Facts of the Case:

In this case, the petitioner, Gas Authority of India Limited (GAIL), a Government of India undertaking is engaged in the business of sale of natural gas and provision of transmission services. While the sale of natural gas is outside the ambit of GST and subject to VAT, transmission services are taxable under GST. For operational convenience, GAIL obtained separate GST registrations for its transmission and trading verticals. The transmission vertical discharged GST on transmission charges and raised invoices on the trading vertical, which in turn recovered the GST component from customers as part of the overall price, treating it as reimbursement.

It was an admitted and undisputed fact that the entire GST collected from customers had already been deposited with the Government by the transmission vertical.

Despite this, the Department issued a show cause notice under Section 76 of the CGST Act alleging that the trading vertical had collected tax but failed to remit the same, and proposed recovery along with interest and penalty. Aggrieved, GAIL approached the High Court contending that there was neither wrongful collection nor non-payment of tax and that the invocation of Section 76 was without jurisdiction.

Issue:

Whether Section 76 of the CGST Act could be invoked in a situation where the tax collected from customers had already been deposited with the Government, albeit through another GST registration of the same entity, and whether recovery of such GST component by the trading vertical could be treated as “collection of tax” within the meaning of Section 76.

Held That: The Court observed that Section 76 applies only where an amount is collected as tax and is not paid to the Government. In the present case, it was an admitted position that the entire tax collected from customers had already been remitted to the Government, and therefore the essential condition for invoking Section 76 was absent. The Court further held that the trading vertical had merely recovered the GST component as reimbursement of the tax already paid by the transmission vertical and such recovery cannot be treated as an independent collection of tax.

While acknowledging that separate GST registrations are treated as distinct persons under Section 25(4) of the CGST Act, the Court clarified that such a legal fiction cannot be applied in a manner that ignores substantive compliance, particularly when there is no loss of revenue.

The Court emphasized that Section 76 cannot be invoked to demand tax that has already been paid, as this would result in impermissible double taxation. It was also held that the writ petition was maintainable in the peculiar facts of the case, since the issue involved a pure question of law, the material facts were undisputed, and the show cause notice had been issued ignoring admitted payments. Accordingly, the impugned show cause notice was quashed.

Case Name: Gail (India) Ltd., Represented by its Chief General Manager (O and M), L. Arumugam Versus The Additional Commissioner, Office of the Commissioner of GST and Central Excise, Tiruchirappalli dated 15.04.2026

To read the complete judgement 2026 Taxo.online 933