D.Y. Beathel Vs. State Tax Officer – MANU/TN/1459/2021(High Court – Madras)

Recipient of goods cannot be questioned in case the supplier does any default in the payment of tax to the government.

Facts: The Petitioner are dealers of Raw Rubber Sheets. According to the Petitioner they had purchased goods 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, it came to light that the 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, the Sellers would be confronted during enquiry. But, subsequently without involving the sellers, the GST officials passed an order levying the entire liability on the Petitioners. Being aggrieved, the Petitioner has filed this petition.

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 held as under:

  • On considering the provision of Section 16 of the CGST Act, 2017 it is 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 to 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, it must have been viewed very seriously and strict action ought to have been initiated against the Sellers before starting a recovery against the petitioner.
  • That apart in the enquiry in question, the sellers 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. However, the Respondent did not ensure the presence of Sellers in the enquiry even when the Petitioners insisted on the same.

Therefore, where the recipient of supplies has made the payment to the supplier of goods along with the tax amount through banking channels and ITC has been availed based on the returns filed by the supplier. Therefore, the recipient cannot be questioned in case the supplier does any default in the payment of tax to the government exchequer instead the supplier needs to be confronted during the enquiry initiated on the recipient.

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