Subhash Singh Vs. Deputy Commissioner, State Goods and Service Tax

Ms. Puja Banga, learned Standing Counsel, accepts notice on behalf of the State. The appellant in the present case is engaged in the retail and wholesale business of iron scrap and waste, with its principal place of business located in District Udham Singh Nagar, Uttarakhand. A copy of the registration of the appellant is annexed as Annexure No. 11. The appellant had purchased goods with proper invoices and made proper payments through banking channels, along with applicable GST. The details of the invoices and the payment of the GST have been meticulously recorded in his books of accounts. The supplier of the appellant, M/s Dev Bhoomi Spat, had received GST from the appellant when they supplied their goods to the appellant’s company, and the appellant, in this context, had rightly availed the input tax credit for the tax period from April 2021 to March 2022. He had paid GST, and it was duly reflected in the invoices and E-way bills. This situation raises a significant question: if the appellant’s suppliers committed a default, can the purchasing dealer be made to bear the consequences of denying the ITC? The short question for consideration in the present special appeal is that the appellant had purchased the goods from the suppliers through proper invoices and had made proper payments through banking channels, along with applicable GST. If the suppliers have not filed their returns, proceedings under Section 74 of the Goods and Services Tax Act, 2017, cannot be initiated against the appellant for availing the benefit of ITC in a fraudulent manner. The learned counsel for the appellant further stated that a demand of Rs. 79,41,598/- was raised by the respondent vide intimation dated 30.01.2023, which was decreased to Rs. 46,84,278/- in a show cause notice dated 17.03.2023, and further decreased to Rs. 19,47,801/- in the impugned order dated 22.06.2023. This significant reduction in the demanded amount indicates that there were considerations and adjustments made by the authorities at various stages of the proceedings, reflecting an evolving understanding of the appellant’s situation. The case brings to light the broader issue of compliance and the responsibilities of suppliers in the GST framework. The appellant has demonstrated compliance by maintaining accurate records and adhering to the proper channels for transactions and tax payments. The predicament he faces underscores the importance of ensuring that suppliers also meet their statutory obligations to avoid cascading penalties and complications for their customers. The crux of the argument rests on whether it is justifiable to penalize the appellant for the failures of his suppliers, especially when he has fulfilled his part of the transaction in good faith. The legal discourse in this matter will likely explore the extent to which a purchasing dealer can be held accountable for the defaults of suppliers and the mechanisms in place to protect compliant taxpayers from such eventualities. The appellant’s counsel contends that the initiation of proceedings under Section 74 of the GST Act against the appellant, in this case, is unwarranted and unjust, as the appellant has not engaged in any fraudulent activities but has instead followed all due processes required by law. The substantial reduction in the demand amount further supports the argument that the initial assessment may have been overly stringent and not reflective of the actual circumstances. This case, therefore, serves as a critical examination of the interplay between compliance, accountability, and the protection of taxpayers’ rights within the GST regime.

A short point for consideration in the present special appeal is that the appellant is the supplier, and he has neither paid the tax nor filed the returns. However, the invoices of sales made to the suppliers are with the appellant, and on the basis of these invoices, the payments were made. This is his main ground of appeal. The appellant argues that despite having all the necessary invoices and having made payments based on these invoices, the suppliers’ failure to pay the tax and file returns should not penalize him. Keeping in view the provisions of Section 107 (6) (d) of the Uttarakhand Goods and Services Tax Act 2017, the order dated 07.03.2024, Annexure No. SA1, of the appeal, is being modified. Since the appellant has produced all the invoices from the suppliers, and it was the duty of the suppliers to further file their returns, which they have not done, the order is being modified to require that the appellant deposit 10% of the amount being demanded by the respondents. This modification acknowledges that the appellant has taken all the steps within his power to comply with the law by keeping proper invoices and making payments based on these invoices. The appellant’s contention highlights a critical issue within the GST framework, where the compliance of one party (the supplier) directly impacts another (the appellant). The legal argument centers around whether it is just and equitable to hold the appellant accountable for the suppliers’ non-compliance, given that he has fulfilled his part of the transaction in good faith. This situation underscores the need for a more robust mechanism to ensure that the responsibility for tax compliance does not unfairly burden the purchasing party, who may have little control over the suppliers’ actions. The court’s modification of the order to require a 10% deposit reflects a balancing act between upholding the law and acknowledging the appellant’s efforts to comply with it. This case exemplifies the complexities involved in tax compliance and the enforcement of GST regulations. It raises important questions about the fairness of penalizing compliant parties for the non-compliance of others within the supply chain. The appellant’s ability to produce all the necessary invoices and the fact that payments were made based on these invoices demonstrate a level of diligence and adherence to legal requirements. However, the suppliers’ failure to file their returns and pay the tax introduces a layer of complexity that challenges the straightforward application of the law. This appeal, therefore, not only addresses the specific grievances of the appellant but also brings to the forefront the broader issues of accountability and fairness in tax administration. The court’s decision to modify the order, requiring only a partial deposit, indicates an understanding of these broader implications and a move towards a more nuanced application of the law. This case serves as a pivotal moment in examining how tax laws are enforced and the extent to which parties are held responsible for the actions of others in their business transactions. It also highlights the importance of having clear guidelines and mechanisms in place to protect compliant taxpayers from being unduly penalized for circumstances beyond their control. The outcome of this appeal will likely have significant implications for future cases involving similar issues of tax compliance and supplier accountability within the GST framework.

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Subhash Singh

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Uttarakhand High Court 

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