2021 (3) TMI 1020 - HC - GST

Input Tax Credit (ITC) - Liability of tax on petitioners - petitioners believes that the tax had already been remitted to the Government by their sellers - petitioners could not furnish any proof for the payment of tax - HELD THAT - 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 - 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. 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 Person who supplied / sold the goods, 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. The matters are remitted back to the file of the respondent - petition allowed by way of remand.

Summary

Issues:
Petitioners challenging orders for recovery of tax liability due to sellers' non-payment of tax, Input Tax Credit availed by petitioners, Jurisdiction to reverse input tax credit, Examination of sellers during enquiry.

Analysis:

Issue 1: Recovery of Tax Liability
The petitioners, registered dealers, purchased goods from sellers who did not remit tax to the government, leading to the initiation of recovery proceedings against the petitioners. The petitioners argued that they had paid the sellers, including the tax component, through banking channels. The respondent contended that since the sellers did not pay tax and the petitioners could not provide proof, recovery from the petitioners was justified. The respondent reversed the Input Tax Credit (ITC) availed by the petitioners based on this non-payment by the sellers.

Issue 2: Jurisdiction to Reverse Input Tax Credit
The counsel for the petitioners cited a previous decision of the Madras High Court regarding the jurisdiction to reverse availed input tax credit due to non-payment by the selling dealer. However, it was noted that this previous ruling might not directly apply to the current tax regime. Reference was made to a press release by the Central Board of GST council, which stated that reversal of credit from the buyer could be an option in exceptional situations, along with the provisions of section 16(1) & (2) of the Tamil Nadu Goods and Services Tax Act, 2017.

Issue 3: Examination of Sellers During Enquiry
The petitioners highlighted the necessity of examining the sellers, Charles and his wife, during the enquiry. The court emphasized that the sellers should have been confronted and examined, especially since the respondent claimed that the petitioners did not receive the goods and availed ITC based on generated invoices. The failure to examine the sellers and initiate recovery action against them were identified as fundamental flaws in the impugned orders.

Judgment:
The court quashed the impugned orders and remitted the matters back to the respondent for a fresh enquiry. It was directed that the sellers, Charles and his wife, must be examined as witnesses during the enquiry, and recovery action should be initiated against them. The court emphasized the importance of examining the sellers and addressing the flaws in the previous proceedings. The writ petitions were allowed with no costs, and connected miscellaneous petitions were closed.