CGST Section 76 — Tax collected but not paid to Government

CGST Act · Tax collected but not paid to Government

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Section 76 of the CGST Act, 2017 governs Tax collected but not paid to Government. It provides the core statutory basis, outlining the essential legal principles, rights, and liabilities under Indian indirect tax law. Section 76 GST: Tax collected but not paid to Government — eligibility, conditions, case laws and compliance impact under Indian tax law.

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Plain-English Explanation

Plain English Summary

Section 76 of the CGST Act deals with a critical situation: instances where someone collects GST from another person but fails to deposit that collected tax with the government. This section mandates that such collected but unpaid tax must be immediately deposited with the government, irrespective of whether the underlying supply was actually taxable or not.

This section applies to every person who has collected any amount representing GST from another person. This includes registered taxpayers, unregistered dealers, or even individuals who are not required to be registered under GST but have, nevertheless, collected GST. The triggering event is the collection of an amount as GST, not necessarily the validity of the tax itself. It applies in situations where a business mistakenly believes a product or service is taxable and charges GST, or even when a fraudulent entity collects GST without any intention of paying it.

Here are key conditions and considerations related to Section 76:

Unconditional Obligation: Even if there's a dispute or a ruling by an appellate authority, tribunal, or court suggesting the tax wasn't payable on the supply, if the amount was collected as GST, it must be remitted to the government. No arguments about the legality of the tax collection are entertained at this stage. The obligation to deposit is paramount.
Notice and Penalty: If the collected amount isn't voluntarily paid, the GST officer will issue a show-cause notice. This notice demands an explanation as to why the amount shouldn't be paid and why a penalty equal to the amount collected shouldn't be levied.
Opportunity to be Heard: The person receiving the notice has the right to present their case. A written request for a hearing must be submitted. After considering the representation, the officer will determine the final amount payable.
Interest Liability: Besides the unpaid tax and the potential penalty, interest under Section 50 is also applicable. This interest is calculated from the date of collection until the date of payment to the government.
Order Time Limit: The proper officer must issue the final order determining the amount due within one year from the date of the show-cause notice. Any stay order from a court or tribunal will exclude that period from the one-year limitation.
Adjustment and Refund: If the person who collected the tax is also a registered taxpayer, the amount paid under Section 76 can be adjusted against their actual GST liability. If there's a surplus after this adjustment, the surplus is either credited to the Consumer Welfare Fund or refunded to the person who ultimately bore the burden of the tax. The person who bore the burden (likely the customer) can apply for a refund under Section 54.

Practical Examples:

Mistaken Taxability: A restaurant owner mistakenly charges GST on a dish that is exempt. Even though the dish is exempt, the GST collected from customers must be deposited with the government. The restaurant can then explore options for refunding the wrongly collected tax to the customers.
Unregistered Dealer: An unregistered dealer, believing they are required to collect GST, charges it on their sales. Although they aren't required to be registered or collect GST, the amount collected as GST must be paid to the government.
Franchise Fiasco: A fraudulent franchise collects GST from its franchisees but never remits it to the government. Even though the collection was based on a fraudulent scheme, the obligation to deposit the collected GST remains. The GST department would likely pursue both the recovery of the tax and criminal charges against the franchisee.

Amendments:
There haven't been any significant amendments to Section 76 since the inception of GST. The core principle of "tax collected must be paid" has remained consistent. The focus has primarily been on stricter enforcement and improved mechanisms for identifying instances of non-compliance.

(1)Notwithstanding anything to the contrary contained in any order or direction of any Appellate Authority or Appellate Tribunal or court or in any other provisions of this Act or the rules made thereunder or any other law for the time being in force, 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.

(2)Where any amount is required to be paid to the Government under sub-section (1), and which has not been so paid, the proper officer may serve on the person liable to pay such amount a notice requiring him 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 in the notice should not be imposed on him under the provisions of this Act.

(3)The proper officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (2), determine the amount due from such person and thereupon such person shall pay the amount so determined.

(4)The person referred to in sub-section (1) shall in addition to paying the amount referred to in sub-section (1) or sub-section (3) also be liable to pay interest thereon at the rate specified under

section 50 from the date such amount was collected by him to the date such amount is paid by him to the Government.

(5)An opportunity of hearing shall be granted where a request is received in writing from the person to whom the notice was issued to show cause.

