Tax collected but not paid

76. (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.

[Section 76 enforced w.e.f. 01.07.2017 by Notification 9/2017-CT dated 28.06.2017. Operative companion forms — FORM GST DRC-01 (SCN under s. 76 substantially similar to s. 73/74), DRC-06 (representation), DRC-07 (summary of order). Section 76 is a STANDALONE direct-recovery provision distinct from ss. 73 / 74 — it operates on amounts COLLECTED as tax irrespective of whether supplies were actually taxable. The provision's NOTWITHSTANDING opening makes it overriding over any other Act or order. Companion provision with s. 54 (refund) for the person who bore the incidence.]

ELEMENT OF THE PROVISION

OPERATIVE READING

Sub-s. (1) — Notwithstanding clause and the substantive obligation

‘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’ — sweeping override. Every person who has (a) collected any amount as representing the tax under this Act from any other person AND (b) not paid the amount to the Government — SHALL forthwith pay the amount to the Government, IRRESPECTIVE OF WHETHER the supplies are taxable or not. Critical breadth — applies even if no GST was actually leviable on the underlying supply.

Distinction from ss. 73 / 74

s. 73 / 74 apply to ‘tax not paid’ — i.e., tax that should have been paid under the Act. s. 76 applies to ‘amount collected as tax’ — i.e., amounts charged to customers in the name of tax, irrespective of whether tax was actually leviable. Two distinct heads — s. 73 / 74 collects what's due as tax; s. 76 collects what's been charged as tax. A trader who charges GST on an exempt supply (no GST leviable) but collects GST from customer falls under s. 76; trader who doesn't pay output tax on a taxable supply falls under s. 73 / 74.

Irrespective of taxability of underlying supply

The provision EXPRESSLY applies whether or not the supplies are taxable. Three scenarios — (a) Taxable supply, GST collected, not paid — overlap with ss. 73 / 74; s. 76 also applies. (b) Exempt supply, GST charged in error, collected, not paid — only s. 76 applies; ss. 73 / 74 cannot (no underlying tax liability). (c) Wholly exempt entity charging GST without registration — s. 76 applies. The breadth is operationally significant for trustee-like recovery.

Sub-s. (2) — SCN procedure

Where amount under sub-s. (1) is not paid, proper officer MAY serve SCN requiring person to show cause (i) why the amount should not be paid AND (ii) why a penalty EQUIVALENT TO the amount should not be imposed. Penalty proposed in SCN — 100% of the amount collected, similar to s. 74 framework but on the standalone collected-amount basis.

Sub-s. (3) — Adjudication after representation

After considering representation made under sub-s. (2), proper officer determines the amount due. The person shall pay the amount so determined. Standard adjudication structure — representation, determination, order.

Sub-s. (4) — Interest under s. 50

Person liable to pay shall ALSO pay INTEREST at the rate specified under s. 50 — FROM the date such amount was collected by him TO the date paid to Government. Effect — interest runs from date of collection (not from due date of payment), reflecting that the amount was held in trust for the Government from the moment of collection.

Sub-s. (5) — Mandatory hearing on written request

Opportunity of hearing SHALL be granted where written request received from person to whom SCN issued. Note — unlike s. 75(4) which requires hearing on adverse decision contemplation, s. 76(5) hearing is only on written request. Practitioner consequence — always request hearing in writing.

Sub-s. (6) — One-year time limit for order

Order shall be issued within ONE YEAR from date of issue of SCN. This is materially shorter than s. 73(10) / 74(10) three-or-five-year limits. The 1-year limit reflects the standalone, non-litigated nature of typical s. 76 cases — the collected amount is identifiable from records and adjudication should not require extensive evidence-gathering.

Sub-s. (7) — Stay exclusion from 1-year limit

Where issuance of order is stayed by court or Appellate Tribunal, period of stay shall be excluded in computing the 1-year limit. Same principle as s. 75(1) but applied to s. 76's 1-year clock.

Sub-s. (8) — Reasoned order requirement

Order shall set out relevant facts AND basis of decision. Same reasoned-order requirement as s. 75(6). Standards of administrative-law reasoned-order doctrine apply.

Sub-s. (9) — Adjustment against tax payable

Amount paid under sub-s. (1) or (3) SHALL BE ADJUSTED against the tax payable, if any, by the person in relation to the supplies referred to in sub-s. (1). Effect — where the underlying supplies are taxable and tax is payable, the s. 76 collected-amount is treated as discharge of the substantive tax liability to that extent. Avoids double payment.

