Section 76 – The Sleeping Giant: Using ‘Tax Collected but Not Paid’ to Protect Genuine Recipients under GST
Section 76 of the CGST Act, dealing with “tax collected but not paid to Government,” is a powerful yet under-utilised provision distinct from Sections 73 and 74 and not constrained by their limitation periods. It mandates that any person who collects GST—whether correctly leviable or not—must remit it to the Government, failing which proceedings can be initiated through a show cause notice, adjudication within one year, recovery of the amount along with equal penalty and interest, and subsequent adjustment or refund mechanisms. The provision applies even where tax is collected on exempt supplies or by unregistered persons. Courts, including the Jharkhand High Court, have emphasised that authorities cannot avoid action against defaulting suppliers merely due to jurisdictional issues, particularly where recipients suffer ITC denial. Despite its broad scope and consumer protection framework, departmental reluctance has limited its use. Proper invocation of Section 76 can shift focus from penalising genuine recipients to enforcing accountability on errant suppliers.
Statutory text and sub‑sections
Section 76 of the CGST Act has 11 sub‑sections.
In essence:
Sub‑section (1) – Any person who has collected from any other person any amount as representing GST and not paid it to Government, must forthwith pay it, even if the underlying supply is exempt or not taxable.
Sub‑section (2) – Proper officer may issue SCN asking why (a) the amount should not be paid and (b) penalty equal to that amount should not be imposed.
Sub‑section (3) – After considering reply, officer determines amount due, which must be paid.
Sub‑section (4) – Interest at section 50 rate from date of collection till date of payment is additionally payable.
Sub‑section (5) – Mandatory opportunity of hearing if requested in writing.
Sub‑section (6) – Order to be issued within one year from date of SCN.taxtmi+1
Sub‑section (7) – Period of court/Tribunal stay is excluded from this one‑year limit.
Sub‑section (8) – Order must set out relevant facts and basis of decision.
Sub‑section (9) – Amount paid under (1)/ (3) to be adjusted against tax liability, if any, on those supplies.
Sub‑section (10) – Surplus, if any after adjustment, to be credited to the Consumer Welfare Fund or refunded to the person who bore the incidence of tax.
Sub‑section (11) – Person who bore the tax incidence may apply for refund, and unjust enrichment principles apply.
So, action under section 76 involves: SCN → hearing → order within one year → recovery of amount + equal penalty + interest → adjustment/refund mechanics.
Nature of “default” covered by section 76
Section 76 can be invoked broadly where collection happens, irrespective of the correctness of levy:
Registered or even unregistered person collects “GST” in invoice / receipt and keeps it without remitting.
Person collects GST on exempt / non‑taxable / no‑supply transaction and does not deposit.
Person collects GST at higher rate and deposits only part.
Person issues invoice with GST, collects the amount from recipient, but does not file GSTR‑3B / does not pay cash ledger.
The liability under section 76 is over and above any demand that may arise under sections 73/74 for tax not paid or short paid. It is focused on custody of collected tax, not on the correctness of classification/ITC etc.
Why department is not using section 76 seriously
From practice and emerging commentary, some reasons why this tool is under‑used:
Mindset locked into 73/74: Officers routinely default to 73/74 for all non‑payment cases and are not trained to identify “collection but non‑remittance” situations.
Perceived complexity of consumer refund / Fund credit: Sub‑sections (9)– (11) require dealing with unjust enrichment, Consumer Welfare Fund, etc., which officers often prefer to avoid.
Inter‑jurisdiction excuses: State officers sometimes say “dealer is under CGST jurisdiction” and avoid action, though section 76 applies to every person and does not restrict to their own registrations.
No outer limitation for initiation: Since section 76 is not explicitly time‑barred like 73/74 and allows recovery of even old collections, officers may fear litigation, and hence avoid it.
System / risk analytics not aligned: Present GSTN risk parameters focus on 2B mismatch, 3B vs 1, etc., not specifically on “tax collected from recipient but not paid to Government”, especially for B2C collections.
Recent High Court orders are now pulling the department up for this inaction, which is exactly the space you want to highlight.
Key judgments and how they use section 76
1. Jharkhand HC – R.K. Transport & Constructions Ltd. vs State of Jharkhand (2025)
Facts: Recipient paid supplier full invoice value including GST (~₹11.17 lakh). Supplier did not file GSTR‑1, ITC not reflected in 2A, and department refused to act against supplier saying he was under CGST jurisdiction.
