BEFORE THE MADURAI BENCH
OF MADRAS HIGH COURT
W.P.(MD)No.2127 of 2021 DATED
24.02.2021
Ms.D.Y.Beathel Enterprises, Vs. The State Tax Officer (Data
Cell),
Key
Point: In this case, the Madurai Bench of
the Madras High Court ruled in favor of M/s D.Y. Beathel Enterprises. The
petitioner had challenged an assessment order that held them liable for unpaid
taxes by their suppliers, Charles and his wife Shanthi. The petitioner argued
that the sale consideration, including the tax component, had been paid to the
suppliers through banking channels, and therefore, they should not be penalized
for the suppliers' failure to remit the tax to the government.
The court found several fundamental flaws in the impugned
orders:
1.
Non-examination
of the suppliers, Charles and his wife Shanthi, during the enquiry.
2.
Lack of
recovery action against the suppliers
for the unpaid taxes.
The court noted that the Central Board of GST’s press
release and the provisions of the Tamil Nadu Goods and Services Tax Act, 2017,
indicate that ITC should not be automatically reversed from the buyer if the
seller defaults on tax payment. Instead, recovery should be sought from the
defaulting seller. The court quashed the impugned orders and remitted the
matter back to the respondent for a fresh enquiry.
Prayer:
Prayer
in W.P.(MD)No.2127 of 2021 Writ petition is filed under Article 226 of the Constitution of India, to issue a Writ
of Certiorarified Mandamus, to call for the records on the file of the
respondent in GSTIN 33AUMPG3862A1ZZ2017~18, dated 29.10.2020 and to quash the
same as illegal, arbitrary, wholly without jurisdiction and in violation of the
principles of natural justice, and
direct the respondent to pass assessment order afresh after affording an
opportunity of cross examination of the sellers to the petitioner by
considering the replies dated 01.07.2020 and 21.09.2020 filed by the
petitioner.
COMMON ORDER:
1. Heard,
the learned counsel on either side.
2. The
petitioners- herein are dealers, registered with Nagercoil Assessment Circle. Though the petitions are 17 in number, the issue
raised in all these writ petitions is virtually one and the same.
3. The
petitioners are traders in Raw Rubber Sheets. According to them, they had
purchased goods from one Charles and his wife Shanthi.
4. 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.
5. 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.
6. The
respondent has filed a detailed counter affidavit and contended that the impugned orders, do not
warrant any interference.
7. 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.
8. 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. I am afraid that this proposition laid down
in the context of the previous tax regime may not be straight~away applicable
to the current tax regime.
9. 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 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.
10.
On section 16(1) & (2) of Tamil Nadu
Goods and Services Tax Act, 2017, also makes the position clear. It is extracted hereunder
16. (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 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;
(c) subject to
the provisions of section 41, 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.“
11.
It can be seen therefrom 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 input tax credit, admissible in respect of the said
supply.
12.
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.
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.
13.
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.
14.
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.
15.
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
16.
Therefore, the impugned orders are
quashed and the matters are remitted back to the file of the respondent. The stage upto the reception of reply from
the petitioners herein will hold good.
Enquiry alone will have to be held afresh. In the said enquiry, Charles and his wife
Shanthi will have to be examined as witnesses. Parallely, the respondent will
also initiate recovery action against Charles and his wife Shanthi.
17.
With these directions, these writ
petitions are allowed. No costs. Consequently, connected miscellaneous
petitions are closed.
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Information is based on the notification, circular and order issued by the
Govt. authority and judgement delivered by the court or the
authority information is strictly for educational purposes and on the
basis of our best understanding of laws & not binding on anyone.
