GST cannot be demanded from Buyer where Seller has not paid GST to Government
The Hon’ble Madras High Court in the matter titled M/S. D.Y. Bethel Enterprises versus The State Tax Officer (Data Cell), (Investigation wing) Commercial Tax Buildings, Tirunelveli1 quashed the order of the Officer herein GST liability was imposed on the Purchasing Dealer for the reason of non-payment of GST liability by the supplier of goods.
Facts
The petitioner M/s. D. Y. Bethel Enterprises are the dealers of Raw Rubber Sheets. Certain goods were purchased by M/s. D. Y. Bethel Enterprises from Sellers namely Charles and his wife Shanthi.
M/s. D. Y. Bethel Enterprises duly made the payments along with Tax Component to Sellers and out of the total payment, a substantial amount was paid through banking channels.
Based on the GST returns filed by the Sellers, the Petitioner availed Input Tax Credit of GST paid by them.
Later, during the inspection by the respondent herein, it came to light that Charles and his wife did not pay any tax to the Government.
And a Show Cause Notice (SCN) was issued to petitioners.
Petitioners submitted their replies stating that they have paid all their dues including GST to the said Charles and his wife Shanthi, therefore, those two sellers will have to be necessarily confronted during enquiry. But their stand was rejected by Officers.
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.
Therefore, aggrieved by the order of the Officer, the petitioner filed Writ Petition against the order.
Issue
Whether the liability of the entire tax amount be levied on Petitioner for the default of Sellers in remitting the amount of GST with the Government that too without involving the Sellers?
Contentions of Petitioners
- Reliance was placed on by the Petitioners on Sri Vinayaga Agencies vs. The Assistant Commissioner, CT Vadapalani of the Hon’ble Madras High Court, which states that the authority does not have the jurisdiction to reverse the ITC already availed by the assessees on the ground that the seller had not paid the tax.
Reliance was also placed on the press release issued by the GST Council dated May 04, 2018, wherein it has been mentioned that there shall not be any automatic reversal of input tax credit from the buyer on non-payment 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
- The court analyzed Section 16 of Central Goods and Service Tax Act 2017 (CGST Act) and can be seen 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 the utilization of input tax credit, admissible in respect of the said supply.
- Meaning thereby tax had reached the kitty of the Government, then the liability may have to be eventually borne by one party, either the seller or the buyer.
- Here, the tax authorities do not appear to have taken any recovery action against the seller /Charles and his wife Shanthi, on the present transactions.
- That Charles and his wife ought to have been examined at the time of inquiry and should have been confronted 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 tax authorities, there was no movement of the goods. Hence, examination of Charles and his wife have become all the more necessary and imperative.
- Even when the petitioners have insisted on examination of Charles and his wife, it’s beyond the understanding of the court that as to why the respondent did not ensure the presence of Charles and his wife Shanthi, in the inquiry. Thus, the impugned orders suffer from certain fundamental flaws.
- The orders of tax authorities have to be quashed for more reasons than one.
- Non-examination of Charles in the inquiry
- Non-initiation of recovery action against Charles in the first place
Therefore, Court quashed the impugned orders, and the matters are remitted back and Charles and his wife Shanthi will have to be examined as witnesses.
Also, the tax authorities will also be required to initiate recovery action against Charles and his wife Shanthi.