Held:
Section 76(1) and (2) cast an obligatory duty on the proper officer to act against every person who collects tax and does not remit, irrespective of registration under CGST/SGST.
State cannot refuse to proceed merely because the supplier’s registration is under CGST; jurisdictional excuse rejected as unsustainable.
Directed State authorities to initiate section 76 proceedings within 8 weeks and imposed ₹1,00,000 costs on the defaulting supplier payable to petitioner.
This judgment is extremely useful to force the department to use section 76 in cases where ITC is denied due to supplier default.
2. Madras HC – “Payer can recover GST loss from supplier” (news report)
The Madras High Court has held that where the supplier collects GST but fails to remit, the primary remedy of the recipient is to proceed against the supplier for recovery of the loss, and GST authorities are not always bound to compensate the recipient.
The report notes the Court’s view that contractual and civil remedies against the supplier remain, though it indirectly underscores that section 76 action against such suppliers is the proper statutory route for the department.
(You can pull full text citations once final judgment is available, but the news piece is useful for article writing.)
3. Old service tax analogue – section 73A of Finance Act, 1994
Section 76 is modelled on section 73A (amount collected as service tax but not paid), and CBIC has historically treated such cases as serious, with equal penalty and prosecution.
Tribunals have consistently held that once tax is collected from customer, it must go to exchequer even if tax was not legally leviable.
Using these analogies strengthens your article in arguing that GST officers must treat section 76 non‑remittance as a quasi‑trust breach, not a routine demand.
How section 76 action works in practice – examples
Example 1 – Registered supplier collects but does not pay (B2B)
A, a registered contractor, raises invoice to B for ₹10,00,000 + 18% GST = ₹11,80,000 and collects full amount through bank.
A neither files GSTR‑1 nor 3B and disappears.
B’s ITC is denied due to non‑reflection; department keeps pursuing B under section 16, but does nothing against A.
Proper section 76 route:
Evidence: contract, invoice, payment proof from B shows that A collected GST.
Officer issues SCN to A under section 76(2) for ₹1,80,000 + equal penalty + interest from date of collection.
After hearing, order under 76(3)/ (8) is passed; recovery initiated, including attachment of bank accounts / property.
Amount recovered is adjusted against A’s tax liability on that supply (if any), and any surplus is credited to Fund or refunded to the person who bore incidence (ultimately B).
R.K. Transport judgment can be cited to compel authorities to initiate this process instead of harassing the recipient only.
Example 2 – Unregistered or wrongly collecting “GST” on exempt supply
C is unregistered but prints “GST 18%” on invoice for renting a residential dwelling (exempt) and collects extra 18% from customer D.
C is not filing returns and is outside the system.
Section 76 applies because “every person” who collects “any amount as representing tax under this Act” must remit it, even if the underlying supply is exempt.
Officer may:
Issue section 76 SCN asking C to pay the collected amount + equal penalty + interest, and then route any surplus for refund to D or Consumer Welfare Fund, subject to unjust enrichment.
This is a good illustration to educate general public and trade.
Intro: Problem of ITC denial due to supplier non‑payment.
Statutory scheme of section 76 (sub‑sections, interest, penalty, Fund, refund).
Distinction from 73/74 and absence of normal limitation; link with section 32 (prohibition on unauthorised collection).
Departmental reluctance and how courts (Jharkhand HC, Madras HC) are beginning to nudge authorities.
Practical strategy for taxpayers:
Collect evidence of payment of GST to supplier.
Make a detailed representation citing section 76 and R.K. Transport, seeking action against the supplier and sharing of action‑taken report.
Parallel contractual/civil claims for recovery from supplier; interim prayer before High Court when department is passive.
Draft representation template invoking section 76 and praying for:
SCN under 76(2) on supplier.
Protection from coercive recovery from recipient till 76 action is completed.
Consideration of refund / credit under 76(9)– (11) where recovery from supplier succeeds.
How this helps genuine taxable persons
If used properly, section 76 can:
Shift focus from recipient‑centric denial of ITC to supplier‑centric action, consistent with R.K. Transport.
Deter fly‑by‑night suppliers from pocketing GST, because they face equal penalty and interest even where tax was not legally leviable.
Provide a statutory path for eventual refund/benefit to the person who actually bore the tax burden through sub‑sections (9)– (11).
For your advocacy pieces and writs, combining section 76 text with the Jharkhand HC ruling and the service‑tax section 73A jurisprudence will be a powerful way to press the department to use this “sleeping” tool in defence of genuine recipients.
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