Interest remains mandatory on belated tax payments even if discharged via DRC-03 before SCN.

By | July 7, 2026
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Interest remains mandatory on belated tax payments even if discharged via DRC-03 before SCN.

Issue

  • Whether statutory interest under Section 50 is legally leviable on differential tax paid voluntarily via Form GST DRC-03 after being pointed out by the department but before the issuance of a formal Show Cause Notice.

  • Whether the department can invoke the extended period of limitation under Section 74 to demand interest and penalties when the differential tax has already been deposited by the taxpayer.

Facts

  • Business & Initial Payment: The petitioner company, engaged in effluent treatment, originally discharged its GST liability at a lower rate of 5% for the period 2017–2018.

  • Departmental Intervention: The tax department identified that the applicable rate was 18% and issued an initial intimation in Form GST DRC-01A.

  • Belated Discharge: Following the intimation, the petitioner deposited the differential tax amount by filing multiple Forms GST DRC-03 between November 2020 and January 2022, but did not pay the associated interest.

  • Adjudication Process: The department subsequently issued a formal Show Cause Notice (SCN) with a summary in Form GST DRC-01 invoking the extended period of limitation. This culminated in an order (Form GST DRC-07) confirming the demand for interest and penalty.

  • Taxpayer’s Stance: The petitioner admitted the interest liability during the proceedings and requested permission to clear the arrears in five instalments, while simultaneously challenging the invocation of the extended period of limitation via a writ petition.

Decision

  • Interest Liability Upheld: The liability to pay interest under Section 50 arises automatically upon the belated discharge of tax. Subsequent payment via DRC-03 or a willingness to pay in instalments does not absolve or defer this statutory obligation.

  • Validity of SCN & Extended Period: The invocation of the extended period under Section 74 was held valid. The threshold for invoking the extended limitation period under the GST regime is lower than under previous indirect tax laws, and issuing an SCN after tax payment is legally permissible to determine interest and penalties.

  • Matter Remanded: While ruling in favor of the revenue on the legal principles, the High Court remitted the matter back to the adjudicating authority to reconsider the petitioner’s detailed reply and pass a fresh order, taking into account the nature of the business. (In favour of revenue/Matter remanded)

Key Takeaways

  • Interest is Inevitable: Paying differential tax through Form GST DRC-03 after departmental intervention does not wipe away the interest liability for the period of delay. Interest is a non-negotiable statutory consequence of belated tax discharge.

  • Lower Threshold for Extended Limitation: Under the GST framework, the department holds a wider latitude to invoke the extended period of limitation (Section 74) compared to older pre-GST regimes, even if the primary tax component is cleared before the formal SCN is served.

  • DRC-03 is Not a Full Settlement: Taxpayers utilizing DRC-03 to close tax disputes must ensure that both the differential tax and the applicable interest under Section 50 are computed and paid together to completely mitigate subsequent litigation or penal proceedings.

HIGH COURT OF MADRAS
Tvl. Noyyal Common Effluent Treatment Company Ltd.
v.
Assistant Commissioner (ST)
C. Saravanan, J.
W.P. No. 26246 of 2024
W.M.P. No. 28670 of 2024
JUNE  8, 2026

T. Ramesh for the Petitioner. V. Prashanth Kiran, Govt. Adv. for the Respondent.
ORDER
1. This case was heard along with a batch of 250 Writ Petitions and as one of the 53 Writ Petitions which were finally heard on the larger issue regarding the challenge to the proceedings under Section 74 of the respective GST Enactments.
2. By a Common Order today in W.P.No.2142 of 2026 [Turbo Energy Private Limited], W.P.Nos.35967, 35970, 35974 and 35976 of 2024 [Fastenex Private Limited] and W.P.Nos.14487, 14492 and 14500 of 2025 [Ispahani Estates Private Limited], a detailed order has been passed insofar as the invocation of extended period of limitation under Section 74 of the respective GST Enactments.
3. In this Writ Petition, the Petitioner has challenged the Impugned Order dated 31.05.2024 whereby the proposal in the Show Cause Notice in GST DRC-01 dated 28.03.2024 has been confirmed.
4. By the Impugned Order, the Petitioner has been imposed with interest liability of Rs.72,25,154/- on the belated payment of tax for the Tax Period 2017-2018.
5. Earlier, the Petitioner was issued with an Intimation in GST DRC-01A dated 28.07.2020. Pursuant to the aforesaid Intimation, the Petitioner has paid the tax due for the following Tax Period on various dates:-
Sl. No. DRC-03 ARN DRC-03 FILED DATE SGST PAID IN DRC-03 CGST PAID IN DRC -03 TOTAL
1. AD331120007198O 26-11-2020 1250000 1250000 2500000
2. AD331220001623Z 04-12-2020 1900000 1900000 3800000
3. AD330721003225Q 14-07-2021 1948500 1948500 3897000
4. AD330721001236N 14-07-2021 250000 250000 500000
5. AD330921006877Y 28-09-2021 2185 2185 4370
6. AD3301220039461 11-01-2022 2020717 2020717 4041434
7371402 7371402 14742804

 

