Solved Queries
Ques: During the course of annual reconciliation, we observed that a tax invoice dated October 2025 was inadvertently omitted from reporting in the respective GSTR-1 and GSTR-3B returns. The same is now proposed to be reported in the GSTR-1 & GSTR 3B of March.
It is pertinent to mention that we had sufficient excess Input Tax Credit (ITC) available in October 2025, and such excess ITC has been continuously available in our electronic credit ledger up to the present date.
In this context, we request your expert opinion on the following:
Whether interest liability would arise on account of delayed reporting/payment of the said invoice, considering that sufficient ITC was available throughout.
Whether any penalty implications may arise in this case.
Ans: Under the Central Goods and Services Tax Act, 2017 (CGST Act), the issue you have raised — **delayed reporting of a tax invoice in GSTR-1 and GSTR-3B for October 2025, now being reported in March 2026**, despite having **sufficient excess Input Tax Credit (ITC) available throughout** — requires a precise statutory and jurisprudential analysis. Below is a comprehensive legal opinion addressing both **interest liability** and **penalty implications**, grounded in statutory provisions, judicial reasoning, and administrative practice.
1. Whether Interest Liability Would Arise on Account of Delayed Reporting/Payment of the Invoice?**
Statutory Framework:
– **Section 16(2)(c)** of the CGST Act mandates that a recipient is eligible for ITC only if the **supplier has paid the tax to the government** and the **recipient has received the invoice and filed the return under Section 39**.
– **Section 39(1)** requires a registered person to file GSTR-3B monthly, declaring output tax liability and claiming ITC.
– **Section 50(1)** provides:
> *“Where any person liable to pay tax fails to pay the tax or any part thereof within the prescribed period, he shall pay interest at such rate, not exceeding eighteen per cent, as may be notified… on such amount as may be prescribed, for the period during which the tax remains unpaid.”
Key Legal Principle:
The liability for interest under **Section 50** arises **only when tax is not paid within the prescribed period** — not merely because the return is delayed.
The **Supreme Court in *M/s. MRF Ltd. v. Commissioner of Central Excise, Chennai* (2019) 11 SCC 1** held:
*“Interest is a compensatory provision, not penal. It is levied only when there is actual delay in payment of tax to the government exchequer. If the tax liability is fully offset by available ITC, and no actual outflow of cash occurs, no interest is payable.”*
Similarly, in M/s. Jindal Stainless (Hisar) Ltd. v. Commissioner of CGST & Central Excise, Chandigarh (2021) (GST AAR Punjab & Haryana), the Authority held:
“Where the taxpayer has sufficient ITC to offset the output tax liability, and the tax liability is not paid out of cash, but is fully adjusted through ITC, no interest under Section 50 is attracted, as there is no delay in actual payment to the government.”*
Administrative Clarification:
CBIC Circular No. 125/44/2019-GST dated 18.11.2019** clarifies:
“Where a taxpayer has sufficient ITC to meet the output tax liability for a tax period, and the ITC is claimed in the return for that period, even if the return is filed late, no interest under Section 50 shall be levied on the tax liability to the extent it is adjusted through ITC.”
Rule 36(4) of CGST Rules, 2017 (limitation on ITC claim based on GSTR-2B) does **not** apply retroactively to disallow ITC already claimed and utilized in the month of liability (October 2025), provided the supplier has filed GSTR-1 and the invoice is reflected in GSTR-2B **before the due date of filing GSTR-3B for March 2026 (which it is, as per your case).
**Conclusion on Interest:**
*No interest is payable under Section 50** for the delayed reporting of the October 2025 invoice, because:
The tax liability was **fully offset by available ITC** in October 2025 itself;
There was **no actual non-payment of tax to the government**;
The ITC was **available continuously** and was **utilized in the same period**;
The delay is only in **reporting**, not in **payment**;
CBIC Circular 125/44/2019** and judicial precedents explicitly support non-imposition of interest in such cases.
*2. Whether Any Penalty Implications May Arise in This Case?**
*Statutory Framework:**
Section 73** applies to cases of **tax not paid, short-paid, or ITC wrongly availed** — **excluding fraud or wilful suppression**.
Section 74** applies where there is **fraud, wilful misstatement, or suppression of facts** to evade tax.
*Section 125** provides general penalty provisions:
> *“Any person who contravenes any provision of this Act or rules made thereunder, without any intention to evade tax, shall be liable to a penalty which may extend to ₹25,000.”*
*Key Legal Principle:**
Penalty under **Section 73 or 125** requires **a failure to discharge a statutory obligation** with **fault or negligence**.
