Buyer cannot be forced directly to reverse ITC for non payment of GST by Supplier

GST Department can not force directly to the Buyer to reverse the Input Tax Credit, Because Supplier did not Deposit to the Government kitty (Section 16 of CGST Act 2017)

I hope everything is fine on your side in this Covid -19 Pandemic situation. There are some defaulter seller in the market who collect the Tax from the customer but did not deposit in the Government Kitty.

Due to Supplier( Seller) fault, Section 16 restrict the Customer(Purchaser)  to take the  Input Tax Credit of such Purchase. According to the provision of   Section 16, to claim the Input Tax credit of any purchase, tax actually deposit in Government Kitty

To reduce the problem of Buyer Honorable Madras High court passed an judgment in the favour of the Buyer regarding Section 16 of CGST Act 2017.

In the case of M/s D.Y. Beathel Enterprises V/s SGST Department Tamilnadu Honorable Madras High Court passed a Judgment that, Tax Authority can not directly  force Buyer  to reverse the ITC because of Tax not deposited in the Government Treasury  by their supplier.

Facts of the Case

In This case D.Y. Beathel Enterprises (Petitioner) trade in the Raw Rubber Sheet. Petitioner made purchase from Charles and his wife Shanthi. Charles and his wife are also registered in the same assessment circle. Petitioner had made payment to Charles and his Wife relating to purchase of goods including the Tax component.

Petitioners had availed the Input Tax Credit on the basis of the return filled by the Seller

Later on, Department  found that supplier did not pay any tax to the Government. Tax authority without any proceeding against Seller to recover Tax, issued a SCN to the Buyer (petitioner).

Petitioners submit replies against SCN stating that they have paid entire amount of purchase including tax component to the supplier, hence its fault of Supplier who didn’t pay tax to the Government.

Department put aside the reply of petitioner and passed an order and entire liability pass on the petitioner without any inquiry to Charles and his wife Shanthi.

The Petitioner challenge this order in Madras High Court.

Honorable High Court View

Honorable High Court go through the entire facts of the case and analyze the provision of section 16 of the CGST Act 2017;

According to Honorable Court, Authority can’t directly instruct buyer to reverse ITC, when buyer already paid to the seller, but seller in fault to deposit the same into Government Treasury. 

Honorable Court in its Judgement stated that Tax authority should first inquiry with the seller and try to recovery of tax from the Supplier. If the tax could not recover from the supplier then in it is last way to recovery of tax from the purchaser not the first step to recovery of any tax

Kapil Comment on This

Judgment is most welcomed and really helpful for the genuine Taxpayer. Objective of Section 16 is to ensure that Tax actually deposit into government treasury whose ITC availed by the recipient by anyone party either Seller or the buyer. The Honorable high court correctly interpret the essence of Section 16, and interpretation by the SGST Department is unconstitutional and against the natural justice.

Link to download the Judgment  – https://taxguru.in/goods-and-service-tax/non-payment-gst-itc-availed-buyer-hc-quashes-notice-buyer-seller-questioned.html