Court quashes tax recovery orders, directs fresh enquiry against sellers, restores Input Tax Credit

The court quashed the orders for recovery of tax liability against the petitioners due to sellers' non-payment of tax. The court directed a fresh enquiry, emphasizing the examination of the sellers, Charles and his wife, as witnesses. Recovery action was to be initiated against the sellers, addressing the fundamental flaws in the previous proceedings. The petitioners' Input Tax Credit was restored, and the writ petitions were allowed with no costs.

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Issues:
Petitioners challenging orders for recovery of tax liability due to sellers' non-payment of tax, Input Tax Credit availed by petitioners, Jurisdiction to reverse input tax credit, Examination of sellers during enquiry.

Analysis:

Issue 1: Recovery of Tax Liability
The petitioners, registered dealers, purchased goods from sellers who did not remit tax to the government, leading to the initiation of recovery proceedings against the petitioners. The petitioners argued that they had paid the sellers, including the tax component, through banking channels. The respondent contended that since the sellers did not pay tax and the petitioners could not provide proof, recovery from the petitioners was justified. The respondent reversed the Input Tax Credit (ITC) availed by the petitioners based on this non-payment by the sellers.

Issue 2: Jurisdiction to Reverse Input Tax Credit
The counsel for the petitioners cited a previous decision of the Madras High Court regarding the jurisdiction to reverse availed input tax credit due to non-payment by the selling dealer. However, it was noted that this previous ruling might not directly apply to the current tax regime. Reference was made to a press release by the Central Board of GST council, which stated that reversal of credit from the buyer could be an option in exceptional situations, along with the provisions of section 16(1) & (2) of the Tamil Nadu Goods and Services Tax Act, 2017.

Issue 3: Examination of Sellers During Enquiry
The petitioners highlighted the necessity of examining the sellers, Charles and his wife, during the enquiry. The court emphasized that the sellers should have been confronted and examined, especially since the respondent claimed that the petitioners did not receive the goods and availed ITC based on generated invoices. The failure to examine the sellers and initiate recovery action against them were identified as fundamental flaws in the impugned orders.

Judgment:
The court quashed the impugned orders and remitted the matters back to the respondent for a fresh enquiry. It was directed that the sellers, Charles and his wife, must be examined as witnesses during the enquiry, and recovery action should be initiated against them. The court emphasized the importance of examining the sellers and addressing the flaws in the previous proceedings. The writ petitions were allowed with no costs, and connected miscellaneous petitions were closed.

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