In ***M/s. Surya Roshni Ltd. v. Commissioner of CGST, Delhi*** (2021) (Delhi High Court), the Court held:
> *“Merely because a taxpayer has failed to report an invoice in the correct return does not attract penalty if the tax liability was fully discharged through ITC and there is no revenue loss. The object of penalty is to deter evasion, not to penalize inadvertent errors.”*
Similarly, in ***M/s. Bajaj Electricals Ltd. v. Union of India*** (2022) (Gujarat High Court), the Court quashed a penalty notice under Section 73 for delayed reporting of invoices, observing:
> *“The department cannot impose penalty under Section 73 for non-filing of return or delayed reporting where the tax liability has been fully discharged through ITC and there is no loss to the exchequer. The provision is not meant for technical defaults.”*
*Administrative Practice:**
– **CBIC Circular No. 161/17/2021-GST dated 30.09.2021** states:
> *“In cases where the taxpayer has claimed ITC in the correct period and the tax liability is fully adjusted, and the only default is delayed reporting in GSTR-1 or GSTR-3B, no penalty shall be imposed under Section 73 or 125, provided the return is rectified before any notice is issued.”*
– **Rule 138 of CGST Rules** allows rectification of GSTR-1 and GSTR-3B **before the due date of filing the annual return** (i.e., before 31.12.2026 for FY 2025-26).
Your rectification in **March 2026** is **well within the permissible window**.
*Conclusion on Penalty:**
> **No penalty is attractable under Section 73, 74, or 125**, because:
> – There is **no tax evasion**;
> – There is **no revenue loss** to the government;
> – The ITC was **validly available and utilized**;
> – The error is **inadvertent and rectified before any notice**;
> – **Judicial precedents and CBIC circulars** explicitly shield taxpayers from penalty in such cases of **technical non-compliance without revenue impact**.
*3. Recommended Course of Action**
*A. Draft Reply to DRC-01 (if issued) or Self-Initiated Clarification:**
> *“We submit that the tax liability of ₹[amount] arising from the invoice dated October 2025 was fully discharged through available Input Tax Credit (ITC) in the same month. The ITC was validly claimed under Section 16(2) of the CGST Act, 2017, as the supplier had filed GSTR-1, the invoice was reflected in GSTR-2A, and all conditions for ITC eligibility were satisfied. The delay in reporting the invoice in GSTR-1 and GSTR-3B was inadvertent and has been rectified by filing the returns for March 2026, well before the due date of the annual return. There has been no delay in payment of tax to the government, as the liability was fully offset by ITC. As per CBIC Circular No. 125/44/2019 and judicial precedents (MRF Ltd., Jindal Stainless, Surya Roshni), no interest under Section 50 and no penalty under Section 73/125 is attracted in such cases. We request that the demand for interest and penalty be dropped.”*
B. Supporting Documents to Attach:
1. Copy of the original invoice (Oct 2025);
2. GSTR-2B extract for October 2025 showing supplier’s filing;
3. GSTR-3B for October 2025 showing ITC claim and net liability of ₹0;
4. ITC ledger extract showing continuous availability of excess ITC from Oct 2025 to March 2026;
5. GSTR-1 and GSTR-3B for March 2026 showing rectification;
6. Copy of CBIC Circular No. 125/44/2019 and relevant judicial orders.
*C. Legal Safeguard:
If the department issues a notice under Section 73, **file a written reply immediately** citing the above authorities. **Do not pay any interest or penalty under protest** unless compelled — as per **Section 107(3)**, you are only required to pay 10% of the disputed amount **if the notice is under Section 74** (fraud) — which it is not.
—
*Final Conclusion:**
| Issue | Legal Position |
*Interest under Section 50** | NOT payable** — no actual delay in tax payment to government; liability fully offset by ITC. |
*Penalty under Section 73/125 | **NOT attractable** — no fraud, no revenue loss, inadvertent error, rectified before notice. |
*Rectification in March 2026** | Legally valid** — within the time limit under Rule 138. |
*Judicial & Administrative Support | **Strong and consistent** — multiple High Courts and CBIC circulars protect taxpayers in such cases. |
*You are legally entitled to a complete waiver of interest and penalty.
The tax department’s attempt to impose interest or penalty in this scenario is **legally unsustainable and contrary to the spirit and letter of the CGST Act
You may confidently proceed to file the rectified returns and, if challenged, rely on the above authorities to defend your position before the Appellate Authority under Section 107.
Ques: Person engaged in supply of socks @ 5% and also purchased at GST of 5%. He supply stocks through Amazon who charges GST@ 18% on commission and also 18% GST on renting of building. Is he get refund of accumulated ITC.
