Recipient cannot be held liable out rightly for non-payment of tax by the supplier
In accordance with the Section 16 of the CGST Act, 2017, a taxpayer can claim ITC for any supplies received to be used in the course or furtherance of business if he is
- In the possession of valid tax invoice or debit note in that regards.
- He has received such goods or services or both.
- Tax should be deposited to the government either by the supplier. If it is not done so then it can be recovered from either of the two parties
- Further supplier should furnish the details of such supplies in the monthly/quarterly return (GSTR 1) as the case maybe.
The recipient avails ITC based on the valid invoice as well as the invoice is appearing in GSTR-2A. Since, details of supplies are shown by the supplies in GSTR-1 and tax amount is paid in GSTR-3B, there could be possibility that supplier made some default in discharging the liability. For such defaults in the payment of tax, ideally supplier should be the one to be questioned first instead of initiating recovery proceedings on the recipient.
In a recent judgment, the similar view was taken by the Hon’ble Madras High Court in case of “D.Y. Beathel vs State Tax Officer [(2021) 127 taxmann.com 80 (Madras) [24-02-2021]” wherein it was held that the recipient of supplies has made the payment to the supplier of goods along with the tax amount through banking channels and ITC has been availed based on the returns filed by the supplier. Therefore, the recipient cannot be questioned in case the supplier does any default in the payment of tax to the government exchequer instead the supplier needs to be confronted during the enquiry initiated on the recipient.
The Hon’ble Madras High Court held as under:
- Analyzed the provision of Section 16 of the CGST Act, 2017 and noted 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 ITC, admissible in respect of the said supply. Therefore, 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.
- Observed that, the Respondent has not taken any recovery action against the Seller. When it has come out that the Seller has collected tax from the Petitioner, the omission on the part of the Sellers to remit the tax, it must have been viewed very seriously and strict action ought to have been initiated against the Sellers before starting a recovery against the petitioner.
- That apart in the enquiry in question, the sellers 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. However, the Respondent did not ensure the presence of Sellers in the enquiry even when the Petitioners insisted on the same. Hence, the Impugned order suffers from certain fundamental flaws.
- The Hon’ble High Court quashed the Impugned order due to following reasons:-
- non-examination of supplier in the enquiry and
- Non-initiation of recovery action against Supplier in the first place and remitted back the matter to the Respondent (department).
- The Hon’ble High Court directed the Respondent (department) to hold the enquiry afresh where Sellers will have to be examined as witnesses and to initiate recovery action against Sellers.
- It is evident from the conclusion that for the default by the supplier in the payment of tax liability, recipient cannot be held responsible out rightly.