GST Update No 294 on non-payment of tax collected by railways to the government

It is well settled principle that the taxpayers cannot be burdened with demand and penalty merely because of unintentional mistakes. It is often observed that the tax liability to be discharged under reverse charge mechanism is actually remitted by the recipient to the supplier but the government catches the recipient and fastens demand on them. It appears that revenue authorities are under a habit of punishing the taxpayers irrespective of their intention of evasion of tax or not. Consequently, the Courts have to interfere to award relief to the taxpayers. Recently, a case was reported before Bombay High Court in the case of ARUN KRISHNACHANDRA GOSWAMI V/S UNION OF INDIA wherein the issue of non-payment of tax collected by the railways to the government was raised wherein the actual liability to pay tax to the government was on the recipient under reverse charge mechanism. The decision delivered in this case is the subject matter of our today’s update.
The petitioner is engaged in business of advertising and providing advertising solutions to different parties. The petitioner also provided services to Indian Railways wherein as per the letter of acceptance, it was agreed that the petitioner would pay the applicable taxes to the Railway Administration who in turn would pay the same to the government exchequer. The petitioner continued to pay GST at 18% on value of services to the railways.
On 21.12.2020, a notice was received by the petitioner regarding conducting audit and directing to attend the office along with books of accounts and records for FY 2017-18. During the audit it was stated that petitioner was paying GST at 18% to the Railways instead of paying the same to the Central and State Government.
The counsel of revenue argued that the taxpayer was wrongly making paymentto the Railways in accordance with the provisions of Section 9(3) of CGST Act, 2017 wherein it is prescribed that tax shall be payable by recipient of goods or services or both under reverse charge mechanism. Furthermore, the invoice raised by the petitioner also provides “is tax payable on reverse charge mechanism- Yes”. It was pointed out that the CGST and SGST amount was also mentioned on the invoice.
The Court stated that in the present case, the petitioner has not attempted to evade any tax. In the present case, it is crystal clear that mistakenly petitioner made payment to railways instead of making payment to Government directly. Further, the railway department was also not in an immediate administrative position to check and react to wrongful deposits. Therefore, it was directed to ensure that the amount is to be paid to CGST and SGST authorities within 2 weeks and a sympathetic view should be taken as regards levy of interest or penalty on the petitioner. It was further held that input tax credit of the same should be given to the petitioner after the tax is paid to the government by the railways. However, on pointing out the difficulty of making payment directly to the Government by railways, it was directed by the Court that the railways would remit the amount to the petitioner and thereafter, the petitioner shall make the payment within one week.
The above decision demonstrates the fact that liberal approach needs to be followed by the authorities in case there is no intention of evasion of tax by the taxpayers. It is very common that the taxes are paid by the recipient to the supplier whereas tax was to be paid by the recipient under reverse charge mechanism to the government exchequer directly. The revenue authorities should take a lenient view for recipient assessees in such cases so that huge penalties and interest amount is not incurred by them merely because of procedural lapses. It is high time that rulings like these should be followed taking a liberal approach so that repercussions are not faced by the taxpayers.

Comments

GST Update No 294 on non-payment of tax collected by railways to the government

Post a Comment

Query