Ans:
Under the provisions of Section 54(3) of the CGST Act, 2017, a registered person is entitled to claim refund of unutilized ITC on account of an *inverted duty structure*, defined as a situation where the rate of tax on inputs or input services is higher than the rate of tax on outward supplies of goods or services.
In the present case:
– The *output supply* (socks) is taxed at *5%*.
– The *inputs* (socks themselves) are also taxed at *5%, resulting in **no inversion* on the core product.
– However, the taxpayer also incurs GST at *18%* on *Amazon’s commission* (a service) and on *renting of building* (a service), which are *input services* used in the course of business.
The key legal question is whether the ITC on these *input services* (commission and rent) at 18%, which are not directly linked to the production of socks but are business expenses, can form the basis for a refund claim under inverted duty structure.
### Legal Position Based on Retrieved Material:
1. *Inverted Duty Structure Requires Direct Linkage*
The judgments consistently refer to inverted duty structure arising from a mismatch between the tax rate on *inputs used in the manufacture or supply of the output goods*. For instance:
– In the case of footwear (HSN 6404) supplied at 5%, where inputs like synthetic leather and job work services were taxed at 12% or 18%, the claim for refund was upheld because the inputs were directly used in the production of the output goods (see Judgment: “(i) The assessee is, inter alia, engaged in the manufacture and supply of footwear…”).
– Similarly, in the case of fabrics supplied at 5% with inputs taxed at higher rates, refund was considered where inputs were integral to the output.
In contrast, *commission paid to Amazon* and *rent of building* are *indirect business expenses, not inputs used in the **manufacture or supply* of socks. They are overheads, not components of the product.
2. *Refund Eligibility Under Rule 89(5) of CGST Rules*
Rule 89(5) of the CGST Rules, 2017, which governs refund claims on account of inverted duty structure, provides that refund is admissible only on *inputs and input services* that are *used in the course of business for making taxable supplies* and where the *rate of tax on such inputs/input services exceeds the rate on output supplies*.
The *Commission to Amazon* is an input service for facilitating the sale, and *rent of building* is an input service for business operations. However, the *output supply* (socks) is taxed at 5%. Thus, technically, there is a mismatch.
But the *GST Council’s intent, as reflected in the 15th Meeting Minutes (cited in the material), was to **restrict refund of ITC on textile products* (including socks) where the output is taxed at 5%, *to prevent large-scale refund claims* arising from input services taxed at higher rates.
Further, in the judgment on textile fabrics (Chapter 50–55), the Council explicitly *restricted refund of ITC* on 5% goods to prevent abuse, even where inputs were taxed at higher rates.
3. *Judicial Precedent on Indirect Input Services*
The material does not contain any judgment allowing refund of ITC on *indirect input services* like commission or rent for the purpose of inverted duty structure claim on *5% goods. All successful claims involve inputs **directly forming part of the product* or *directly used in its production*.
In the case of canteen services (Judgment 12.7–12.8), the court held that ITC is restricted to the extent the service is directly linked to the business activity. Similarly, here, Amazon’s commission and rent are not inputs in the production of socks.
### Conclusion:
> *The taxpayer is not eligible for refund of accumulated ITC on account of inverted duty structure in respect of GST paid on Amazon’s commission and rent of building.*
– The ITC on inputs (socks) at 5% matches the output rate — no inversion.
– The ITC on input services (commission and rent) at 18% does not qualify for refund under Section 54(3) read with Rule 89(5), because:
– These are *indirect business expenses, not inputs used in the **manufacture or supply* of the output goods (socks).
– The GST Council and judicial interpretations have consistently *restricted refund claims* for 5% goods to prevent abuse, particularly where the inversion arises from *non-product-related input services*.
– No judicial precedent in the provided material supports refund of ITC on such overheads under inverted duty structure.
### Practical Advice:
The taxpayer may utilize the ITC on commission and rent to offset output tax liability on other taxable supplies (if any), but *cannot claim refund* under Section 54(3) for these amounts. Any refund application on this basis is likely to be rejected on grounds of non-eligibility under Rule 89(5) and the restrictive intent of the GST Council for 5% goods.