6. The Petitioner had earlier discharged the tax liability at 5% and on being pointed out that the Petitioner was liable to pay tax at 18%, the Petitioner has paid differential tax on the dates mentioned above.
7. The case of the Petitioner is that the Petitioner has promptly paid the tax due after the mistake was pointed out by the Department vide Notice / Intimation in GST DRC-01A dated 28.07.2020. Hence, it is submitted that the proposal in Notice issued under Section 74 of the respective GST Enactments which stand confirmed vide the Impugned Order is without any merits.
8. It is submitted that since Section 74 of the respective GST Enactments has been wrongly invoked against the Petitioner, the Petitioner has been disentitled to amnesty under Section 128-A of the respective GST Enactments on the Notification issued thereunder.
9. Defending the Impugned Order, the learned Government Advocate for the Respondent would submit that neither the Detailed Show Cause Notice issued along with summary of the Show Cause Notice in GST DRC-01 dated 28.03.2024 nor the Detailed Order dated 31.05.2024 issued along with the summary of the Order in GST DRC-01 has invoked Section 74 of the respective GST Enactments.
10. It is submitted that only in the summary of the Show Cause Notice in GST DRC-01 dated 28.03.2024 and in the summary of the Order dated 31.05.2024 in GST DRC-07, a reference has been made to Section 74 of the respective GST Enactments.
11. It is submitted that since the tax was not paid in time, Notice in GST DRC-01A dated 28.07.2020 was issued pursuant to which on the date mentioned above, the tax was paid by the Petitioner and therefore interest under Section 50(1) of the respective GST Enactments has to follow.
12. It is submitted that this case was outside the purview of the batch and therefore this Writ Petition is liable to be dismissed. It is further submitted that at best the Petitioner has an alternative remedy.
13. By way of rejoinder, the learned counsel for the Petitioner would submit that if Section 73 / Section 74 were not invokable, then there is no scope for recovering the interest from the Petitioner.
14. The learned counsel for the Petitioner placed reliance on the decision of the Division Bench of this Court in Eternit Everest Limited v. Union of India 1997 (89) E.L.T. 28 (Mad) .
15. I have considered the arguments advanced by the learned counsel for the Petitioner and the learned Government Advocate for the Respondent.
16. Both Section 73 and Section 74 of the respective GST Enactments constitute a complete code for the circumstances specified therein along with Section 75(12) read with Section 79 of the respective GST Enactments. In this case, admittedly the dispute pertains to the Tax Period 2017-2018. The Petitioner has paid the tax belatedly only after the Department pointed out the same.
17. By letter dated 12.04.2024, the Petitioner has also stated that the Petitioner will pay the interest arrears in 5 installments.
18. The Petitioner is statutorily required to not only pay the tax but also interest under Section 50(1) of the respective GST Enactments together with penalty at the rates specified therein on account of built-in amnesty under both Section 73 and Section 74 of the respective GST Enactments.
19. A reading of the Impugned Order reveals that not only intimation in GST DRC-01A was issued on 28.07.2020 for the Tax Period 2017-2018 but also a Show Cause Notice along with Summary of Show Cause Notice in GST DRC-01 was issued on 28.03.2024, after the tax was paid by the Petitioner on the dates mentioned above.
20. Section 75(12) of the respective GST Enactments contemplates that notwithstanding anything contained in Section 73 or Section 74 or Section 74A of the respective GST Enactments, where any amount of self-assessed tax in accordance with the return furnished under Section 39 of the respective GST Enactments remains unpaid, either wholly or partly, or any amount of interest payable on such tax remains unpaid, the same shall be recovered under the provisions of Section 79 of the respective GST Enactments.
21. Further, as per Explanation to Section 75(12) of the respective GST Enactments inserted with effect from 01.01.2022 vide Notification No.39/2021-Central Tax, dated 21.12.2021 also it is clear that the expression “self-assessed tax” shall include the tax payable in respect of details of outward supplies furnished under Section 37, but not included in the return furnished under Section 39 of the respective GST Enactments.
22. Thus, the impugned recovery proceedings would be justifiable under Section 75(9) of the respective GST Enactments.
23. In any event, the Petitioner would have been required to pay interest in terms of Section 50 read with Section 75(12) read with Section 79 of the respective GST Enactments.
24. That apart, the Petitioner has to pay interest on belated payment of tax as required under Section 50 of the respective GST Enactments together with penalty under Section 73 or under Section 74 of the respective GST Enactments as the case may be which has not been paid or deliberately paid. Therefore, it has to be held that the proceedings under Section 74 of the respective GST Enactments was maintainable.
25. This is in view of the Common Order passed in the batch today by a separate order, wherein it has been explained in detail that the threshold for invoking the extended period of limitation under Section 74 of the respective GST Enactments is much lower compared to the earlier Indirect Tax Legislations.
26. Therefore, there is no merits in the challenge to the impugned recovery proceedings merely because summary of the Show Cause Notice in GST DRC-01 dated 28.03.2024 and summary of the Impugned Order in GST DRC-07 dated 31.05.2024 refers to Section 74 of the respective GST Enactments.
27. However, considering the fact that the Petitioner is a Company indulged in treatment of effluents discharged from dyeing units, I am inclined to remit the case back to the Respondent to reconsider the reply and pass a fresh order within a period of three (3) months from the date of receipt of a copy of this order.
28. This Writ Petition is disposed of with the above observations. No costs. Connected Writ Miscellaneous Petition is closed.