GST Update No 295 on recovery of ITC from recipient for default in payment of tax by supplier

The issue as regards to denial of input tax credit to the recipient in case payment of tax is not made by the supplier has its tentacles from erstwhile indirect tax regime. It is well settled principle that legitimate input tax credit available to the recipient should not be denied for contravention of statutory provisions by the supplier as it would lead to punishing the innocent. On similar lines, recently one case was reported before hon’ble Madras High Court in the case of M/S D.Y. BEATHEL ENTERPRISES V/S THE STATE TAX OFFICER. The decision imparted in this case is subject matter of discussion of our present update.
The petitioner is trader in Raw Rubber Sheets and have purchased goods from Charles and his wife. The consideration along with tax component was paid to the seller through banking channels. Subsequently, inspection was carried out wherein it was observed that no tax was paid to the Government by Charles and his wife. Henceforth, a show cause notice was issued to the petitioner denying the input tax credit.
The petitioner submitted that all the amount was paid to the two sellers and therefore, they should be confronted during enquiry. However, without involving the sellers the order came to be passed levying the entire liability on the petitioners only. Reliance was further placed on the decision of Madras High Court in the case of SRI VINAYAGA AGENCIES VS. THE ASSISTANT COMMISSIONER, CT VADAPALANI. Moreover, the authority also does not have the jurisdiction to reverse the input tax credit already availed by the assessee on the ground that the selling dealer has not paid the tax. Reference was also drawn to the press release of GST Council dated 04.05.2018. Therefore, in case of default in payment of tax by the seller, recovery shall be made from the seller. Attention of the Court was also drawn towards the final assessment order dated 27.10.2020.The respondent filed a counter affidavit and contended that they do not warrant any interference. It was further argued that the respondent cannot be faulted for having reversed whatever ITC that was already availed by the petitioners herein.
The Court stated that it is crystal clear 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. Therefore, in case appropriate amount of tax does not reaches to the kitty of Government, then liability needs to be borne by either the seller or purchaser. However, in the present situation, no recovery action is initiated against the seller. The Court stated that the revenue authorities have grossly erred in following the approach. Therefore, strict action needs to be initiated against the seller since tax was not remitted by him. Further, the respondent submitted that there is no movement of goods and hence, it becomes more necessary to set an enquiry against the seller. Thus, the impugned orders suffer from certain fundamental flaws since no examination or recovery is first made towards seller, rather action is directly initiated against the purchaser. Therefore, the petition was allowed and matter was remanded back for fresh proceedings.
The above decision is a landmark decision in favour of trade and industry. It is observed that time and again, the revenue authorities initiate action against the bonafide purchasers denying legitimate amount of input tax credit merely because the seller has failed to make payment of tax component in accordance with the provisions of Section 16(2)(c) of CGST Act, 2017. However, there had been various rulings wherein relief has been granted to the recipient. To illustrate, Apex court in the case of KAY KAY INDUSTRIES, Madras High Court in the case of SRI RANGANATHAR VALVES PRIVATE LIMITED VS AC [W.P.Nos.38488 to 38493 of 2015 dated 02.09.2020], INFINITI WHOLESALE LIMITED and Delhi High Court in the case of ARISE INDIA LIMITED held that no liability can be fastened on the purchaser in case the seller failed to deposit the tax amount. It is high time that these settled cases should be adhered to by the subordinate authorities failing whichthe aggrieved assessees will have to knock the doors of Courts repeatedly to seek relief.

Comments

GST Update No 295 on recovery of ITC from recipient for default in payment of tax by supplier

Post a Comment

Query