The Bombay High Court has held that recovery proceedings initiated by GST authorities for disputed interest demands are impermissible when the taxpayer has discharged the entire tax liability and filed an appeal before the Goods and Services Tax Appellate Tribunal, as the statutory protection under Section 112(9) of the CGST Act deems recovery of the balance amount stayed upon compliance with the pre-deposit requirements of Section 112(8). The Court quashed recovery intimations and bank notices issued under Section 79(1)(c), directing the restoration of the petitioner's banking operations.
Background & Facts
The Dispute
The petitioner, Roadway Solutions India Infra. Ltd., a company engaged in construction, maintenance and repair of highways and internal roads under contracts awarded by NHAI, MSRDC and PWD, challenged three recovery intimations dated 4th September 2026, 23rd September 2026 and five notices dated 29th September 2026 issued to its banks under Section 79(1)(c) of the Central Goods and Services Tax Act, 2017. The notices sought recovery of interest amounting to Rs. 22,12,15,180/- for the financial years 2023-24, 2024-25 and 2025-26. The petitioner contended that the entire tax liability had been paid and the appeal against the interest demand was pending before the Tribunal, attracting the statutory stay under Section 112(9).
Key Facts
- State GST Officers inspected the petitioner's GSTR-3B returns between 6th January 2026 and 14th January 2026, alleging delay in depositing tax dues for certain services/invoices
- Show Cause Notice dated 22nd January 2026 was issued for recovery of interest under Section 50 of the CGST Act
- The petitioner filed a reply on 16th March 2026 and requested consideration via email dated 9th April 2026
- The Adjudicating Authority passed order dated 16th April 2026 (DRC-07) confirming interest demand of Rs. 7,05,15,986/- for April 2023 to March 2024
- Appeal filed before First Appellate Authority (Deputy Commissioner of State Tax Appeals-3) on 24th April 2026
- First Appellate Authority rejected the appeal vide order dated 13th July 2026
- Appeal filed before the Goods and Services Tax Appellate Tribunal (GSTAT) under Section 112 - pending adjudication
- The petitioner replied to recovery intimations on 9th September 2026 and 24th September 2026, citing Section 78 protection
- Five bank notices dated 29th September 2026 under Section 79(1)(c) directed banks to pay Rs. 22,12,15,180/- to the Government
- The petitioner made representations between 30th January 2026 and 22nd May 2026 concerning underlying transactions, arbitral proceedings and proposed accounting adjustments
- Total interest demanded across three financial years: Rs. 22,12,15,180/- (FY 2023-24: Rs. 7,05,15,986; FY 2024-25: Rs. 17,49,36,847; FY 2025-26: Rs. 7,57,62,347)
Procedural History
- 06.01.2026 - 14.01.2026: GST investigation visit and inspection of GSTR-3B returns
- 22.01.2026: Show Cause Notice issued for interest recovery under Section 50
- 16.03.2026: Petitioner filed reply to Show Cause Notice
- 09.04.2026: Petitioner requested Adjudicating Authority to consider reply via email
- 16.04.2026: Adjudicating Authority passed order (DRC-07) confirming interest demand
- 24.04.2026: Appeal filed before First Appellate Authority under Section 107
- 13.07.2026: First Appellate Authority rejected appeal
- Post 13.07.2026: Appeal filed before GSTAT under Section 112 (pending)
- 04.09.2026: First recovery intimation issued (Exhibit A)
- 23.09.2026: Second recovery intimation issued (Exhibit B)
- 29.09.2026: Five bank notices issued under Section 79(1)(c) (Exhibits C to G)
- 09.09.2026 & 24.09.2026: Petitioner replied to recovery intimations
- 27.10.2026: Judgment delivered by Bombay High Court
The Parties' Positions
The petitioner argued that recovery proceedings were initiated contrary to Sections 107(6), 107(7), 112(8) and 112(9) of the CGST Act, as the entire tax had been paid and no pre-deposit of interest was required when tax was fully discharged. The respondents contended that interest under Section 50 is a statutory, automatic levy arising from delayed payment, that the petitioner's delayed GSTR-1 filing could not alter the time of supply or due date, and that the appeal against interest alone was not maintainable under Section 107(6).
Relief Sought
The petitioner sought: (a) quashing of recovery communications dated 04.09.2026 and 23.09.2026 and bank notices dated 29.09.2026 insofar as they seek recovery contrary to Section 112(9) protection; (b) declaration that recovery stands stayed under Section 112(9) upon compliance with Section 112(8); (c) direction to withdraw bank notices, communicate withdrawal to banks, and lift debit restrictions to restore ordinary banking operations.
The Legal Issue
The central question was whether recovery proceedings under Section 79(1)(c) for disputed interest demands can be initiated when the taxpayer has paid the entire tax liability, filed an appeal before the Tribunal under Section 112, and complied with the pre-deposit requirements of Section 112(8), which do not mandate any percentage-based pre-deposit of interest when tax has been fully paid.
Arguments Presented
For the Petitioner
Mr. Darius Shroff, Senior Advocate, submitted that Sections 107(6) and 112(8) require pre-deposit of the entire admitted tax, interest, fine, fee and penalty, and 10% of the remaining disputed tax - but contain no requirement for pre-deposit of interest when the entire tax has been paid. Since the petitioner had discharged the full tax liability, the appeals before the First Appellate Authority and the Tribunal were accepted without any pre-deposit of interest. Consequently, Section 107(7) and Section 112(9) operated to deem recovery proceedings for the balance amount (disputed interest) stayed. Reliance was placed on Evergreen Construction Pvt. Ltd. v. Commissioner of Commercial Taxes, Tejas Arecanut Traders v. Joint Commissioner of Commercial Taxes (Appeals), Magnum Estates Pvt. Ltd. v. Additional Commissioner, GST (Appeals), Bhubaneswar, and Hongkong and Shanghai Banking Corporation Ltd. v. State of Maharashtra.
