First resort of action to be against the seller, in case default in payment of tax by the seller

Facts of the Case:-   In this case, the petitioner/Assessee had made payment of tax at the time of effecting purchase of goods/ services from its supplier. However,. in some of the invoices of the said supplier were not reflected in the GSTR-2A of the assessee for the Financial Year 2017-18.  The assessing authority issued notices for recovery of ITC to which the assessee objected by stating that without conducting any enquiry of the supplier and without effecting any recovery from the supplier the Assessing Officer was not justified in proceeding against the assessee. There are two show-cause notices issued for which reply was submitted by the assessee. Thereafter, the demand raised in the show-cause notice was affirmed.

The petitioner/assessee has challenged a show-cause notice issued by the WBGST authorities on the ground that the notice has been issued without causing any verification from the supplier's end and denying credit to the appellant.

The respondent department issued notice holding that the appellant had failed to produce any evidence from which it can be ascertained that the suppliers had paid tax to the government on those supplies. The appellant had availed and utilized input tax credit (ITC) in contravention of Section 16(2)(c). Therefore, it was proposed that the ITC of IGST be found reversible along with interest payable as per the provisions of Section 50 of the GST Acts.

Held: The Court stated that the respondent department without resorting to any action against the selling dealer, has ignored the tax invoices produced by the appellant as well as the bank statement to substantiate that they have paid the price for the goods and services rendered as well as the tax payable there on, the action of the respondent has to be branded as arbitrarily. Therefore, before directing the appellant to reverse the input tax credit and remit the same to the government, the department ought to have taken action against the selling dealer and unless and until the department is able to bring out the exceptional case where there has been collusion between the appellant and the Selling dealer or where the selling dealer is missing or has closed down its business or does not have any assets and such other contingencies, straight away the department was not justified in directing the appellant to reverse the input tax credit availed by them.

Reliance placed upon the judgment in the case of Suncraft Energy Private Limited Versus Assistant Commissioner of State Tax vide  MAT 1218 OF 2023 WITH I.A NO. CAN 1 OF 2023 dated 02.08.2023, wherein it was held that the adjudicating authority without resorting to any action against the supplier who is the selling dealer, had ignored the tax invoices produced by the appellant as well as the certificates issue by the Chartered Accountants which is erroneous and wholly without jurisdiction. Also, in this case, even in the showcause notice the authority has admitted that “it is true that the recipient has made payment the element of tax to the supplier against such transaction but the payment of such tax has not been reciprocated to the exchequer”.  If the authority has admitted the fact that the recipient who is the appellant has made payment of the tax to the supplier against the transaction and if it is a case of the department that such tax has not been remitted to the State exchequer, the elementary principle to be adopted is to cause enquiry with the supplier and without doing so to penalise the appellant would be arbitrary, illegal and without jurisdiction.

Therefore, we are of the view that the demand raised on the appellant dated 20.02.2023 is not sustainable.

The Court allowed the appeal and directed the department to first proceed against the selling dealer and only under exceptional  circumstance as clarified in the press release issued by the Central Board of Indirect Taxes and Customs (CBIC),then and then only proceedings can be initiated against the appellant. 

To read the complete judgment 2024 Taxo.online 865