GST Recovery Can Be Made Only From the Person Who Charged & Collected It: SC

Summary: The supplied article examines the effect of the Supreme Court judgment in Bhandari Scrap Traders Vs Union of India on Section 16(2)(c) of the GST law and argues that the responsibility for payment of tax rests with the supplier who charged and collected the tax from the buyer. It contrasts Section 16(1), under which a registered recipient is entitled to input tax credit subject to prescribed conditions, with Section 16(2)(c), which refers to the actual payment of the tax charged on the supply to the Government. The article also refers to Section 39 concerning the furnishing of returns and Section 49 concerning the discharge of tax and other dues. It relies on Section 76, dealing with tax collected but not paid to the Government, to contend that recovery should be made from the person who collected the tax. It further refers to Section 41(2), under which input tax credit reversed where the tax payable by the supplier has not been paid may be re-availed when the supplier makes payment of the tax. The article states that the Supreme Court, in Bhandari Scrap Traders Vs Union of India, did not deliver a judgment directing the recovery of tax from the buyer or purchasing dealer who paid the tax to the supplier. It concludes that the recipient or purchasing dealer is eligible to reclaim the input tax credit upon payment by the supplier, either voluntarily or following recovery by the department, and states that this protects the genuine purchasing dealer or recipient who paid tax to the supplier.

RECOVERY CAN BE MADE ONLY FROM THE PERSON UNDER THE GST ACT WHO CHARGED AND COLLECTED THE TAX

Bhandari Scrap Traders Vs Union of India (SC)

After the Supreme Court judgment in Bhandari Scrap Traders Vs Union of India, Section 16(2)(c) of the GST law appears to have gone in the wrong direction.

Section 16 categorically places the responsibility on the supplier instead of the recipient

The wording in Section 16(2)(c), subject to the provisions of Section 41, states that 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.

Whereas Section 16(1) is in favour of the recipient by providing that the recipient is eligible for input tax credit of the tax charged on any supply of goods or services or both by the supplier.

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be 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.

Further, as per Section 49(9), every person who has paid the tax on goods or services or both under this Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such tax to the recipient of such goods or services or both.

Therefore, it is mandatory for the supplier who charged and collected tax from the buyer to pay the tax.

Section 39

Furnishing of Returns

(1) Every registered person, other than an Input Service Distributor or a non-resident taxable person or a person paying tax under the provisions of section 10 or section 51 or section 52 shall, for every calendar month or part thereof, furnish, a return, electronically, of inward and outward supplies of goods or services or both, input tax credit availed, tax payable, tax paid and such other particulars, in such form and manner, and within such time and subject to such conditions and restrictions, as may be prescribed:

Further, as per Section 49, the supplier is obligated to pay the tax.

Section 49(8): Every taxable person shall discharge his tax and other dues under this Act or the rules made thereunder in the following order, namely:––

(a) Self-assessed tax and other dues related to returns of previous tax periods;

(b) Self-assessed tax and other dues related to the return of the current tax period;

(c) Any other amount payable under this Act or the rules made thereunder, including the demand determined under Section 73, Section 74 or Section 74A.

Recovery of Tax From the Supplier Who Charged and Collected Tax From the Buyer or Recipient

Recovery of tax from the supplier who charged and collected tax from the buyer or recipient

CHAPTER XV – DEMANDS AND RECOVERY

Section 76: Tax Collected but Not Paid to the Government

Section 76(2): Where any amount is required to be paid to the Government under sub-section (1) and has not been so paid, the proper officer may serve on the person liable to pay such amount a notice requiring him to show cause as to why the amount specified in the notice should not be paid by him to the Government and why a penalty equivalent to the amount specified in the notice should not be imposed on him under the provisions of this Act.

Section 76(4): The person referred to in sub-section (1) shall, in addition to paying the amount referred to in sub-section (1) or sub-section (3), also be liable to pay interest thereon at the rate specified under Section 50 from the date such amount was collected by him to the date such amount is paid by him to the Government.

Section 76 also provides an opportunity to reclaim the input tax credit when the tax is paid by the supplier.

Section 76(9): The amount paid to the Government under sub-section (1) or sub-section (3) shall be adjusted against the tax payable, if any, by the person in relation to the supplies referred to in sub-section (1).

Therefore, tax can be recovered from the person who collected the tax and not from the person who paid it.

Supreme Court in Bhandari Scrap Traders Vs Union of India

The same view has been expressed by the Hon’ble Supreme Court of India in the case of:

BHANDARI SCRAP TRADERS Vs UNION OF INDIA & ORS.

The Hon’ble Apex Court has categorically observed and opined that:

The High Court of Gujarat has also referred to the provisions of Section 41 of the CGST Act and also Sections 73 and 74 thereof in the context of the purchasing dealer under the CGST regime being entitled to re-avail the reversed ITC after the supplier-dealer is made to discharge the tax liability.

Hence, tax can be recovered only from the person who collected it, and the buyer-cum-recipient is eligible for input tax credit following recovery from the supplier-cum-seller.

A registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed

Section 41(2) of the GST Act:

Provided that where such supplier makes payment of the tax payable in respect of the aforesaid supplies, the said registered person may re-avail the amount of credit reversed by him in such manner as may be prescribed.

CONCLUSION

The Hon’ble Supreme Court, in the case of BHANDARI SCRAP TRADERS Vs UNION OF INDIA, has not delivered a judgment directing the recovery of tax from the buyer-cum-purchasing dealer who paid the tax. The Hon’ble Apex Court opined that the recipient-cum-purchasing dealer is eligible to reclaim the input tax credit upon payment by the supplier-cum-seller, either voluntarily or following recovery by the department, thereby protecting the genuine purchasing dealer or recipient who paid tax to the supplier or seller in accordance with the provisions of the GST law.

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Authors:

S.V.S. Raghavendra Rao, Advocate & Tax Consultant, Nellore, Andhra Pradesh, Phone: 9440275175, Email: [email protected]

S.V.S.N. Sasidhar Rao, Chartered Accountant, Nellore, Andhra Pradesh, Phone: 9490087873, Email: [email protected].