GST Library
Subscription single-user
Subscription multi-user
Taxreply tweets
About GST Library
GST News
GST Calender
E-Books
GST Case Laws
GST Notifications
GST Act / Rules
GST Rates
GST Set-off Calculator
GST Forms
Full Site Search
Classification (Chapters)
Classification (Search)
E-way Bill
Finance Bill
TaxReply India Pvt Ltd.

Recovery for non-payment of GST should be made from seller first, before proceeding against buyer: High Court

Order for reversal of buyer's ITC, quashed by High Court for non-initiation of recovery proceedings from the seller in the first place.

I do not understand as to why the respondent did not ensure the presence of seller, in the enquiry. Thus, the impugned orders suffers from certain fundamental flaws. It has to be quashed for more reasons than one.

a) Non-examination of seller in the enquiry

b) Non-initiation of recovery action against seller in the first place.

- High Court

Petitioner

The petitioners are traders in Raw Rubber Sheets. According to them, they had purchased goods from one Charles and his wife Shanthi.

The specific case of the petitioners is that a substantial portion of the sale consideration was paid only through banking channels. The payments made by the petitioners to the said Charles and his wife, included the tax component also. Charles and his wife are also said to be dealers registered with the very same assessment circle.

Based on the returns filed by the sellers, the petitioners herein availed input tax credit. Later, during inspection by the respondent herein, it came to light that Charles and his wife, did not pay any tax to the Government. That necessitated initiation of the impugned proceedings. There is no doubt that the respondent had issued shows cause notices to the petitioners herein. The petitioners submitted their replies specifically taking the stand that all the amounts payable by them had been paid to the said Charles and his wife Shanthi and that therefore, those two sellers will have to be necessarily confronted during enquiry.

Unfortunately, without involving the said Charles and his wife Shanthi, the impugned orders came to be passed levying the entire liability on the petitioners herein. The said orders are under challenge in these writ petitions.

Revenue

The learned Government Advocate would point out that the petitioners had availed input tax credit on the premise that tax had already been remitted to the Government, by their sellers. When it turned out that the sellers have not paid any tax and the petitioners could not furnish any proof for the same, the department was entirely justified in proceeding to recover the same from the petitioners herein. The respondent cannot be faulted for having reversed whatever ITC that was already availed by the petitioners herein.

Petitioner

The learned counsel for the petitioners would draw my attention to the decision of the Madras High Court made in Sri Vinayaga Agencies Vs. The Assistant Commissioner, CT Vadapalani, reported in 2013 60 VST page 283. It was held therein that the authority does not have the jurisdiction to reverse the input tax credit already availed by the assesses on the ground that the selling dealer has not paid the tax.

At this stage, the learned counsel brought to my notice that the press release issued by the Central Board of GST council on 4.5.2018. In the said press release, it has been mentioned that there shall not be any automatic reversal of input tax credit from the buyer on nonpayment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller. However, reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by the supplier or the supplier not having adequate assets etc.

Held

If the tax had not reached the kitty of the Government, then the liability may have to be eventually borne by one party, either the seller or the buyer. In the case on hand, the respondent does not appear to have taken any recovery action against the seller / Charles and his wife Shanthi, on the present transactions.

The learned counsel for the petitioners draws my attention to the order, dated 27.10.2020, finalising the assessment of the seller by excluding the subject transactions alone. I am unable to appreciate the approach of the authorities. When it has come out that the seller has collected tax from the purchasing dealers, the omission on the part of the seller to remit the tax in question must have been viewed very seriously and strict action ought to have been initiated against him.

That apart in the enquiry in question, the Charles and his Wife ought to have been examined. They should have been confronted.

This is all the more necessary, because the respondent has taken a stand that the petitioners have not even received the goods and had availed input tax credits on the strength of generated invoices.

According to the respondent, there was no movement of the goods. Hence, examination of Charles and his wife has become all the more necessary and imperative. When the petitioners have insisted on this, I do not understand as to why the respondent did not ensure the presence of Charles and his wife Shanthi, in the enquiry. Thus, the impugned orders suffers from certain fundamental flaws. It has to be quashed for more reasons than one.

a) Non-examination of Charles in the enquiry

b) Non-initiation of recovery action against Charles in the first place

Therefore, the impugned orders are quashed and the matters are remitted back to the file of the respondent.



Read Full Case

Subscribe to Complete GST Library

Published by

TaxReply

on Apr 30, 2021

Comments


I completely agree with the decision of the Court this has been my stand ever since VAT act contained similar provision, refusing to allow input tax credit on purchases, even though entire sales consideration (including tax) is paid to the seller, and the seller defaulted in paying tax to the govt and the tax is recovered from Purchaser, the dept conveniently reverse the input tax without making any effort whatsoever to recover the tax from seller

By: H S Narasimha Murthy | Dt: Apr 30, 2021
Replied to H S Narasimha Murthy
Unlike the case of M/s. Bharti Airltel Ltd., M/s. Bharti Telemedia Ltd. v. Union of India (Andhra Pradesh High Court) [2021 (3) TR 4023] in this Writ Petition, the Petititioner did not challenge clause (c) of sub-section (2) of Section 16 under Chapter V of the Central Goods and Services Tax Act, 2017 as ultra vires and unconstitutional. However, the Petitioner may be granted liberty to independently challenge clause (c) of sub-section (2) of Section 16 under Chapter V of the Central Goods and Services Tax Act, 2017 as ultra vires and unconstitutional.
By: Arindam Sarkar | Dt: Apr 30, 2021


Post your comment here !


4212