Madras HC Holds Subsequent Tax Payment Through DRC-03 Does Not Extinguish Section 50 Interest Liability

Court : HIGHY COURT

Brief :

The case concerned the recovery of interest under Section 50 of the CGST Act on delayed payment of GST. The petitioner had initially paid GST at the concessional rate of 5% for the financial year 2017–18. However, after the department issued an intimation in Form GST DRC-01A, it was found that GST was actually payable at 18%. The petitioner subsequently paid the differential tax through Form GST DRC-03 between November 2020 and January 2022.

Despite the voluntary payment of the differential tax, the department later issued a Show Cause Notice in Form GST DRC-01 demanding interest under Section 50. The petitioner argued that once the tax had been voluntarily paid, proceedings under Section 74 were not justified and that such proceedings deprived it of the benefit of the amnesty scheme under Section 128A. The petitioner also contended that interest could not be recovered independently when proceedings under Sections 73 or 74 were not maintainable.

The department maintained that interest on delayed payment of tax is a statutory liability and becomes payable automatically, irrespective of whether the tax is later paid voluntarily. It further argued that Section 75(12) permits recovery of self-assessed tax and the corresponding interest under Section 79, independent of proceedings under Sections 73 or 74.

The Madras High Court held that subsequent payment of differential GST through Form DRC-03 does not extinguish the liability to pay interest under Section 50. The Court observed that interest is a statutory consequence of delayed payment and cannot be avoided merely because the tax has been paid after departmental detection. It also held that the mere reference to Section 74 in the summary notices did not invalidate the proceedings.

However, considering the facts of the case, the Court remanded the matter to the adjudicating authority to reconsider the petitioner's reply and directed it to pass a fresh, reasoned order within three months after granting an opportunity of hearing.

Citation :

Tvl. Noyyal Common Effluent Treatment Company Limited, Represented by its Managing Director v. The Assistant Commissioner (ST), Tirupur Central-1 Circle, Tirupur-II, W.P. No. 20170 of 2026, decided on 08.06.2026 (Madras High Court).

Judgement :

 

The Madras High Court held that interest under Section 50 of the CGST Act is a statutory liability that arises automatically upon delayed payment of GST and cannot be avoided merely because the taxpayer subsequently discharges the differential tax through Form GST DRC-03. The Court observed that payment of tax after departmental detection does not extinguish the liability to pay interest for the period of delay.

The Court further clarified that Sections 73 and 74 provide the statutory framework for determination of tax, interest, and penalty, while Section 75(12) independently authorizes recovery of self-assessed tax and the corresponding interest under Section 79. Therefore, the recovery of interest remains legally sustainable notwithstanding the subsequent payment of tax.

Rejecting the petitioner's challenge, the Court held that the mere reference to Section 74 in the summary notices and orders does not invalidate the proceedings, particularly when the substantive liability to pay interest exists under the CGST Act. It also noted that the petitioner's earlier request to pay the interest in instalments amounted to an acknowledgment of the interest liability.

However, in the interest of justice and considering the facts of the case, the Court set aside the impugned order and remanded the matter to the adjudicating authority for fresh consideration of the petitioner's reply. The authority was directed to provide an opportunity of hearing and pass a reasoned order within three months in accordance with law.