[Opinion] Section 76 | Tax Collected but Not Paid to the Government – Key Provisions and Practical Insights

R. Muthukumaran – [2024] 169 taxmann.com 393 (Article)

1. Introduction

Section 76 of the Central Goods and Services Tax (CGST) Act, 2017, is a crucial provision that ensures the tax collected from customers is remitted to the Government, regardless of whether the supplies were taxable or exempt. This section also addresses the scenario where the tax is collected but not paid, highlighting the potential liabilities for taxpayers. While taxpayers might assume that they are safe once the time limits under Section 73 or Section 74 are barred, Section 76 remains a tool for the Government to recover the tax collected but not remitted.

Key Provisions of Section 76

1. Tax Collected but Not Remitted:

• Section 76 applies when a person collects tax from any other person but fails to remit it to the Government. This obligation remains even if the supplies in respect of which the tax was collected are exempt or non-taxable.
• The failure to pay the collected tax to the Government renders the taxpayer liable for penalties and interest, as outlined under the provisions of this section.

2. Scope of Section 76:

• Non-Taxable or Exempt Supplies: Taxpayers who collect tax on non-taxable or exempt goods or services are still required to remit the collected tax to the Government.
• No Time Limit for Recovery: Unlike Sections 73 and 74, which have specific time limits for issuing notices and initiating proceedings, Section 76 does not have a time limit for initiating recovery actions. This means that even after the time limits for assessments under Sections 73 or 74 are barred, the Government can still recover the tax amount through Section 76.

3. Interest on Collected but Unpaid Tax:

• Interest is calculated from the date the tax was collected until it is paid to the Government. The interest rate is prescribed under Section 50 of the CGST Act, which is typically 18% per annum.

4. Penalty for Non-Remittance:

• A penalty of 100% of the tax amount or Rs. 10,000, whichever is higher, is imposed on the taxpayer for failing to remit the collected tax to the Government.

5. Time Limit for Issuing an Order:

• The proper officer must issue an order within one year from the date of the notice. However, if the issuance of the order is stayed by a court or appellate tribunal, the stay period is excluded from the time limit.

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