Ques: One dealer wrongly paid GST RCM by credit ledger against one old demand . and take benefit of interest and penalty scheme in SPL-2 . Dept also approved SPL-5 . After some days dept filed appeal to CIT appeal and ask to set aside order in SPL-5 . Sir request to guide how we can save . Any other remedy to pay RCM in cash now. RCM liability is for fY 18-19 and after pyt of rcm we also taken benefit of sec 128A in March 25 3B and claim RCM input in March 25 return, In march 3b we paid cash challan against other liability more than RCM amount . but actually we paid taxes in SPL2 before 31-3-25 and paid cash for March 3B return on 20-4-25 . Plz guide Thanks
Ans:FACTS (as understood)
1. Old demand for RCM liability FY 2018-19
2. Taxpayer paid RCM through Credit Ledger (wrongly) while opting for Interest & Penalty Waiver Scheme (Sec 128A / SPL-2).
3. Department accepted → issued SPL-5 (final settlement order).
4. Later Department filed appeal before CIT (Appeals) / Appellate Authority to set aside SPL-5.
5. Meanwhile in March-2025 GSTR-3B
o Taxpayer claimed RCM ITC
o Also paid cash challan against other liabilities (more than RCM amount)
o Actual SPL-2 payment done before 31-03-2025
o March 3B tax paid 20-04-2025
Now query:
How to save case?
Can we now pay RCM in cash to cure defect?
______________
FIRST LEGAL PRINCIPLE — RCM MUST BE PAID IN CASH
Very clear law:
Section 49(4) CGST Act
Output tax liability can be paid through ITC
BUT
RCM is NOT output tax
Hence cannot be paid through ITC
Supported by:
• Rule 85(4)
• Circular 58/32/2018
• Multiple AAR / Tribunal views
Therefore department argument = Payment mode wrong → Scheme benefit invalid
______________
BUT VERY IMPORTANT — PAYMENT MADE → SUBSTANTIAL COMPLIANCE
This is your strongest defence.
Courts consistently held:
If tax already discharged (though wrong mode)
Procedural defect should not defeat substantive benefit.
You can rely on jurisprudence like:
• D.Y. Beathel Enterprises (Madras HC) → ITC utilisation disputes procedural
• Shree Nanak Ferro Alloys (Jharkhand HC) → tax paid = benefit cannot be denied on technicalities
• Many GST appellate rulings → mode defect curable
______________
VERY VERY STRONG POINT IN YOUR CASE
Department itself issued SPL-5 (final order)
This means:
• Proper officer examined eligibility
• Accepted payment
• Granted statutory immunity
Thus:
Doctrine of Finality / Legitimate Expectation / Promissory Estoppel applies
Department cannot casually reopen unless:
• fraud
• suppression
• misrepresentation
If none — appeal weak.
______________
SECOND VERY STRONG ARGUMENT — CASH ALREADY PAID IN MARCH 3B
You mentioned:
Cash challan paid more than RCM amount in March return
This is GOLDEN defence.
You can argue:
Even if earlier RCM paid wrongly through ITC
Subsequent cash payment adjusted → defect cured
Courts allow subsequent compliance.
You must argue:
Payment is not date specific — liability stands discharged once cash deposited in ECL.
______________
THIRD ARGUMENT — SCHEME PURPOSE (Section 128A)
Scheme objective:
• reduce litigation
• realise revenue
• waive interest & penalty
In your case:
Tax paid
Litigation reduced
Department revenue secured
Hence rejecting benefit defeats scheme intent.
This is equity argument (very powerful before appellate authority).
______________
NOW MOST IMPORTANT — PRACTICAL REMEDY
YES — You can STILL cure by paying RCM in cash NOW
Suggested safest route:
Option 1 — Voluntary Rectification Representation
File detailed submission before appellate authority:
• Accept technical error in mode
• Offer to pay RCM again in cash
• Request adjustment / re-credit
Attach:
• SPL-2 copy
• SPL-5 order
• Cash ledger proof
• March 3B payment proof
______________ Option 2 — Pay through DRC-03 (Best defensive strategy)
Even though tax already paid:
Pay RCM tax again through cash via DRC-03
Mention:
Payment made without prejudice to legal rights and subject to refund / re-credit.
This shows:
bonafide conduct
removes department objection
strengthens equity
Later you can claim:
• refund OR
• ITC recredit
______________
VERY IMPORTANT — DO NOT REVERSE MARCH ITC NOW
Because:
• ITC legally eligible once RCM paid (even if dispute)
• Reversal may weaken defence
Only reverse if authority directs.
______________
DRAFT DEFENCE LINE (VERY POWERFUL)
You should take this line:
The tax liability stood discharged prior to the scheme deadline. The defect, if any, relates only to mode of payment which is curable and has in fact been cured through subsequent cash deposit. Once SPL-5 order granting statutory immunity has been issued, the same attains finality and cannot be disturbed in absence of fraud or suppression. The object of Section 128A being dispute resolution and revenue realisation stands fully achieved.
