Facts of the case:

The appellant-taxpayer challenged the order dated 30.04.2025 passed by the First Appellate Authority, which upheld the demand of GST amounting to ₹29,246 each under the CGST and SGST Acts, 2017, along with applicable interest and penalty for the financial year 2018–19. The proceedings originated from a show cause notice issued in connection with the alleged short payment of GST. The adjudicating authority confirmed the demand vide Order-in-Original dated 27.02.2024, and the taxpayer’s appeal against the said order was rejected by the First Appellate Authority.

Before the Tribunal, the taxpayer contended that the tax liability had subsequently been discharged by filing the appropriate return and that the imposition of penalty was arbitrary and illegal. Relying upon the Supreme Court’s decision in Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253, the appellant argued that penalty should not be imposed merely because it is legally permissible, unless the taxpayer had acted deliberately in defiance of law, dishonestly, contumaciously, or in conscious disregard of its statutory obligations.

The Revenue, on the other hand, submitted that subsequent payment of tax did not extinguish the taxpayer’s liability to pay interest and penalty, which arose under the applicable provisions of the GST legislation.

Issue:

Whether interest remains payable where the taxpayer subsequently discharges the short-paid GST liability. Whether penalty under Section 73(9) of the CGST Act, 2017, and the corresponding provisions of the SGST Act can be sustained despite subsequent payment of tax. Whether the principles laid down by the Supreme Court in Hindustan Steel Ltd. v. State of Orissa protect the taxpayer against the imposition of penalty for delayed payment of GST.

Held That:

The Tribunal dismissed the appeal and upheld the order of the First Appellate Authority, holding that the taxpayer’s subsequent payment of the short-paid GST did not absolve it of its statutory liability to pay interest and penalty.

The Tribunal observed that the decision in Hindustan Steel Ltd. v. State of Orissa arose in the context of penalty imposed for failure to register as a dealer under the erstwhile Orissa Sales Tax Act. The Supreme Court had held that penalty should not ordinarily be imposed merely upon proof of default, particularly where the breach was technical or venial or arose from a bona fide belief regarding the applicability of the statutory obligation. However, the Tribunal distinguished the said judgment on facts, observing that the present case involved an admitted short payment of GST and a demand duly confirmed by both the adjudicating authority and the First Appellate Authority. Accordingly, the principles laid down in Hindustan Steel Ltd. could not be invoked to escape the statutory consequences of the short payment.

With respect to interest, the Tribunal held that since the tax had been paid belatedly, the taxpayer remained liable to pay interest for the period of delay. Regarding penalty, the Tribunal noted that the taxpayer had failed to pay the tax along with interest within 30 days of issuance of the show cause notice. Consequently, the imposition of penalty under Section 73(9) of the CGST Act, 2017, and the corresponding provisions of the SGST Act was held to be justified. Finding no grounds to interfere with the impugned order, the Tribunal dismissed the appeal.

Key Takeaways 

Subsequent payment of tax does not automatically extinguish consequential liabilities. Where GST has been short-paid and the liability is subsequently discharged, interest remains payable in accordance with the applicable statutory provisions. Further, payment of tax after issuance of a show cause notice does not, by itself, eliminate the liability to penalty where the statutory conditions for its imposition are satisfied.

Scope of the Hindustan Steel Ltd. principle. The decision reiterates the importance of distinguishing between the general principle that penalty should not be imposed mechanically and the consequences prescribed by the GST statute for a specific default. The Tribunal declined to extend the benefit of the Supreme Court’s ruling to the facts before it, where the short payment had been established and the statutory demand upheld.

Importance of the statutory time limit under Section 73. The Tribunal relied upon the taxpayer’s failure to pay tax along with interest within 30 days of issuance of the show cause notice while sustaining the penalty under Section 73(9). Taxpayers should therefore carefully examine the statutory consequences of delayed payment and the applicable timelines before seeking relief from penalty.

Case Name: APARNAA FASHIONS FABRICS v. THE DEPUTY COMMISSIONER OF REVENUE STATE TAX, TALTALA CHARGE & ORS. dated 15.10.2026

Citation No. 2026 Taxo.online 3589