The Hon’ble Madras High Court in M/s. D. Y. Beathel Enterprises v. the State Tax Officer [W.P. (MD) Nos. 2127, 2117, 2121, 2152, 2159, 2160, 2168, 2177, 2500, 2530, 2532, 2534, 2538, 2539, 2540, 2503 & 2504 of 2021 & Ors., dated February 24, 2021] quashed the order passed by the officer levying the entire tax liability on the purchasing dealer without involving the seller, where the payment of tax has been made by the purchasing dealer, but the same has not been remitted to the Government by the Seller. Held that, the omission on the part of the Seller to remit the tax should have been viewed very seriously and strict action ought to have been initiated against the seller.
Facts:
M/s.
D. Y. Beathel Enterprises (“the
Petitioner”) herein are dealers of Raw Rubber Sheets. According to the
Petitioner they had purchased goods from Charles and his wife Shanthi (“Sellers”) and the payments were made
by the Petitioners to Sellers included the tax component. A substantial portion
of the sale consideration was paid through banking channels. Based on the
returns filed by the Sellers, the Petitioner availed Input Tax Credit (“ITC”).
During
inspection by the State Tax Officer (“the
Respondent”), it came to light that Sellers did not pay any tax to the
Government, which necessitated initiation of the proceedings and issuance of
show cause notices to the Petitioner. The Petitioner submitted their replies
specifically taking the stand that all the amounts payable by them had been
already paid, therefore, those Sellers will have to be necessarily confronted
during enquiry. Subsequently, without involving the Sellers, the Respondent
passed an order (“impugned order”)
levying the entire liability on the Petitioners.
Being
aggrieved, the Petitioner has filed this petition against the impugned order.
Issue:
Whether
the Respondent can levy the entire tax liability on the Petitioner, without
involving the Sellers, where the tax has not been remitted to the Government by
the Sellers?
Held:
The
Hon’ble Madras High Court in W.P. (MD) Nos. 2127, 2117, 2121, 2152, 2159,
2160, 2168, 2177, 2500, 2530, 2532, 2534, 2538, 2539, 2540, 2503 & 2504 of
2021 & Ors., dated February 24, 2021 held as under:
·
Analyzed the provision of Section 16 of the Central Goods and
Services Tax Act, 2017 (“CGST Act”),
and noted that the assessee must have received the goods and the tax charged in
respect of its supply, must have been actually paid to the Government either in
cash or through utilization of ITC, admissible in respect of the said supply.
Therefore, 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.
·
Observed that, the Respondent has not taken any recovery action
against the Seller. When it has come out that the Seller has collected tax from
the Petitioner, the omission on the part of the Sellers to remit the tax must
have been viewed very seriously and strict action ought to have been initiated
against the Sellers.
·
Noted that the Respondent took a stand that there was no movement
of goods. Held that, if there was no movement of the goods, the examination of
Sellers became more necessary and imperative. However, the Respondent did not
ensure the presence of Sellers in the enquiry even when the Petitioners
insisted on the same. Hence, the Impugned order suffers from certain
fundamental flaws.
·
Quashed the Impugned order due to non-examination of Sellers in
the enquiry and non-initiation of recovery action against Sellers in the first
place and remitted back the matter to the Respondent.
·
Directed Respondent to hold the enquiry afresh where Sellers will
have to be examined as witnesses and to initiate recovery action against
Sellers.
Our comments:
To know more, kindly watch our video on “No GST can be demanded from Buyer for fault of Supplier of non-payment of taxes” by CA Bimal Jain
Relevant
Provisions:
Section 16(1) and (2) of the CGST
Act:
“16.
Eligibility and conditions for taking input tax credit.
(1) Every registered person shall,
subject to such conditions and restrictions as may be prescribed and in the
manner specified in section 49, be entitled to take credit of input tax charged
on any supply of goods or services or both to him which are used or intended to
be used in the course or furtherance of his business and the said amount shall
be credited to the electronic credit ledger of such person.
(2) Notwithstanding anything
contained in this section, no registered person shall be entitled to the credit
of any input tax in respect of any supply of goods or services or both to him
unless,––
(a) he is in possession of a tax invoice or debit note issued by a
supplier registered under this Act, or such other tax paying documents as may
be prescribed;
(b) he has received the goods or services or both.
Explanation.-For the purposes of
this clause, it shall be deemed that the registered person has received the
goods or, as the case may be, services––
(i) where the goods are delivered
by the supplier to a recipient or any other person on the direction of such
registered person, whether acting as an agent or otherwise, before or during
movement of goods, either by way of transfer of documents of title to goods or
otherwise;
(ii) where the services are provided
by the supplier to any person on the direction of and on account of such
registered person.
(c) subject to the provisions of section 41 or section 43A], the
tax charged in respect of such supply has been actually paid to the Government,
either in cash or through utilisation of input tax credit admissible in respect
of the said supply; and
(d) he has furnished the return under section 39:
Provided that where the goods
against an invoice are received in lots or instalments, the registered person
shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a
recipient fails to pay to the supplier of goods or services or both, other than
the supplies on which tax is payable on reverse charge basis, the amount towards
the value of supply along with tax payable thereon within a period of one
hundred and eighty days from the date of issue of invoice by the supplier, an
amount equal to the input tax credit availed by the recipient shall be added to
his output tax liability, along with interest thereon, in such manner as may be
prescribed:
Provided also that the recipient
shall be entitled to avail of the credit of input tax on payment made by him of
the amount towards the value of supply of goods or services or both along with
tax payable thereon.”
COMMENTS