The Hon’ble Madras High Court decided that NO GST can be demanded from Buyer for the fault of Seller of non-payment of taxes to the Govt.
The Hon’ble Madras High Court in M/s. D. Y. Beathel Enterprises v. the State Tax Officer [W.P. (MD) Nos. 2127, 2117, 2121, 2152, 2159, 2160, 2168, 2177, 2500, 2530, 2532, 2534, 2538, 2539, 2540, 2503 & 2504 of 2021 & Ors., dated February 24, 2021] quashed the order passed by the officer levying the entire tax liability on the purchasing dealer without involving the seller, where the payment of tax has been made by the purchasing dealer, but the same has not been remitted to the Government by the Seller.
Held that, the omission on the part of the Seller to remit the tax should have been viewed very seriously and strict action ought to have been initiated against the seller.
M/s. D. Y. Beathel Enterprises (“the Petitioner”) herein are dealers of Raw Rubber Sheets. According to the Petitioner they had purchased goods from Charles and his wife Shanthi (“Sellers”) 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 (“the Respondent”), it came to light that 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, those Sellers will have to be necessarily confronted during enquiry. Subsequently, without involving the Sellers, the Respondent passed an order (“impugned order”) levying the entire liability on the Petitioners.
Being aggrieved, the Petitioner has filed this petition against the impugned order.
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?
The Hon’ble Madras High Court in W.P. (MD) Nos. 2127, 2117, 2121, 2152, 2159, 2160, 2168, 2177, 2500, 2530, 2532, 2534, 2538, 2539, 2540, 2503 & 2504 of 2021 & Ors., dated February 24, 2021 held as under:
- Analyzed the provision of Section 16 of the Central Goods and Services Tax Act, 2017 (“CGST Act”), and 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 the kitty of 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 must have been viewed very seriously and strict action ought to have been initiated against the Sellers.
- Noted that the Respondent took a stand that there was no movement of goods. Held that, if there was no movement of the goods, the examination of Sellers became more necessary and imperative. However, the Respondent did not ensure the presence of Sellers in the enquiry even when the Petitioners insisted on the same. Hence, the Impugned order suffers from certain fundamental flaws.
- Quashed the Impugned order due to non-examination of Sellers in the enquiry and non-initiation of recovery action against Sellers in the first place and remitted back the matter to the Respondent.
- Directed Respondent to hold the enquiry afresh where Sellers will have to be examined as witnesses and to initiate recovery action against Sellers.
To know more, kindly watch video on “No GST can be demanded from Buyer for fault of Supplier of non-payment of taxes” by CA Bimal Jaian at: https://www.youtube.com/watch?v=NUMSf_VNgV4