[Ref: D.Y. Beathel Enterprises Vs State Tax Officer (Madras High Court order dated 24th February, 2021]

A writ petition is filed before Madurai Bench of Madras High Court under Article 226 of the Constitution of India, to quash the order dated 29.10.2020 as illegal, arbitrary, wholly without jurisdiction and in violation of the principles of natural justice, and direct the respondent (State) to pass assessment order afresh after affording an opportunity of cross examination of the sellers to the petitioner by considering the replies dated 01.07.2020 and 21.09.2020 filed by the Petitioner (M/s. D.Y. Beathel Enterprises).

The Petitioner had purchased the goods from sellers (Charles and his wife) against 17 invoices. Based on the returns filed by the sellers, the petitioners herein availed input tax credit. Later, during inspection by the respondent, it came to light that sellers did not pay any tax to the Government.

Against SCN issued, the petitioner submitted his replies specifically taking the stand that all the amounts payable by them had been paid to the said sellers and that therefore, those two sellers will have to be necessarily confronted during enquiry. Unfortunately, without involving the said Charles and his wife Shanthi, the impugned orders dated 29.10.2020 came to be passed levying the entire liability on the petitioners.

The Respondent pointed out that 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 petitioner.

The Petitioner referred the case Sri Vinayaga Agencies Vs. The Assistant Commissioner, CT Vadapalani, reported in 2013 60 VST page 283.wherein 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 Petitioner has also brought to notice of Court that 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. However, reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by the supplier or the supplier not having adequate assets etc.

The Hon’ble Court observed that as per the provisions of GST Law 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. 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.  In the case on hand, the respondent does not appear to have taken any recovery action against the seller / Charles and his wife Shanthi, on the present transactions.

The Hon’ble Court also observed that 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. That apart in the enquiry in question, the Charles and his Wife ought to have been examined. They should have been confronted. This is all the more necessary, because 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. 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, why the respondent did not ensure the presence of Charles and his wife Shanthi, in the enquiry. Thus, the impugned order suffers from certain fundamental flaws.

It has to be quashed for more reasons than one.

a) Non-examination of Charles in the enquiry;

b) Non-initiation of recovery action against Charles in the first place.

Therefore, the impugned orders are quashed and the matters are remitted back to the file of the respondent. The stage upto the reception of reply from the petitioners herein will hold good. Enquiry alone will have to be held afresh. In the said enquiry, Charles and his wife Shanthi will have to be examined as witnesses. Parallelly, the respondent will also initiate recovery action against Charles and his wife Shanthi.

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Disclaimer: Nothing contained in this document is to be construed as a legal opinion or view of either of the authors whatsoever and the content is to be used strictly for educative purposes only.              

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