D.Y. Beathel Enterprises VS State Tax Officer Tirunelveli

The petitioners, a group of dealers registered with the Nagercoil Assessment Circle, collectively present 17 writ petitions that share a common underlying issue. Primarily, these traders specialize in dealing with raw rubber sheets. Their contention revolves around their purchase of goods from individuals named Charles and his wife, Shanthi.

The petitioners, a group of dealers registered with the Nagercoil Assessment Circle, have filed 17 writ petitions, all addressing a common issue. They are engaged in trading raw rubber sheets and had purchased goods from Charles and his wife Shanthi. Allegedly, a significant portion of the sale consideration was transacted through banking channels, including the tax component. Charles and Shanthi are also registered dealers with the same assessment circle.

The crux of the petitioners’ case is that they availed input tax credit based on the returns filed by the sellers. However, during an inspection by the respondent authority, it was discovered that Charles and Shanthi had not paid any taxes to the government. This discovery led to the initiation of proceedings against the petitioners.

The respondent issued show cause notices to the petitioners, who responded by asserting that they had paid all amounts due to Charles and Shanthi. They insisted that the sellers should be involved in the inquiry process. Despite this, the impugned orders were passed, holding the petitioners solely liable for the unpaid taxes without involving Charles and Shanthi in the proceedings.

As a result, the petitioners have challenged these orders through the aforementioned writ petitions.

In this case, multiple petitioners, all registered as dealers with the Nagercoil Assessment Circle, bring forth similar grievances. They are traders in raw rubber sheets and had purchased goods from Charles and his wife, Shanthi. The petitioners claim that a significant portion of the sale consideration was paid through banking channels, including the tax component. Charles and Shanthi, also registered dealers with the same assessment circle, allegedly did not remit any tax to the government.

The petitioners availed input tax credit based on the returns filed by the sellers. However, upon inspection, it was discovered that Charles and Shanthi had not paid any tax. Consequently, the tax department initiated proceedings against the petitioners, issuing show cause notices. The petitioners responded, asserting that they had paid all amounts due to Charles and Shanthi, and requested their involvement in the enquiry. Despite this, the department passed orders levying the entire tax liability on the petitioners without involving Charles and Shanthi.

In response to the petitions, the government contends that since the sellers did not remit tax and the petitioners couldn’t provide proof of payment, the department was justified in recovering the tax from the petitioners and reversing the input tax credit previously availed. The government argues that it cannot be faulted for this action.

The petitioners’ counsel refers to a precedent set by the Madras High Court in Sri Vinayaga Agencies vs. The Assistant Commissioner, CT Vadapalani, where it was held that the authority lacks jurisdiction to reverse input tax credit based on the selling dealer’s failure to pay tax.

The dispute revolves around whether the department was justified in holding the petitioners liable for the unpaid tax and reversing the input tax credit without involving the sellers in the proceedings.

The case involves 17 petitions from traders registered with Nagercoil Assessment Circle, dealing in Raw Rubber Sheets. They purchased goods from Charles and his wife Shanthi, paying a significant portion of the sale amount through banking channels, including taxes. Charles and Shanthi were also registered dealers in the same assessment circle.

The traders availed input tax credit based on the returns filed by Charles and Shanthi. However, during inspection, it was discovered that Charles and Shanthi hadn’t paid any taxes to the government. The authorities initiated proceedings against the traders, issuing show cause notices.

The traders responded, stating that they had paid the amounts to Charles and Shanthi, and requested their involvement in the enquiry. Despite this, the authorities passed orders holding the traders liable without involving Charles and Shanthi. The traders challenged these orders in writ petitions.

The respondent argued that since Charles and Shanthi hadn’t paid taxes and the traders couldn’t prove otherwise, the authorities were justified in recovering the amount from the traders, reversing the input tax credit.

The traders’ counsel cited a Madras High Court decision, arguing against the reversal of input tax credit based on the seller’s non-payment. However, it was noted that this decision might not directly apply to the current tax regime.

Reference was made to a press release by the Central Board of GST council, stating that input tax credit reversal from the buyer wouldn’t be automatic in case of the seller’s non-payment. Recovery would primarily be from the seller, but reversal from the buyer could be an option in exceptional circumstances.

Section 16(1) & (2) of the Tamil Nadu Goods and Services Tax Act, 2017, was also cited, affirming the entitlement of registered persons to take credit of input tax, subject to prescribed conditions and procedures.

The case raises questions regarding the reversal of input tax credit, the liability of buyers in case of seller non-payment, and the jurisdiction of authorities in such matters. The court will need to consider the applicability of past decisions, the current legal framework, and relevant regulations in rendering its judgment.

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