No GST can be Demanded from Buyer for the fault of Seller of non-payment of taxes to the Government

The Madurai bench of Madras High Court on 24th February, 2021 quashed the order passed by the officer levying the entire tax liability on the purchasing dealer in the case of M/s. D.Y. Beathel Enterprises (Petitioner) v/s The State Tax Officer (Data Cell), (Investigation Wing) (Respondents). The case is described as under:

Facts of the Case

• Petitioner is trader in Raw Rubber Sheets and purchased goods from one Charles and his wife Shanthi (Seller).
• The substantial portion of the sale consideration along with tax component was paid through banking channels.
• On an inspection by respondent later on, it was observed that seller has not paid any tax to the government and whereas petitioner has availed Input Tax credit on the purchase made on the basis of return filed by seller. 
• The respondent initiated proceedings and issued show cause notices to petitioner. 
• The Petitioner submitted their replies specifically taking the stand that all the amounts payable by them had been already paid, therefore, those Sellers will have to be necessarily confronted during enquiry. Subsequently, without involving the Sellers, the Respondent passed an order (“impugned order”) levying the entire liability on the Petitioners.

Issue

Can the respondent levy entire tax liability on Petitioner for default of seller of not remitting tax to the government? 

Observation

• Attention of the bench was drawn to previous case laws, press release and section 16(1) & (2) of Tamil Nadu Goods and Services Tax Act, 2017, related to current case by learned counsel of petitioner. 
• It was held that when petitioner have received the goods then tax must have reached the Government in cash or through utilization of input tax credit, but if the tax has not reached kitty of the Government, then the liability may have to be eventually borne by one party, either the seller or the buyer.
• Bench was of the view that when seller has collected tax from the purchasing dealers and 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.
• Respondent said that petitioners have not received the goods and had availed input tax credits on the strength of generated invoices.

Judgment

The bench after considering the above facts and observations passed the following judgements: 

• The impugned orders passed by respondent suffered from certain fundamental flaws and therefore they had to be quashed for following reasons:

i.    Non-examination of Charles in the enquiry

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

• The matters were remitted back to the file of the respondent. The stage upto the reception of reply from the petitioners herein would hold good. Enquiry had to be held afresh where, Charles and his wife Shanthi were to be examined as witnesses. Parallely, the respondent also had to initiate recovery action against Charles and his wife Shanthi.