Sub-s. (10) — Surplus to Fund or refund

Where surplus is left after sub-s. (9) adjustment (e.g., where supplies were exempt and no underlying tax was payable), the surplus shall be either (a) credited to the Fund (Consumer Welfare Fund under s. 57); OR (b) refunded to the person who has borne the incidence. The choice between Fund credit and refund depends on whether the incidence-bearer can be identified and applies for refund.

Sub-s. (11) — Refund application under s. 54

Person who has borne the incidence may apply for refund under s. 54. The standard refund framework applies — application, scrutiny, sanction, payment. Practical issue — for retail / B2C transactions, identifying the incidence-bearer is difficult; for B2B, the recipient registered person can identify and claim.

NOTWITHSTANDING clause — overriding effect

The opening NOTWITHSTANDING clause makes s. 76 overriding over (a) any order / direction of Appellate Authority / Tribunal / court; (b) any other provisions of the Act; (c) rules thereunder; (d) any other law for the time being in force. Effect — s. 76 cannot be defeated by arguments based on appellate orders, other Act provisions, or general law. Sweeping recovery power.

Personal liability dimension

Sub-s. (1) imposes obligation on ‘every person who has collected’. ‘Person’ is broadly defined in s. 2(84) — includes individuals, HUFs, companies, firms, AOPs, BOIs, etc. For corporate entities, the directors / partners / officers may face personal liability through other provisions — s. 89 (liability of directors of private companies) read with s. 76. Operational risk for directors of defunct / wound-up companies.

Companion forms and procedure

FORM GST DRC-01 — SCN under s. 76 (similar structure to s. 73 / 74). FORM GST DRC-06 — representation. FORM GST DRC-07 — summary of order. FORM GST RFD-01 — refund application by incidence-bearer under sub-s. (11). Rule 142 governs the SCN-to-order procedure.

Section 76 collected — but-not-paid response checklist

□ Internal reconciliation — invoices GST charged vs GSTR-3B output tax declared; categorise gaps.

□ Voluntary deposit before SCN — optimal exit; through DRC-03; interest from collection date.

□ SCN scrutiny — period, amount, supply-by-supply allegation, interest computation, 100% penalty proposal.

□ Supply taxability analysis — taxable (overlap with 73/74), exempt (pure 76), unregistered status.

□ Hearing request in writing — sub-s. (5) right crystallised.

□ DRC-06 representation — supply-by-supply analysis; penalty mitigation arguments; case-law.

□ Personal hearing attended — submissions in writing.

□ Order scrutiny — sub-s. (8) reasoned-order compliance; computation accuracy; penalty quantum.

□ Sub-s. (9) adjustment — where supplies were taxable, ensure adjustment against s. 73 / 74 demand.

□ Sub-s. (10) / (11) refund pathway — B2B incidence-bearer notification; coordinated refund application.

□ Personal liability assessment — for private companies; s. 89 director-liability risk.

□ Appeal under s. 107 — within 3 months; 25% pre-deposit; grounds focused on facts / quantum.

□ 1-year time-limit — verify Department's order within 1 year of SCN; stay-period exclusions.

□ Penalty mitigation arguments — bona fide error; immediate remediation; no profit motive.

□ Coordination with s. 73 / 74 proceedings — avoid double recovery / penalty.

□ Section 75(13) bar on double penalty — applies; verify no parallel penalties under other provisions.

□ Internal SOP enhancement — invoice template controls; reconciliation cadence; registration verification.

□ Documentation discipline — all procedural events documented for any subsequent challenge.

□ Closure documentation — in compliance docket for institutional memory.

Example 1 — GST charged on exempt supply (bread sales) — pure s. 76

Facts: M/s Sweet Bakery is a small bakery in Lucknow registered under GST. It manufactures and sells bread (exempt under Notification 2/2017-CT(R)) and pastries (taxable at 18%). Due to invoice template error, the bakery has been charging 18% GST on bread sales for the entire FY 2022-23. Total bread sales Rs. 50 lakh; GST collected Rs. 9 lakh. The Rs. 9 lakh was deposited in GSTR-3B but later reversed claiming exempt status of bread. Department issues SCN under s. 76 in March 2024 demanding Rs. 9 lakh + interest + Rs. 9 lakh penalty.

Step 1: Initial review — Bread is exempt under Notification 2/2017-CT(R) — no GST is leviable. However, GST was charged to customers and collected. Pure s. 76 territory — irrespective of taxability, collected amount must be paid to Government.

Step 2: Substantive defence assessment — Limited. Substantive position is clear — GST was collected; whether it should have been collected or not is immaterial under sub-s. (1).

