flawed when tested against the literal text of Section 76(1). The provision mandates that every person who has collected any amount as representing the tax and has not paid it to the Government shall forthwith pay the said amount, irrespective of whether the supplies in respect of which such amount was collected are taxable or not.

The phrase “any amount” is of the widest possible amplitude. It includes tax collected by a registered entity under valid invoices issued pursuant to taxable supplies, which is subsequently withheld (i.e., not remitted via GSTR-3B). To hold that a registered supplier who collects tax from customers under the guise of GST but fails to deposit it escapes Section 76 would create an anomalous immunity for registered defaulters over unregistered ones, defeating the very object of preventing unjust enrichment.

17. Binding Judicial Authority and Scope Explicated in R.K. Transport & Constructions Ltd.: The applicability of Section 76 to registered taxpayers who fail to deposit collected taxes has been authoritatively settled by judicial pronouncements. In the landmark decision of the Jharkhand High Court in M/s R.K. Transport & Constructions Ltd. v. State of Jharkhand (W.P.(T) No. 1624 of 2024, decided on 13.06.2025), the Court undertook a meticulous examination of Section 76 and explicitly explained its scope in Paragraph 10, clarifying that the expression “every person” is all-encompassing. The High Court clearly articulated that Section 76 applies universally to any person, which structurally includes both unregistered persons and registered taxpayers who have collected tax under the color of law but failed to deposit the same into the public exchequer. The Jharkhand High Court ruled in para 10:

“10. This stand taken by the official respondents is contrary to Section 76 (1) of the Jharkhand GST Act, 2017 which mandates that ‘every person who has collected from any other person any amount as representing GST, and had not paid the said amount to the Government, shall forthwith pay it to the Government’ and if he does not do so, under subsection (2) thereof, ‘the proper officer may direct him through a notice to show cause as to why the said amount as specified in the notice should not be paid by him to the Government, and why a penalty equivalent to the amount specified to the notice should not be imposed on him under the Act’. Thus, action can be taken under subsection (2) of section 76 against ‘every person’ including a person not registered under the JGST Act, 2017, if he does not, having received JGST from the petitioner, file any return under GSTR-01 and does not remit the same to the official respondents.”

Hence, from the statutory provisions of Sec 76 and judicial pronouncements, it is amply clear that the expression ‘every person’ under Section 76(1) is of widest amplitude. It does not draw a distinction between a person registered under the Act and an unregistered person. Where an amount is collected representing tax by any person and withheld, Section 76 operates to mandate immediate deposit and penal consequences. Thus, the authoritative interpretation in Paragraph 10 of R.K. Transport completely shatters the Respondent’s artificial construct that registered taxpayers are insulated from the reach of Section 76.

18. Examination of the Obiter Dicta and Ratio in GAIL (India) Ltd. v. Additional Commissioner: We have also examined the judgment of the Madras High Court in GAIL (India) Ltd. v. Additional Commissioner[2026 VIL 372 MAD]. The Madras High Court held that Section 76 cannot be invoked to demand tax a second time where the tax has already been duly deposited with the exchequer, albeit through another registration or business vertical of the same corporate entity. However, the ratio decidendi and obiter dicta of GAIL India powerfully reinforce the Revenue’s stance in cases where tax collected has not reached the exchequer at all. GAIL India underscores that Section 76 targets the actual failure to remit collections to the Government. In the present case, unlike GAIL, the Respondent admittedly collected tax from South Western Railways under valid invoices and completely withheld it, filing nil returns and failing to remit any portion until departmental intelligence intervened and forced the DRC-03 deposits long after the due dates. Thus, GAIL India confirms that where collections are retained and unremitted to the exchequer,Section 76 applies with full force.

19. The Fiduciary Responsibility of Indirect Tax Collectors and the Hon’ble Supreme Court’s Jurisprudence: It is a foundational principle of indirect taxation that an assessee who collects tax from a recipient does so in a fiduciary capacity as an agent or custodian for the State. The money collected as tax does not belong to the commercial entity; it is public revenue held in trust for the Government exchequer.

This fiduciary obligation inherent in indirect taxation finds robust endorsement in the landmark jurisprudence of the Hon’ble Supreme Court. In the Constitution Bench ruling of Commissioner of Central Excise v. Solar Pesticides (P) Ltd. (2000) 2 SCC 705, and subsequently reaffirmed in principles relating to unjust enrichment and statutory remittances such as in Sahakari Khand Udyog Mandal Ltd. v. Commissioner of Central Excise (2005) 3 SCC 738, the Supreme Court held that any amount collected by representing it as duty or tax is collected under a statutory mandate, and the person collecting it holds it strictly in a fiduciary capacity for the credit of the Consolidated Fund. Retaining such collections while filing nil returns constitutes a direct breach of this fiduciary trust, attracting the immediate operation of special recovery and penalty provisions such as Section 76.

VIII. CONCLUSION

20. The finding of the First Appellate Authority that Section 76 of the CGST Act excludes registered suppliers who failed to remit collected output tax is legally unsustainable. The statutory language of Section 76(1) comprehensively covers any amount collected as tax and not paid over to the Government, irrespective of the registration status of the collector or the taxability of the underlying supply. Backed by the clear exposition of scope in Paragraph 10 of R.K. Transport, the principles clarified in GAIL India, and the fiduciary doctrine articulated by the Hon’ble Supreme Court, the departmental appeal is well-founded, and the penalty imposed under Section 76 deserves to be fully restored.

ORDER

Accordingly, for the reasons stated above, we pass the following order:

1. The Departmental Appeal is allowed.

2. The portion of the Order-in-Appeal passed in GST AP: 28/2024-25 dated 27.02.2026 setting aside the penalty imposed under Section 76 of the CGST Act is hereby set aside.

3. The penalty equivalent to the tax amount imposed under Section 76 of the CGST Act vide the Order-in-Original dated 15.11.2022 is restored and confirmed.

4. The Respondent is directed to discharge the penalty dues, giving due adjustment to any pre-deposits made, within Eight Weeks from the date of this order.