No GST Act Proceedings Against Purchaser for Supplier’s Non-Deposit: Uttarakhand HC

Subhash Singh Vs Deputy Commissioner (Uttarakhand High Court)

A recent judgment by the Uttarakhand High Court in the case of Subhash Singh vs. Deputy Commissioner sheds light on the applicability of Section 74 of the Goods and Services Tax (GST) Act. The court addressed whether purchasers should be held accountable for their suppliers’ failure to deposit taxes.

The appellant, engaged in the iron scrap business, had purchased goods with proper invoices and paid applicable GST. However, the supplier failed to deposit taxes, leading to a demand notice against the appellant. The crux of the matter was whether the appellant could be penalized for the supplier’s non-compliance.

The court examined Section 74 of the GST Act and emphasized that if a purchaser has followed due diligence, including proper invoicing and payment of GST, they cannot be held responsible for the supplier’s defaults. Despite the supplier’s non-payment, the appellant had availed input tax credit in good faith.

Considering the appellant’s submission and provisions under Uttarakhand GST Act, the court modified the order, stating that since the appellant had produced all invoices and it was the supplier’s obligation to file returns, the appellant’s liability was limited to depositing 10% of the demanded amount.

This ruling clarifies that purchasers shouldn’t bear the brunt of supplier negligence, as long as they fulfill their obligations under the GST Act. It sets a precedent for cases where purchasers act in good faith but face repercussions due to supplier defaults.

The Uttarakhand High Court’s judgment provides relief to purchasers, affirming that they shouldn’t be penalized for their suppliers’ failure to deposit taxes. This decision underscores the importance of due diligence in transactions and protects purchasers from unwarranted liability under the GST Act.

FULL TEXT OF THE JUDGMENT/ORDER OF UTTARAKHAND HIGH COURT

Notice of motion.

2. Puja Banga, learned Standing Counsel, accepts notice on behalf of the State.

3. The appellant in the present case is engaged in retail and wholesale business of iron scrap and waste with its principal place of business, District Udham Singh Nagar, Uttarakhand. A copy of the registration of the appellant is Annexure no.11.

4. The appellant had purchased goods with proper invoices, and made proper payments through banking channels along with applicable GST. The details of the invoices and the payment of the GST have been recorded in his books of accounts. The supplier of the appellant M/s Dev Bhoomi Spat had received GST from the appellant when they had supplied their goods to the appellant’s company, and the appellant in this backdrop had rightly availed the input tax credit for the tax period April 2021 to March 2022. He had paid GST and it was reflected in invoices and E-way bills. If the appellant’s suppliers committed a default, can the purchasing dealer be made to bear the consequences of denying the ITC.

5. The short question for consideration in the present special appeal is that the appellant had purchased the goods from the suppliers through proper invoices, and has made proper payments through banking channel along with applicable GST. If the suppliers have not filed their returns, then proceedings under section 74 of the Goods and Service Tax, 2017, cannot be initiated against the appellant for availing the benefit of ITC in a fraudulent manner. Learned counsel for the appellant further stated that demand of Rs.79,41,598/- was raised by the respondent vide intimation dated 30.01.2023, which was decreased to Rs.46,84,278/- in a show cause notice dated 17.03.2023, and further decrease to Rs.19,47,801/- in the impugned order dated 22.06.2023

6. A short point for consideration in the present special appeal is that the appellant is the supplier, and he has neither paid the tax nor has filed the returns. However, the invoices of sale made to the suppliers are with the appellant, and on the basis of the invoices the payments were made. This is his main ground of the appeal.

7. Keeping in view the provisions of section 107 (6) (d) of the Uttarakhand Goods and Services Tax Act 2017, the order dated 07.03.2024, Annexure no.SA1, of the appeal, is being modified that since the appellant has produced all the invoices from the suppliers, and it was the duty of the suppliers to further file their returns, which they have not done, the order is being modified that appellant will deposit 10% of the amount, which is being demanded by the respondents.

8. The order is modified, and the appeal is disposed of.