Step 3: Defence options — (a) Contest only on quantum (verify the Rs. 9 lakh collected amount through invoice reconciliation); (b) Mitigate penalty under sub-s. (2) on bona fide error grounds.

Step 4: Reconciliation — Sweet Bakery reconciles bread invoices for FY 2022-23. Confirms approximately Rs. 9.2 lakh collected as GST on bread sales. The Department's Rs. 9 lakh allegation is reasonably accurate (minor variance Rs. 20,000 due to invoice cancellations).

Step 5: Strategic response — Voluntary deposit through FORM DRC-03 before adjudication: Rs. 9.2 lakh collected amount + interest at 18% from average invoice date (say 24 months average) = Rs. 9.2 lakh + Rs. 3.31 lakh interest = Rs. 12.51 lakh deposited. This is before adjudication order; opportunity to argue penalty mitigation.

Step 6: Penalty mitigation argument in DRC-06 — (i) bona fide invoice template error, not deliberate; (ii) immediate remediation on identification; (iii) deposit before order; (iv) no profit motive — GST was deposited in GSTR-3B and later reversed (Sweet Bakery did not retain the amount); (v) no consumer harm — incidence-bearers were retail customers who paid the inflated price.

Step 7: Adjudication outcome — Officer determines collected amount Rs. 9.2 lakh + interest as computed = Rs. 12.51 lakh. On penalty, officer accepts bona fide error and reduces penalty to 50% (Rs. 4.6 lakh) instead of 100%. Total demand Rs. 17.11 lakh.

Step 8: Sub-s. (10) treatment — Bread sales were B2C retail; incidence-bearers are difficult to identify. Surplus after sub-s. (9) adjustment (no underlying tax payable on bread) — full Rs. 9.2 lakh — goes to Consumer Welfare Fund under s. 57.

Step 9: Sub-s. (11) refund consideration — Theoretically incidence-bearers could apply for refund, but practically impossible for retail B2C transactions. No refund applications expected.

Step 10: Lessons-learned — Invoice template controls; periodic GST exemption review; monthly reconciliation of GST charged vs GST that should have been charged.

Result: Practitioner alignment — Pure s. 76 cases (collection on exempt supplies) have limited substantive defence — the only defences are (a) factual accuracy of quantum; (b) penalty mitigation on bona fide grounds. Voluntary deposit before adjudication, comprehensive reconciliation, and clear bona fide-error documentation can reduce penalty exposure from 100% to 50% or lower. Invoice template and SOP controls are the long-term cure.

Example 2 — Overlap with s. 73 — taxable supply, GST collected, not paid

Facts: M/s Pyramid Trading sells taxable goods to B2B customers. For FY 2022-23, invoices show GST collected Rs. 1.5 crore; GSTR-3B output tax declared Rs. 1.2 crore — short-declaration of Rs. 30 lakh. Department issues parallel SCNs — (a) under s. 73 for Rs. 30 lakh tax not paid (substantive output tax liability) + Rs. 3 lakh penalty; (b) under s. 76 for Rs. 30 lakh collected but not paid + Rs. 30 lakh penalty (100%).

Step 1: Parallel SCN analysis — Two SCNs cover the same Rs. 30 lakh amount but under different heads — s. 73 (substantive tax) and s. 76 (collected amount). Total demands — s. 73: Rs. 30 lakh + interest + Rs. 3 lakh penalty = approximately Rs. 41 lakh. s. 76: Rs. 30 lakh + interest from collection + Rs. 30 lakh penalty = approximately Rs. 75 lakh. Cumulative: Rs. 116 lakh — but this would be double recovery / double penalty.

Step 2: Section 75(13) bar on double penalty — Operative. Once penalty is imposed under s. 73 OR s. 76 for the same act / omission, no penalty under the other provision. So either Rs. 3 lakh under s. 73 OR Rs. 30 lakh under s. 76 — not both.

Step 3: Section 76(9) adjustment — Where amount is paid under s. 76, it is adjusted against substantive tax under sub-s. (9). So payment under s. 76 of Rs. 30 lakh would discharge the substantive Rs. 30 lakh under s. 73.

Step 4: Strategic positioning — Pyramid Trading argues that the two SCNs cover the same liability and should be consolidated. Primary defence: settle under s. 73 framework (Rs. 41 lakh) which is more favourable than s. 76 framework (Rs. 75 lakh). Sub-s. (13) and sub-s. (9) support this consolidation.

