Buyer cannot be asked to reverse ITC in case of default by the Supplier in filing of returns & deposit of tax
Allahabad High Court, in the case of R.T. Infotech v. Additional Commissioner Grade 2 & Ors., ruled that Input Tax Credit (ITC) cannot be denied to a buyer solely due to the supplier’s failure to file returns or deposit tax. R.T. Infotech had claimed ITC on invoices for recharge coupons from M/s Bharti Airtel Ltd., but the claim was denied due to discrepancies in the supplier’s tax filings. Despite R.T. Infotech demonstrating payment through banking channels and compliance with all their legal obligations, the tax authorities demanded reversal of the ITC. The High Court, referencing precedents like Assistant Commissioner of State Tax v. Suncraft Energy Pvt. Ltd., [(2023) 13 Centax 189 (S.C.)] and D.Y. Beathel Enterprises v. State Tax Officer (Data Cell), Tirunelveli, [2021 (58) G.S.T.L. 269 (Mad.)], emphasized that a buyer cannot be held responsible for the supplier’s non-compliance. The court asserted that the assessing authority has a responsibility to verify compliance and initiate action directly against the defaulting supplier, rather than penalizing the purchasing dealer who has fulfilled their part of the transaction. Consequently, the impugned orders denying ITC were quashed, and the case was remanded for a fresh decision after providing all stakeholders an opportunity to be heard.
Facts:
M/s R.T. Infotech. (“the Petitioner”) has filed the present writ petition against the order dated June 24, 2022 and the order dated October 22, 2021 (“the Impugned Orders”) passed by the Additional Commissioner Grade-2 (Appeals), commercial Tax, Meerut (“the Respondent 1”) and the Deputy Commissioner, State Tax, Sector 4, Meerut respectively (“the Respondent 2”).
The Petitioner, a registered GST dealer using Bharti Airtel’s services in F.Y. 2017–18, paid CGST and SGST of Rs. 14.26 lakhs each on seven invoices respectively and claimed ITC of Rs. 28.52 lakhs. On July 8, 2021, the Respondent No. 2 issued a notice in Form ASMT-10 highlighting discrepancies in the returns of the Petitioner after scrutiny, to which the Petitioner replied in Form ASMT-11 on August 20, 2021, clarifying that the mismatch in the returns were not related to the invoices of M/s Bharti Airtel Ltd. and payment of such invoices was made via RTGS. Despite this, a Show Cause Notice under Section 73 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) was issued, alleging wrongful claim of ITC under Section 16(2)(c) of the CGST Act. The Petitioner responded by arguing that recovery, if any, should be made from the supplier i.e. M/s Bharti Airtel Ltd. instead of the Petitioner. However, Respondent No. 2 passed the Impugned Order dated October 22, 2021 demanding the deposit of ITC amounting to Rs. 28.52 Lakhs along with 10% penalty and applicable interest. The Petitioner’s appeal against the Impugned Order was dismissed on June 24, 2022. In support of his submission, he has placed reliance upon the judgment of Assistant Commissioner of State Tax v. Suncraft Energy Pvt. Ltd., [Supra].
Issue:
Whether ITC can be denied to the purchaser due to seller’s default on account of non-payment of tax and non-filing of returns, despite the purchaser fulfilling all conditions as envisaged in Section 16(2) of the CGST Act?
Held:
The Hon’ble High Court in Writ Tax No. – 1330 of 2022 held as under:
- It is a matter of common knowledge that under the provisions of the GST Act, the purchaser cannot compel the selling dealer to file the returns on time and deposit the amount of tax realized from the purchaser with the government treasury. Further, the purchaser cannot be left at the mercy of the selling dealer.
- Furthermore, the purchasing dealer cannot be held liable for the non-compliance of the selling dealer, especially when the Petitioner has acted diligently by making purchases through valid tax invoices and payments via banking channels. It is the responsibility of the assessing authority to verify such compliance and initiate action against the defaulting seller, rather than denying rightful credit to the buyer.
- Reliance is placed on the Hon’ble Apex Court in Assistant Commissioner of State Tax v. Suncraft Energy Pvt. Ltd., [Supra] wherein it was held that where the purchaser has paid tax on valid invoices, and there is a failure on the part of the supplier to discharge tax liability, the matter must be remanded for due inquiry from the supplier. Similarly, the Madras High Court in D.Y. Beathel Enterprises v. State Tax Officer, [Supra], emphasized that in cases of non-performance of duty by the supplier, action must be taken against the supplier simultaneously, and the purchaser alone should not be made to suffer.
- It was conclusively held that, the Impugned Orders are not sustainable in the eyes of law and are accordingly quashed. The matter was further remanded to the concerned Respondent to decide the case afresh by passing a reasoned and speaking order after granting an opportunity of personal hearing to all stakeholders, within two months from the date of production of a certified copy of this order.
Our Comments:
The Hon’ble Madras High Court in Sri Vinayaga Agencies v. Assistant Commissioner (CT), Vadapalani-I Assessment Circle [W.P. No. 2036-2038 of 2013 January 29, 2013] set aside the order denying ITC to the purchasing dealer on the sole ground that the selling dealer failed to pay tax. The Hon’ble Court held that once the purchaser had duly paid tax to the supplier and complied with all conditions under Section 19(1) read with Rule 10(2) of the Tamil Nadu Value Added Tax Rules, 2007, the ITC claim was valid.
It is encouraging to see the judiciary emphasizing departmental accountability and the need for parallel action against errant suppliers rather than punishing recipients.
*****
(Author can be reached at info@a2ztaxcorp.com)
Author Bio