(6)The proper officer shall issue an order within one year from the date of issue of the notice.

(7)Where the issuance of order is stayed by an order of the court or Appellate Tribunal, the period of such stay shall be excluded in computing the period of one year.

(8)The proper officer, in his order, shall set out the relevant facts and the basis of his decision.

(9)The amount paid to the Government under sub-section (1) or sub-section (3) shall be adjusted against the tax payable, if any, by the person in relation to the supplies referred to in sub-section (1).

(10)Where any surplus is left after the adjustment under sub-section (9), the amount of such surplus shall either be credited to the Fund or refunded to the person who has borne the incidence of such amount.

(11)The person who has borne the incidence of the amount, may apply for the refund of the same in accordance with the provisions of

section 54 .

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Frequently Asked Questions

What is Section 76 of the CGST Act, and what does it cover?

Section 76 of the CGST Act deals with situations where a person collects tax from another person representing it as CGST but fails to deposit the collected tax with the government. It mandates that the person who collected such tax must pay it to the government, regardless of whether the supplies were taxable or not.

What are the consequences of not depositing the tax collected under Section 76 of the CGST Act?

Failure to deposit the tax collected under Section 76 can result in penalties and interest as per the CGST Act. The defaulter will be liable to pay interest on the outstanding amount and may face penalties as prescribed under the Act. Furthermore, legal action and prosecution may be initiated.

Does Section 76 apply if I mistakenly collected tax on an exempt supply?

Yes, Section 76 explicitly states that the obligation to deposit the collected tax applies irrespective of whether the supplies in respect of which such tax was collected were taxable or not. This means even if you mistakenly collected tax on an exempt supply, you are still required to deposit it with the government.

What is the time limit for depositing the tax collected under Section 76 of the CGST Act?

While Section 76 doesn't explicitly state a specific time limit, the general provisions of the CGST Act regarding payment of taxes apply. Typically, the collected tax should be deposited by the due date specified for filing the GSTR-3B return for the relevant tax period. Late payment will attract interest and penalties.

How do I deposit the tax collected under Section 76 of the CGST Act? What forms are required?

The tax collected under Section 76 should be deposited through the regular challan (FORM GST PMT-06) used for making GST payments. While filling the challan, it is crucial to specify that the payment is being made under Section 76. You can choose the mode of payment, such as net banking, credit/debit card, or over the counter.

If I have already paid tax once on a supply, and then mistakenly collect tax from the recipient, am I still liable under Section 76?

Yes, even if you have already paid the tax on the supply, collecting tax from the recipient creates a separate liability under Section 76. The rationale is to prevent unjust enrichment. You are obligated to deposit the collected tax with the government, and the recipient may then seek a refund of the wrongly collected tax from you, if applicable, according to GST refund provisions. The initial tax payment doesn't nullify the obligation under Section 76.

What happens if I collect service tax/VAT when I should have collected CGST/SGST/IGST under the GST regime? Is Section 76 applicable?

Yes, Section 76 can potentially be applicable. Even though you collected the wrong type of tax (e.g., Service Tax or VAT after GST implementation), if you represented it as a tax amount collected on a supply, you're obligated to deposit it with the government. You should then correct your records and potentially charge the correct GST amount, if applicable. The person who paid the wrongly collected Service Tax/VAT might need to claim a refund from you separately, if possible.

Key Conditions & Requirements

Condition	Details
Tax Collection	A person has collected any amount from another person as representing tax under the CGST Act.
Non-Payment to Government	The person who collected the amount has not paid it to the Government.
Obligation to Pay	The person is obligated to forthwith pay the collected amount to the Government, irrespective of the taxability of the underlying supplies.
Show Cause Notice	If the amount is not paid, the proper officer may issue a show cause notice to the person, requiring them to explain why the amount and a penalty should not be imposed.
Determination of Amount Due	The proper officer, after considering any representation from the person, will determine the amount due.
Interest Liability	The person is liable to pay interest on the collected amount from the date of collection until the date of payment to the Government, as per Section 50.
Adjustment against Tax Payable	The amount paid to the government under this section shall be adjusted against the tax payable, if any, by the person in relation to the supplies.
Refund or Credit to the Fund	Any surplus remaining after the adjustment will either be credited to the Fund or refunded to the person who bore the incidence of the tax.

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Amendment History

Enforced w.e.f. 1st July, 2017.

No numbered amendments recorded for this section.