Brief summary of the case
Court: BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Petitioners: D.Y. Beathel Enterprises
Respondents: State Tax Officer
Number: W.P.(MD) Nos. 2127 of 2021
Date of decision:24.02.2021
Judges: Honourable Mr.Justice G.R.Swaminathan
Facts
- The petitioners are dealers, registered with Nagercoil Assessment Circle.
- They trade in Raw Rubber Sheets. According to them, they had purchased goods from Charles and his wife Shanthi (seller).
- A substantial portion of the sale consideration was paid only through banking channels. The payments made by the petitioners to the said Charles and his wife (seller), included the tax component also.
- Sellers are also said to be dealers registered with the very same assessment circle i.e., Nagercoil Assessment Circle.
- Based on the returns filed by the sellers, the petitioners herein availed input tax credit. Later, during inspection by the respondent (State Tax Officer), it came to light that seller, did not pay any tax to the Government.
- The respondent (state tax officer) had issued shows cause notices to the petitioners.
- The petitioners submitted their replies specifically taking the stand that all the amounts payable by them had been paid to sellers and that therefore, those two sellers will have to be necessarily confronted during enquiry.
- Without involving enquiry against seller, the impugned orders came to be passed levying the entire liability on the petitioners.
- The said orders are under challenge in these writ petitions.
Petitioner argument
- The payments made by the petitioners to seller, included the tax component.
- The petitioners refer to the decision of the Madras High Court made in Sri Vinayaga Agencies Vs. The Assistant Commissioner. It was held therein that the authority does not have the jurisdiction to reverse the input tax credit already availed by the assesses on the ground that the selling dealer has not paid the tax.
- The press release issued by the Central Board of GST council on 4.5.2018. In the said press release, it has been mentioned that there shall not be any automatic reversal of input tax credit from the buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller.
- Section 16(1) & (2) of Tamil Nadu Goods and Services Tax Act, 2017, also clear that recipient is entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
Section 16(2)(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply.
Respondent argument
- The petitioners had availed input tax credit on the premise that tax had already been remitted to the Government, by their sellers. When it turned out that the sellers have not paid any tax and the petitioners could not furnish any proof for the same, the department was entirely justified in proceeding to recover the same from the petitioners.
- The respondent cannot be faulted for having reversed whatever ITC that was already availed by the petitioners.
- 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.
Court observation
- 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. In this case, the respondent does not appear to have taken any recovery action against the seller / Charles and his wife Shanthi, on the present transactions.
- When it has come out that the seller has collected tax from the purchasing dealers, the omission on the part of the seller to remit the tax in question must have been viewed very seriously and strict action ought to have been initiated against him.
- According to the respondent, there was no movement of the goods. Hence, examination of Charles and his wife has become all the more necessary and imperative. When the petitioners have insisted on this, I do not understand as to why the respondent did not ensure the presence of Charles and his wife Shanthi, in the enquiry.
- It can be seen therefrom 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, admissible in respect of the said supply.
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