Step 5: Departmental response — Department may consolidate the two SCNs into a single adjudication. Alternatively, may proceed with s. 73 only and drop s. 76 (since s. 73 covers the substantive liability and s. 76 would result in double recovery without practical addition).

Step 6: Practitioner approach — File consolidated DRC-06 to both SCNs. Argue (i) double SCN for same amount is improper; (ii) s. 73 framework should apply with sub-s. (8) 30-day deposit option for no-penalty closure; (iii) s. 76 framework should be dropped or, if maintained, adjusted under sub-s. (9) against s. 73 demand.

Step 7: Likely outcome — Department adopts s. 73 framework with adjustment treatment. Sub-s. (8) 30-day deposit allowed — Pyramid pays Rs. 30 lakh tax + Rs. 8 lakh interest = Rs. 38 lakh. No penalty. Both SCNs effectively concluded.

Result: Practitioner alignment — Where ss. 73 / 74 and 76 overlap on the same amount, sub-ss. (9) and (13) (read with s. 75(13)) provide the operative framework for avoiding double recovery / double penalty. Settle under the more favourable framework (typically s. 73 with sub-s. (8) deposit). Consolidation arguments are routinely accepted.

Example 3 — Unregistered person charging GST

Facts: Mr. Ramesh is a small consultant providing services with annual turnover Rs. 18 lakh — below the GST registration threshold of Rs. 20 lakh. He is not registered under GST. Nevertheless, since his clients are corporate entities who routinely demand GST invoices, Ramesh has issued invoices with 18% GST charged and collected Rs. 3.24 lakh GST during FY 2022-23. He did not deposit the GST to Government. Department becomes aware (through a client's input audit) and issues SCN under s. 76 in February 2024.

Step 1: Initial position — Ramesh is unregistered. Under GST law, unregistered persons cannot charge or collect GST. Charging GST on invoices without registration is itself a violation; collecting and not paying compounds it. Pure s. 76 territory.

Step 2: Substantive defence — Limited. The conduct (charging GST without registration) is clearly improper. Defence options: (a) factual accuracy of quantum; (b) mitigation arguments — necessity (clients demanded GST invoices); bona fide misunderstanding (Ramesh believed his services were taxable and that he should charge GST).

Step 3: Strategic response — Immediate registration under s. 22 / 24 (subject to obtaining registration); deposit Rs. 3.24 lakh + interest from collection date = Rs. 3.24 lakh + Rs. 1.17 lakh interest = Rs. 4.41 lakh.

Step 4: Penalty consideration — Sub-s. (2) authorises 100% penalty (Rs. 3.24 lakh). However, in mitigation: (i) Ramesh was below registration threshold and had no obligation to register / collect; (ii) bona fide misunderstanding induced by client demands; (iii) immediate remediation on notice; (iv) cooperation with Department.

Step 5: DRC-06 representation — Detailed factual account; emphasis on bona fide nature; immediate deposit before adjudication.

Step 6: Adjudication outcome — Officer determines amount Rs. 3.24 lakh + interest. On penalty, officer reduces to 25% (Rs. 81,000) recognising bona fide nature. Total Rs. 4.41 lakh + Rs. 81,000 = Rs. 5.22 lakh.

Step 7: Sub-s. (10) treatment — Incidence-bearers are corporate clients who may have claimed ITC on the invoices. Department directs Ramesh to inform clients of the deposit. Clients can apply for refund under s. 54 if they had claimed ITC and now need adjustment.

Step 8: Onward — Ramesh's registration under GST going forward; periodic compliance. Cleansing the past + establishing future compliance.

Result: Practitioner alignment — Unregistered persons charging GST is a common compliance gap. Section 76 covers such scenarios fully. The defence is primarily mitigation-based — bona fide nature, voluntary disclosure, immediate remediation. Penalty reductions to 25-50% are achievable with proper documentation. Long-term cure is registration and compliance going forward.

Example 4 — Personal liability of directors under s. 89 read with s. 76

Facts: M/s Tarun Logistics Pvt Ltd (private company) had collected GST of Rs. 80 lakh from customers during FY 2020-21 and 2021-22 but did not deposit. The company was wound up in 2023 due to financial distress. Department's s. 76 SCN of Rs. 80 lakh + interest + Rs. 80 lakh penalty was confirmed against the company in adjudication, but the company has no assets. Department initiates personal liability proceedings under s. 89 against the two directors — Mr. A and Mr. B.

Step 1: Section 89 framework — Where private company is wound up and tax / interest / penalty cannot be recovered from company, every director / officer who was in charge during the relevant period is jointly and severally liable. Section 76 amounts are within scope.

