Orissa High Court Quashes GST Appeal Order: Interest Misclassified as Tax in DRC-07 Causes Unjust Pre-Deposit Burden
Background and Overview
The Orissa High Court recently intervened in a GST dispute where a procedural error in Form GST DRC-07 — specifically, the misclassification of an interest demand under the "Tax" head — had placed the assessee in an impossible position when attempting to pursue statutory appellate remedies. The case arose from an audit-related adjudication covering Financial Year 2017-18 and ultimately required judicial intervention under Articles 226 and 227 of the Constitution of India to prevent a manifest injustice from perpetuating itself through the appellate chain.
The matter concerns Magnum Estates Private Limited, which challenged the appellate order dated 29.09.2025 passed by the Additional Commissioner, GST (Appeal) under Section 107 of the Central Goods and Services Tax Act, 2017 / Odisha Goods and Services Tax Act, 2017 (referred to collectively as the "GST Act"). The appellate authority had upheld an adjudication order dated 15.12.2023 passed by the Superintendent, CGST & Central Excise, Balasore-I Range, Balasore under Section 73 of the GST Act.
Material Facts: How the Dispute Originated
Audit and ITC Reversal
During an audit conducted under Section 65 read with Rule 101 of the Central Goods and Services Tax Rules, 2017 / Odisha Goods and Services Tax Rules, 2017 (the "GST Rules"), the assessee was found to have availed input tax credit amounting to ₹6,08,455/- in connection with supplies of exempted goods during FY 2017-18.
The assessee undertook corrective action in two tranches:
- An amount of ₹1,77,136/- was reversed on 15.01.2020 through Form DRC-03.
- The remaining balance out of the total ITC of ₹6,08,455/- was reversed in Form GSTR-3B for the tax period of October 2019.
Demand Raised by Adjudicating Authority
The audit proceedings flagged that the assessee was liable to pay ₹1,87,093/- as interest for the delayed reversal of input tax credit. A show cause notice was issued on 28.04.2023, following which the assessee participated in proceedings and contested the demand as unsustainable. Despite this, the Adjudicating Authority proceeded to confirm:
- Interest: ₹1,87,093/-
- Penalty: ₹60,845/- (equivalent to 10% of the wrongly availed ITC)
It is critical to note that the entire demand related exclusively to interest and penalty — there was no element of disputed tax involved in this adjudication.
The Crucial Error in Form GST DRC-07
Despite the demand comprising only interest and penalty, Form GST DRC-07 dated 18.02.2023 reflected the interest amount of ₹1,87,093/- under the column heading "Tax" rather than under "Interest". This seemingly clerical error would have far-reaching consequences for the assessee's ability to pursue further appellate remedies.
The relevant extract from Form GST DRC-07 read as follows:
| Tax Rate (%) | Turnover | Place of Supply | Act | Tax/Cess | Interest | Penalty | Total |
|---|---|---|---|---|---|---|---|
| 18 | 7,94,459,539.00 | Odisha | IGST | 1,87,093.00 | 0.00 | 60,845.00 | 2,47,938.00 |
As is evident, the interest demand was erroneously captured under the "Tax" column, making it appear as though the disputed amount constituted tax liability.
Procedural History: Appeal and Its Dismissal
The assessee filed an appeal under Section 107 of the GST Act before the Appellate Authority. The appeal was dismissed vide the impugned order dated 29.09.2025, with the appellate authority affirming the Adjudication Order without correcting the classification error in Form GST DRC-07.
This led the assessee to approach the Orissa High Court under Articles 226 and 227 of the Constitution of India, seeking the following principal reliefs: