Tax Collected But Not Paid to the Government – Section 76 of GST

Under the GST regime, Section 76 of the CGST Act plays a crucial role in ensuring accountability among registered taxpayers. This section addresses situations where any person collects tax from others but fails to remit it to the Government. Whether the underlying supply is taxable or not, the obligation to pay the collected amount to the Government is absolute.

Let’s explore Section 76 in detail, including its implications, procedures, penalties, and the importance of compliance.

What is Section 76 of the CGST Act?

Section 76 of the CGST Act deals with situations where a person collects tax from another person and does not deposit it with the Government. It overrides all contrary provisions and holds the person liable to pay the amount collected, irrespective of whether the supply was taxable.

This provision safeguards the interest of the Government revenue and ensures that taxpayers do not misuse their position by collecting tax and withholding payment.

Mandatory Payment of Collected Amount (Sub-section 1)

If any person collects any amount as tax under the CGST Act but fails to deposit it with the Government, they must immediately pay that amount. This obligation stands even if the supplies in question are exempt or non-taxable.

Example: If a supplier collects GST from a customer even for an exempt supply, they must still deposit it with the Government.

Issuance of Show Cause Notice (Sub-section 2)

When the amount remains unpaid, the proper officer may issue a show cause notice requiring the person to explain why:

• The amount should not be paid to the Government, and

• A penalty equivalent to the unpaid amount should not be imposed.

Determination of Liability (Sub-section 3)

After reviewing the person’s response, the proper officer shall determine the final amount payable. The person is required to pay this amount as per the determination.

Interest on Unpaid Amount (Sub-section 4)

In addition to the tax, interest is payable under Section 50 of the CGST Act. Interest is calculated from the date of collection to the date of actual payment to the Government.

Right to Be Heard (Sub-section 5)

If the person served with the notice requests a hearing in writing, the officer must provide an opportunity to be heard. This ensures procedural fairness.

Time Limit for Passing the Order (Sub-section 6 and 7)

The order must be passed within one year from the date of issue of the notice. However, if any stay is granted by a court or Appellate Tribunal, the period of stay is excluded from this timeline.

Details in the Order (Sub-section 8)

The order must include relevant facts and the basis of the decision made by the proper officer.

Adjustment Against Tax Payable (Sub-section 9)

Any amount paid under this section shall be adjusted against the tax liability related to the concerned supplies.

Refund or Credit of Surplus (Sub-sections 10 & 11)

If there is any surplus amount after adjustment:

• It may be credited to the Consumer Welfare Fund, or

• Refunded to the person who actually bore the incidence of such tax, in accordance with Section 54 of the CGST Act.

Importance of Section 76 in GST Compliance

Section 76 ensures that no tax collected remains unpaid to the Government. It acts as a deterrent against wrongful practices by:

• Preventing suppliers from unjustly enriching themselves,

• Protecting consumers’ interest, and

• Upholding the sanctity of the GST system.

Non-compliance can lead to severe penalties, interest liability, and even prosecution in extreme cases.

Practical Implications for Businesses

• Always verify whether GST is applicable before collecting it.

• Ensure timely deposit of all collected tax amounts.

• Maintain accurate records of tax invoices and collections.

• Respond to any show cause notice under Section 76 promptly and professionally.

• Seek legal or professional advice if tax has been collected in error.

Conclusion

Section 76 of the CGST Act mandates strict compliance when it comes to tax collected from customers. Whether or not the underlying supply is taxable, once tax is collected, it becomes a liability that must be paid to the Government. This provision prevents misuse of tax collection powers and ensures transparency in the GST regime.

Taxpayers must adhere to the rules under Section 76 to avoid unnecessary litigation, penalties, and interest. Staying compliant not only reduces risk but also enhances the credibility and integrity of a business.

Frequently Asked Questions (FAQs)

Q1. Can GST collected on exempt supplies be retained by the supplier?
No. If GST is collected, it must be paid to the Government even if the supply is exempt.

Q2. What is the penalty for not depositing collected GST?
The penalty may be equal to the unpaid amount, along with interest, and is subject to determination by the proper officer.

Q3. Is there any time limit for passing an order under Section 76?
Yes. The order must be passed within one year from the date of the notice, excluding any stay period.

Q4. Can the surplus amount be refunded to the customer?
Yes. The surplus can be refunded to the person who bore the tax incidence, subject to provisions of Section 54 of the CGST Act.

If you’re looking for professional assistance in managing your GST compliance or responding to notices under Section 76, consider consulting a GST expert or Chartered Accountant.