For the Respondent
Ms. Shruti D. Vyas, Additional Government Pleader, contended that interest under Section 50 is compensatory and arises automatically from delayed availability of tax revenue. Subsequent payment of tax discharges principal liability but does not erase the statutory consequence of delay. The petitioner had not disputed the underlying taxable supplies or tax liability, only the interest computation. The delayed declaration in GSTR-1 could not postpone the statutory due date. It was further submitted that Section 107(6)(a) requires full payment of admitted tax, interest, fine, fee and penalty, making an appeal solely against interest non-maintainable, and that the self-assessed tax liability in GSTR-3B constituted admitted liability attracting Section 75(12) recovery.
The Court's Analysis
The Court examined the statutory scheme of Sections 50, 75(9), 75(12), 107(6), 107(7), 112(8) and 112(9) of the CGST/MGST Act. It noted that Section 50(1) imposes interest on delayed payment as a statutory consequence, and Section 75(9) clarifies that interest is payable whether or not specified in the determination order. Section 75(12) provides a direct recovery path for unpaid self-assessed tax and interest thereon, treating them differently from disputed demands under Sections 73/74.
"Read conjointly, Sections 50, 75(9) and 75(12) clearly indicate that statutory interest on delayed payment of admitted tax neither depends upon a fresh adjudication of tax liability nor ceases merely because the tax has subsequently been paid."
However, the Court focused on the appeal and stay provisions. Section 107(6) mandates pre-deposit of the entire admitted amount (tax, interest, penalty) and 10% of disputed tax. Section 112(8) replicates this for Tribunal appeals, requiring 10% of disputed tax in addition to the Section 107(6) deposit. Critically, neither provision requires a percentage-based pre-deposit of interest when interest alone is disputed and tax has been fully paid.
The Court observed that the First Appellate Authority did not insist on pre-deposit of interest, and the Tribunal accepted the appeal without such pre-deposit, acknowledging the undisputed fact that entire tax had been deposited. Section 107(7) and Section 112(9) then operate to deem recovery proceedings for the balance amount stayed upon compliance with the pre-deposit requirements.
"We therefore have no hesitation in holding that the percentage-based pre-deposit prescribed by Section 112(8)(b) does not extend to disputed interest alone, especially when the entire tax has been paid. The merits of the interest demands, including the applicable tax base, payment dates and computation, are the subject of the pending appeals before the Tribunal."
The Court rejected the respondent's argument that the appeal against interest was non-maintainable, noting that the First Appellate Authority had entertained and decided the appeal on merits. The petitioner's contentions regarding payments made under protest and entitlement to refund of Rs. 80,00,00,000/- were kept open for the appropriate forum.
The Verdict
The petitioner succeeded. The Court allowed the writ petitions, quashing the recovery intimations dated 04.09.2026 and 23.09.2026 (Exhibits A and B) and the five bank notices dated 29.09.2026 (Exhibits C to G) insofar as they seek recovery of interest demands covered by the pending GSTAT appeals. The Court declared that upon compliance with Section 112(8) requirements, recovery of the balance amounts stands stayed under Section 112(9) until disposal of the appeals. Respondent No. 3 was directed to withdraw the bank notices, communicate withdrawal to the respective banks forthwith, and cause all debit restrictions imposed pursuant to those notices to be lifted to restore ordinary banking operations. No order as to costs.
What This Means For Similar Cases
Statutory Stay Operates Automatically Upon Compliance
Practitioners must ensure that when the entire tax liability has been discharged, the pre-deposit requirements under Section 112(8) are satisfied by paying the admitted amounts (which would be nil for tax) and 10% of disputed tax (if any). Once this is done, Section 112(9) stays recovery of the balance - including disputed interest - automatically. No separate stay application is needed.
- Verify that the appeal before the Tribunal has been accepted and acknowledgment issued
- Confirm that no pre-deposit of interest was demanded by the Tribunal registry
- Communicate the statutory stay to the recovering officer immediately upon receipt of recovery notices
Interest-Only Appeals Are Maintainable Without Interest Pre-Deposit
The judgment clarifies that Sections 107(6) and 112(8) do not require percentage-based pre-deposit of interest when the dispute is confined to interest and the entire tax has been paid. This resolves a practical ambiguity where authorities sometimes demanded 10% of disputed interest as pre-deposit.
- File appeals against interest-only demands confidently after full tax payment
- Cite this judgment if the Tribunal registry or First Appellate Authority insists on interest pre-deposit
- The First Appellate Authority's acceptance of the appeal without interest pre-deposit is a strong precedent
Recovery Notices Under Section 79(1)(c) Must Respect Statutory Stay
Bank attachment notices issued under Section 79(1)(c) for amounts covered by a pending Tribunal appeal - where Section 112(8) compliance is established - are liable to be quashed. The Court's direction to withdraw notices and lift debit restrictions provides a clear enforcement template.
- Seek immediate withdrawal of bank notices upon demonstrating Section 112(8) compliance
- Request the Court to direct communication of withdrawal to banks and lifting of debit freezes
- Keep the refund claim (if any) as a separate proceeding before the appropriate forum
