High Court Upholds Validity of GST Late Fees: Distinguishes ‘Fees’ from ‘Tax’ and ‘Penalty’

A batch of writ petitions led by M/s Kandan Hardware Mart was filed before the Madras High Court challenging the automatic levy of late fees under Section 47 of the CGST/TNGST Act, 2017. The petitioners contended that late fees were imposed through the GST portal without issuance of a show-cause notice or personal hearing, violating principles of natural justice. It was also argued that the levy, though termed a “late fee”, was in substance penal in nature.

The petitioners further sought extension of amnesty benefits under notifications such as Notification No. 07/2023 prescribing capped late fees.

Issue Before HC: Whether automatic levy of late fees under Section 47 without prior hearing is valid in law, and whether such levy constitutes a tax, fee, or penalty.

HC’s Decision: The High Court dismissed the writ petitions and upheld the constitutional validity of Section 47 of the GST Act. The Court explained the settled distinction between a tax, a fee, and a penalty, observing that a tax is a compulsory exaction for public purposes, whereas a fee is a charge levied for a service or regulatory function, even in the absence of strict quid pro quo.

It held that GST late fees are regulatory in nature, intended to defray administrative costs associated with managing delayed compliance and maintaining the integrity of the digital tax ecosystem, including the seamless flow of input tax credit. The Court ruled that no prior notice or personal hearing is required, as the levy is automatically computed on a fixed, mathematical basis linked solely to the period of delay.

GST Amnesty Scheme Benefit

The Court further held that amnesty benefits cannot be claimed as a matter of right and are available only if taxpayers strictly comply with the conditions and timelines specified in the relevant notifications.

But there were some petitioners who have filed had filed the returns before the cut-off date prescribed in GST Amnesty Scheme [Notification No.7/2023-Central Tax dated 31.03.2023 as amended by Notification No.25/2023-Central Tax dated 17.07.2023] and have paid the late fees, were denied the benefit of the said Notification

High Court held that they cannot be denied the benefit of the said Notification, merely because in the 49th GST Council Meeting held on 18.03.2023, GST Council failed to address the issue.

“201. To deny the benefit of partial waiver from payment of “Late Fee” under the above Notification particularly to these Petitioners in Table-4A, who had filed the “Annual Returns” before the dates specified in Notification No.7/2023-Central Tax dated 31.03.2023 as amended by Notification No.25/2023-Central tax dated 17.07.2023. Challenge to the levy of “Late Fee” is to treat them unfairly. They cannot be singled out is justified as they have filed the “Annual Returns” before the cut-off dates stipulated in these Notifications.

202. Further, if the GST Council had found mitigating circumstances to give partial waiver from payment of “Late Fee” to those Registered Persons who had failed to file “Annual Returns” and could file their “Annual Returns” between 01.04.2023 and 31.08.2023 in terms of the above Notifications. I see no reason why the Petitioners in Table-4A who had filed the “Annual Returns” before the dates mentioned in the above Notifications should not be given the benefit of partial waiver in terms of the above Notification issued under Section 128 of the respective GST Enactments.”

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