No GST can be Demanded from Buyer for Fault
of Supplier of Non-payment of Taxes
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.
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.”