Intrest on Delay Payment to Supplier

[NILESH PITALE]

Dear Expert

In One My Client Case, Department GST Audit has Done, After Audit They have Raised Audit Para in respect of Interest Payable As per Section 16 2(D) for Late Payment to Supplier After 180 Days, ---In Our Reply we submitted that that we are currently contesting this liability. Our stand is based on the ongoing legal deliberations regarding the constitutional validity of interest levies in such cases. Specially we are awaiting the final decision of the Hon'ble Gujarat High Court in the matter of Priya Blue Industries Pvt. Ltd Vs Union of India which deals with similar subject matter.'

Now they Have Issue SCN Demanding Penalty U/s 122 and 74 which is Equivalent to tax along with interest.

Our Question

1) Can We pay Interest Under Protest As per Audit Para

2) Can GST Department Issued SCN for Penalty

3) is there any chance to come out Decision in favour of Taxpayer in (Priya Blue Industries Pvt. Ltd)

Please Guide

Please Guide how to ta

[KASTURI SETHI]

1) Can We pay Interest Under Protest As per Audit Para ? YES.

2) Can GST Department Issued SCN for Penalty ? YES but would not sustain.

3) Is there any chance to come out Decision in favour of Taxpayer in (Priya Blue Industries Pvt. Ltd. ? YES. Chances are bright. (99 %).

To be continued.

[KASTURI SETHI]

Since interest is integrally related to tax/duty, so interest can also be paid under protest.

To be continued.

[KASTURI SETHI]

Rule 233B of erstwhile Central Excise Rules, 1944 (dealing with payment of duty under protest) was saved by Section 38A of Central Excise Act and Section 38A stands saved by Section 174 of CGST Act, 2017.

TO BE CONTINUED

[KASTURI SETHI]

In continuation of my reply dated 14.4.2026 at serial no.1.2,

Interest was paid under protest and the petitioner got the refund of interest. Go through the following case law :-

2025 (12) TMI 1372 - GUJARAT HIGH COURT Meghaaarika Enterprises Pvt. Ltd. Versus State of Gujarat

 

[KASTURI SETHI]

It is well settled law that filing of appeal is by itself a protest.----------------CESTAT

[Shilpi Jain]

You can consider not paying the interest and contest the demand done there cannot be interest on interest.

[Shilpi Jain]

Any SCN issued for penalty can be contested

AI Summary

Interest under protest and GST penalty demands can be contested where delayed supplier payment liability is disputed. Interest payable on delayed payment to a supplier can be paid under protest where the taxpayer disputes the underlying liability arising from an audit objection. Filing an appeal itself operates as a protest, and interest, being integrally related to tax, may also be treated as payment under protest. A show cause notice proposing penalty under the GST law may be issued, but the discussion indicates that such notice can be contested. The text also refers to the saving of the protest-payment framework into the CGST regime.