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2025 (6) TMI 116 - HC - GSTNon-payment of tax by the selling dealer under the GST Act - entitlement to claim ITC u/s 16(2)(c) of the GST Act - HELD THAT - The record shows that the amount of GST charged over the said tax invoices were paid through banking channel i.e. by R.T.G.S. - The record further shows that for non discharge of their duties by the selling dealer the proceedings were initiated against the selling dealer as evident from the letter dated 05.09.2022 issued by the Joint Commissioner (Corporate Circle) - II Commercial Tax Lucknow a copy of which has been annexed as Annexure No.9 at page no. 73 of the writ petition. The said fact was noticed by the appellate authority but no weightage has been given to the same. It is a matter of common knowledge that under the provision of the GST Act the purchaser cannot compel the selling dealer to deposit the amount of tax realized from the petitioner with the government treasury. The Hon ble Apex Court in the case of Suncraft Energy 2023 (12) TMI 739 - SC ORDER had occasioned to consider that the party who has paid the tax on invoices being raised and non-discharge of duties by the counterpart of the seller the Court was pleased to remand the matter for making due inquiry from the supplier. Similarly the Madaras High Court in the case of D.Y. Beathel Enterprises Vs. State Tax Officer (Data Cell) Tirunelveli 2021 (3) TMI 1020 - MADRAS HIGH COURT has taken a view that in absence of non-performance of duty by the supplier action must be taken against the supplier simultaneously and the purchaser alone shall not be suffered. The impugned orders cannot be sustained in the eyes of law and the same are hereby quashed - the matter requires reconsideration - Petition allowed by way of remand.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter include:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability of the purchaser for ITC claimed when the supplier fails to deposit tax Relevant legal framework and precedents: Section 16(2)(c) of the GST Act provides that ITC shall be available only if the supplier has deposited the tax charged on the invoice with the government treasury. Section 70 empowers authorities to issue notices upon discrepancies in returns, and Section 73 deals with recovery of wrongly claimed ITC. The Court relied on the Supreme Court judgment in Assistant Commissioner of State Tax Vs. Suncraft Energy Pvt. Ltd., which held that when the purchaser has paid tax on invoices and the supplier fails to discharge their duties, the matter should be remanded for inquiry against the supplier. Court's interpretation and reasoning: The Court observed that the petitioner, as a registered supplier, had purchased recharge coupons against seven tax invoices amounting to Rs. 1,58,46,502/- and claimed ITC of Rs. 28,52,370/-. The GST charged (CGST and SGST) on these invoices was paid by the petitioner through RTGS, which was duly recorded. The Court noted that the petitioner had discharged its tax liability and had no control over the supplier's failure to deposit the tax or file returns timely. Key evidence and findings: The petitioner submitted payment proofs via banking channels, and the record showed that the supplier's failure to deposit tax had led to proceedings initiated against the supplier. A letter from the Joint Commissioner confirmed that action was taken against the selling dealer. However, the appellate authority failed to give weight to this fact. Application of law to facts: The Court emphasized that the purchaser cannot be compelled to suffer for the supplier's non-performance of statutory duties. The GST Act does not impose an obligation on the purchaser to ensure the supplier's compliance. Therefore, the purchaser who has discharged its tax liability should not be penalized or denied ITC on account of the supplier's default. Treatment of competing arguments: The State contended that ITC benefit is conditional upon the tax being deposited with the government treasury and that non-payment by the supplier justified reversal of ITC and imposition of penalty and interest on the petitioner. The Court rejected this argument, holding that the purchaser's payment through banking channels and valid tax invoices sufficed to discharge their liability. Conclusions: The Court concluded that the petitioner's claim of ITC was legitimate and that the liability for non-payment of tax rests with the supplier. The petitioner cannot be held responsible or penalized for the supplier's failure to deposit tax. Issue 2: Validity and propriety of the orders passed under Sections 70 and 73 of the GST Act Relevant legal framework and precedents: Section 70 allows issuance of notices upon detection of discrepancies in returns. Section 73 permits recovery of wrongly claimed ITC. The Court referred to the Madras High Court decision in D.Y. Beathel Enterprises Vs. State Tax Officer, which held that in cases of supplier default, action must be taken against the supplier and the purchaser should not be penalized alone. Court's interpretation and reasoning: The Court found that the orders passed by the Deputy Commissioner and Additional Commissioner (Appeals) directing the petitioner to deposit Rs. 28,52,370/- along with 10% penalty and interest on reversed ITC were not sustainable. The appellate authority failed to consider the evidence of payment and the ongoing proceedings against the supplier. Key evidence and findings: The petitioner's replies to notices under Sections 70 and 73, payment proofs, and the letter indicating action against the supplier were on record but disregarded by the authorities. The petitioner had also requested that recovery proceedings be initiated against the supplier rather than the purchaser. Application of law to facts: The Court held that the authorities erred in not giving due consideration to the petitioner's compliance and the supplier's default. The impugned orders were quashed, and the matter was remanded for fresh consideration with directions to hear all stakeholders and pass a reasoned order. Treatment of competing arguments: The State's insistence on strict compliance with Section 16(2)(c) and recovery from the purchaser was rejected in light of the petitioner's payment and the principle that the purchaser cannot be penalized for supplier default. Conclusions: The impugned orders under Sections 70 and 73 were set aside, and the matter was remanded for fresh adjudication. 3. SIGNIFICANT HOLDINGS The Court held: "It is a matter of common knowledge that under the provision of the GST Act, the purchaser cannot compel the selling dealer to deposit the amount of tax realized from the petitioner with the government treasury." "The purchasing dealer cannot be left at the mercy of the selling dealer. When the petitioner has discharged his duties diligently, it is the onus upon the assessing authority to duly communicate about the said fact i.e. the purchase has been made through tax invoices and payments have been made through banking channel and therefore, the authority ought to have counterpart of the selling dealer have initiated action and action has been taken with the benefit ought to have given to the petitioner." "In view of the above facts as stated, the matter requires reconsideration. Accordingly, the impugned orders cannot be sustained in the eyes of law and the same are hereby quashed." Core principles established include:
Final determinations:
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