Section 76 Penalty Applies to Registered Suppliers Who Withhold Tax Collected From Railways: GSTAT Bengaluru

In two Department appeals, GSTAT Bengaluru restored penalties equal to tax on suppliers to South Western Railway, rejecting the view that Section 76 covers only collections without authority of law.

GSTAT Bengaluru has held that Section 76 of the CGST Act applies to a registered supplier that collects GST under valid invoices and does not pay it to the Government, so a penalty under that section can be imposed even though Sections 73 and 74 also cover short payment. [Shrikrishna Subray Hegde v. K.M.B. Facility Management Services, 2026-juristway.com-3188-GSTAT(Bengaluru)-GST; Shrikrishna Subray Hegde v. Pavitra Associates, 2026-juristway.com-3189-GSTAT(Bengaluru)-GST]

The Bench of Sudha Koka, Member (Technical), and Srikanth Venkatraman, Member (Judicial), allowed both Department appeals in orders written by Sudha Koka, setting aside first appellate orders that had deleted the penalties.

K.M.B. Facility Management Services. The respondent supplied security, cleaning and maintenance services to South Western Railways from April 2018 to March 2021 and collected GST, but filed nil or no GSTR‑3B returns. The default was detected from the Railways’ GSTR‑7 returns, and a notice under Section 76 was issued on 23 Nov 2021. The respondent paid ₹43,63,237 through six DRC‑03 challans in September 2022.

Pavitra Associates. The respondent supplied data entry and dietary food services to South Western Railway, Hubballi from April 2018 to September 2021 and withheld ₹25,18,205 of the GST it collected. It paid this through DRC‑03 in April and July 2023, after the order-in-original dated 21 Nov 2022.

The respondents argued that Section 76 is an anti-unjust-enrichment provision for unauthorised collections, and that Sections 73 and 74 alone govern a registered person’s output tax. The Bench held that “every person” and “any amount” in Section 76(1) draw no line between registered and unregistered persons, relying on M/s R.K. Transport & Constructions Ltd. v. State of Jharkhand (W.P.(T) No. 1624 of 2024). It distinguished GAIL (India) Ltd. v. Additional Commissioner ([2026 VIL 372 MAD]) as a case where the tax had already reached the exchequer, and described tax collected from recipients as public money held in a fiduciary capacity.

In both cases the penalty equal to tax under Section 76 was restored, payable within eight weeks after adjusting any pre-deposit.

2026-juristway.com-3188-GSTAT(Bengaluru)-GST | 2026-juristway.com-3189-GSTAT(Bengaluru)-GST