Buyer Not Responsible for Non Payment of GST by Seller

Buyer Not Responsible for Non-Payment of GST by Seller (Supplier GST Cancelled) -

Sanchita Kundu Vs The Asst. Commissioner of State Tax, Bureau of Investigation, South Bengal (Calcutta HC) –

Case Law Referred - Unreported Order of Calcutta HC - M/s. LGW Industries Limited & Ors. Vs. Union of India & Ors. in W.P.A No.23512 of 2019

Facts of the Case

These writ petitions have been filed since Department denied the benefit of Input Tax Credit (ITC) from the suppliers and asked the petitioners to pay the penalty and interest, on the ground that the registration of the suppliers in question has already been cancelled with retrospective effect covering the transaction period in question.

Argument by the Petitioner (JSW Steel Ltd)

The main contention of the petitioners in these writ petitions are as under –

• The transactions in question are genuine and valid by relying upon all the supporting relevant documents required under law
• The petitioners with their due diligence have verified the genuineness and identity of the suppliers in question and more particularly the names of those suppliers as registered taxable person were available at the Government portal showing their registrations as valid and existing at the time of transactions in question
• Further, the petitioners have limitation on their part in ascertaining the validity and genuineness of the suppliers in question and they have done whatever possible in this regard and more so, when the names of the suppliers as a registered taxable person were already available with the Government record and in Government portal at the relevant period of transaction, petitioners could not be faulted if the suppliers appeared to be fake later on.
• Petitioner has paid the amount of purchases in question as well as tax on the same not in cash and all transactions were through banks and petitioners are helpless if at some point of time after the transactions were over, if the respondents concerned finds on enquiries that the aforesaid suppliers (RTP) were fake and bogus and on this basis petitioners could not be penalised unless the department/ respondents establish with concrete materials that the transactions in question were the outcome of any collusion between the petitioners/purchasers and the suppliers in question.
• Petitioners further submit that all the purchasers in question invoices-wise were available on the GST portal in form GSTR-2A which are matters of record.
• Considering the facts as recorded, without any further verification it cannot be said that that there was any failure on the part of the petitioners in compliance of any obligation required under the statute before entering into the transactions in question and that there was no verification of the genuineness of the suppliers in question by the petitioner during the relevant period.
• Petitioners in support of their contention have relied on unreported judgment of this Court dated 13th December, 2021 in a similar case in the case of M/s. LGW Industries Limited & Ors. Vs. Union of India & Ors. in W.P.A No.23512 of 2019.

Observation of High Court

1. The Hon’ble High Court disposed the writ petitions in favour of taxpayer by setting aside the aforesaid impugned orders and remanding these cases to consider afresh
2. The Department to consider the issue of their entitlement of benefit of input tax credit in question by considering the documents which the petitioners intend to rely in support of their claim of genuineness of the transactions in question
3. The Department shall also consider as to whether payments on purchase in question along with GST were actually paid or not to the suppliers (RTP) and also to consider as to whether the transactions and purchases were made before or after the cancellation of registration of the suppliers and also to consider as to compliance of statutory obligation by the petitioners in verification of identity of the suppliers (RTP).
4. If it is found upon verification and considering the relevant documents that all the purchases and transactions in question are genuine and supported by valid documents and transactions in question were made before the cancellation of registration,  the petitioners shall be given the benefit of input tax credit in question.
5. These cases of the petitioner shall be disposed of by the Department in accordance with the observation made above and by passing a reasoned and speaking order after giving effective opportunity of hearing to the petitioners

Attached is the copy of Order passed by the Hon’ble Calcutta High Court