Step 2: Director-level defence — Each director may avoid liability by proving non-recovery was not attributable to gross neglect, misfeasance, or breach of duty on his part. Burden is on director.

Step 3: Mr. A's position — Was managing director throughout FY 2020-21 and 2021-22. Actively involved in management, finance, and tax compliance. Limited defence — was in charge and responsible. Personal liability likely.

Step 4: Mr. B's position — Was non-executive director, joined Board only in late 2021. Had no involvement in day-to-day management; received only board papers. Defence available — non-executive role, no involvement in tax compliance, no gross neglect.

Step 5: Departmental procedure — Issue separate notices under s. 89 to each director; opportunity of hearing; orders specific to each director after consideration of individual role.

Step 6: Mr. A's response — Negotiate settlement; payment plan with personal guarantee; potential bankruptcy proceedings.

Step 7: Mr. B's response — Comprehensive defence — non-executive role, no signing authority, no involvement in tax matters, board minutes showing his limited engagement, separation from financial decision-making. Provides evidence to demonstrate absence of gross neglect / misfeasance.

Step 8: Outcomes — Mr. A's liability sustained Rs. 80 lakh (settled at Rs. 40 lakh through negotiated payment plan over 24 months); Mr. B's liability dropped on the basis of his non-executive role and demonstrated absence of involvement.

Step 9: Lessons — For directors of private companies, particularly non-executive directors, maintain documentary record of role separation from operational / tax matters. Board minutes, signing matrices, delegation of authority documents are critical. Personal liability defence requires affirmative evidence of non-involvement.

Result: Practitioner alignment — Personal liability of directors under s. 89 read with s. 76 is a serious exposure for private companies. Active directors face high liability risk; non-executive directors with documented separation from operational matters have defence options. Maintain robust records of role-distribution for any director-level liability defence. For founders / managing directors, treat GST compliance as a personal-fiduciary obligation.

Example 5 — 1-year time-limit and stay exclusion

Facts: M/s Vinay Trading receives SCN under s. 76 dated 5 January 2023 for Rs. 50 lakh collected but not paid (FY 2020-21). Vinay files writ in Kerala HC challenging the SCN on jurisdictional grounds. HC grants interim stay on 20 February 2023. Final HC hearing concluded; stay vacated and SCN sustained on 25 March 2024. Department now has 1-year clock from SCN with stay exclusion.

Step 1: 1-year limitation analysis — SCN issued 05.01.2023. 1-year deadline under sub-s. (6) — 04.01.2024. But stay was in effect from 20.02.2023 to 25.03.2024 — i.e., 1 year, 1 month, 5 days.

Step 2: Stay-period exclusion under sub-s. (7) — Stay period of 1 year, 1 month, 5 days is excluded. Effective deadline for order = 04.01.2024 + stay period (399 days) = 06.02.2025.

Step 3: Practical computation — Days from SCN to stay = 05.01.2023 to 20.02.2023 = 46 days. Days available before stay = 365 — 46 = 319 days. So Department has 319 days from stay-vacation date (25.03.2024) to issue order. Deadline = 25.03.2024 + 319 days = 06.02.2025.

Step 4: Defence strategy post-stay vacation — Sub-s. (5) hearing request; comprehensive DRC-06; reconciliation of collected amounts; penalty mitigation arguments. The 1-year clock allows the Department reasonable time but not indefinite delay.

Step 5: Adjudication progress — Officer schedules hearing in May 2024; adjudication order in October 2024 — well within the extended 06.02.2025 deadline. Order determines Rs. 45 lakh (reduction from Rs. 50 lakh on reconciliation) + interest + Rs. 22.5 lakh penalty (50% on partial bona fide defence).

Step 6: Verification of deadline compliance — Date of order communication critical. If order issued 15.10.2024 and communicated 22.10.2024, within deadline. Verify both order date and communication date.

Step 7: Onward — Vinay pays the determined amount; or files appeal under s. 107 within 3 months of communication; or both (pay portion and contest portion).

Result: Practitioner alignment — Section 76's 1-year time limit is materially shorter than ss. 73 / 74 limits. Stay-period exclusions under sub-s. (7) extend the clock proportionately. Practitioners should maintain calendar tracking both the original deadline and stay-period extensions. Where Department fails to issue order within the extended deadline, sub-s. (6) read with sub-s. (7) supports a deemed-conclusion argument similar to s. 75(10) (though sub-s. (10) deemed-conclusion language is specific to ss. 73 / 74 — s. 76 lacks explicit deemed-conclusion but the 1-year mandate is strict).