The Madras High Court ruled that mandatory interest under Section 50 of the GST law applies to delayed tax payments, even if the differential tax is paid after the department's detection. This decision arose from a case involving Tvl. Noyyal Common Effluent Treatment Company Limited, which initially paid GST at a 5% rate for FY 2017-18. Upon departmental detection, it was revealed that the correct rate was 18%, leading to a differential tax liability. The company paid this differential tax in installments between November 2020 and January 2022 after receiving a GST DRC-01A notice.
Despite the payment, the department issued a Show Cause Notice in GST DRC-01 and demanded ₹72.25 lakh in interest for the delay. The company contested this, arguing that Section 74 was improperly invoked, thus depriving them of GST amnesty benefits under Section 128A. The Court, however, emphasized that interest under Section 50 is a statutory consequence of delayed tax payment.
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The Court maintained that recovery of interest is valid, even if the taxpayer disputes the invocation of Section 74. It noted that the company had acknowledged its interest liability by expressing willingness to pay in installments, reinforcing the department's stance. Nonetheless, considering the nature of the business, the Court remanded the matter for a fresh review of the company's reply and a new order within three months.
Order Date - 08 June 2026
Parties: Tvl. Noyyal Common Effluent Treatment Company Limited Vs Assistant Commissioner (ST), Tirupur Central-1 Circle, Tirupur-II
Facts -
- Tvl. Noyyal Common Effluent Treatment Company Limited had initially discharged GST liability at 5% for FY 2017-18, but the department later pointed out that the applicable rate was 18%, resulting in a differential tax liability.
- Tvl. Noyyal Common Effluent Treatment Company Limited received an intimation in GST DRC-01A dated 28.07.2020 and subsequently paid the differential tax in multiple installments between November 2020 and January 2022.
- Despite payment of the differential tax, the department issued a Show Cause Notice in GST DRC-01 dated 28.03.2024 and later passed an order dated 31.05.2024, demanding interest of ₹72.25 lakh for delayed payment of tax.
- The petitioner challenged the order, contending that Section 74 was wrongly invoked and that such invocation deprived it of the benefit of the GST amnesty provisions under Section 128A.
Issue -
- Whether interest on delayed payment of GST can be recovered when the taxpayer has already paid the differential tax after departmental detection and disputes the invocation of proceedings under Section 74 of the GST enactments.
Order -
- The Court observed that the dispute related to FY 2017-18, and the petitioner admittedly paid the tax only after the department detected the short payment and issued DRC-01A. Once tax is paid belatedly, the statutory consequence of interest under Section 50 automatically follows.
- The Court held that Sections 73 and 74 constitute a comprehensive mechanism under GST law, but recovery of unpaid self-assessed tax and interest can independently be made through Section 75(12) read with Section 79. Therefore, recovery of interest is not defeated merely because the taxpayer questions the applicability of Section 74.
- The Court further noted that the petitioner itself had acknowledged the liability by communicating its willingness to pay the outstanding interest in installments. This conduct supported the department's case that interest liability had arisen due to delayed payment of tax.
- While the Court found that the proceedings and recovery of interest were legally sustainable and that invocation of Section 74 could not be challenged solely on technical grounds, it considered the nature of the petitioner’s business and remanded the matter to the authority for fresh consideration of the petitioner’s reply and issuance of a fresh order within three months.
