2024 (8) TMI 836 - HC - GST

Show cause notices against purchasing dealers set aside under Sections 16(2)(c) and 16(2)(d) of GST Act

National Plasto Moulding, M/s. Society Soap Works And Anr, Jugal Kishore Daga, Abhay Associates And Anr, Madhu Jain, Mahabir Prasad Mahendra Kumar, Dipankar Banik, Vijay Trading Co., Tolaram Surendar Kumar Kundalia And Anr, Surender Kumar Kundalia, Gunchand Dalchand, Hemkaran Stores, M/s. Rathi Traders And Anr, . Versus The State of Assam, The Commissioner of State Taxes (Earlier Known As The Commissioner of Taxes) Guwahati, The Superintendent of Taxes, Nishant Sales Corporation, The Union of India, The Commissioner Central Goods And Service Tax Guwahati, The Assistant Commissioner Central Goods Ana Service Tax Tezpur, Jvl Agro Industries Ltd.,

The HC set aside show cause notices and consequential orders against purchasing dealers under Sections 16(2)(c) and 16(2)(d) of the Assam GST Act, 2017 ... Validity of Sections 16 (2) (c) and 16 (2) (d) of the Assam Goods and Services Tax Act, 2017 as well as the validity of Sections 16 (2) (c) and 16 (2) (d) of the Central Goods and Services Tax Act, 2017 - whether purchasing dealer cannot be punished for the act of the selling dealer in case the selling dealer had failed to deposit the tax collected by it? - HELD THAT:- The controversy raised in this batch of writ petitions is squarely covered by the decision of the Delhi High Court in the case of On ON QUEST MERCHANDISING INDIA PVT. LTD., SUVASINI CHARITABLE TRUST, ARISE INDIA LIMITED, VINAYAK TREXIM, K.R. ANAND, APARICI CERAMICA, ARUN JAIN (HUF), DAMSON TECHNOLOGIES PVT. LTD., SOLVOCHEM, M/S. MEENU TRADING CO., & MAHAN POLYMERS VERSUS GOVERNMENT OF NCT OF DELHI & ORS. & COMMISSIONER OF TRADE & TAXES, DELHI AND ORS. [2017 (10) TMI 1020 - DELHI HIGH COURT] where it was held that 'the default assessment orders of tax, interest and penalty issued under Sections 32 and 33 of the DVAT Act, and the orders of the OHA and Appellate Tribunal insofar as they create and affirm demands created against the Petitioner purchasing dealers by invoking Section 9 (2) (g) of the DVAT Act for the default of the selling dealer, and which have been challenged in each of the petitions, are hereby set aside.' Hence, the show cause notices impugned in the present writ petitions and the consequential orders are set aside. However, the Department is free to act in those cases, where the purchase transactions are not bona fide, in accordance with law. The writ petition is disposed off. Issues:Challenge to the validity of Sections 16(2)(c) and 16(2)(d) of Assam Goods and Services Tax Act, 2017 and Central Goods and Services Tax Act, 2017 along with show cause notices issued to petitioners.Analysis:1. The petitioners challenged the validity of certain sections of the tax acts and show cause notices issued to them. The counsel argued that the controversy is similar to a Delhi High Court case where it was held that purchasing dealers cannot be penalized for the selling dealer's failure to deposit tax collected.2. The Delhi High Court had observed that demands against purchasing dealers in bona fide transactions cannot be sustained. The Supreme Court dismissed the Special Leave Appeal against this judgment, affirming the principle.3. The Standing Counsel for CGST and counsel for the respondent State did not dispute that the issue in these petitions aligns with the Delhi High Court decision.4. The provisions in question under Assam and Central GST Acts are akin to the challenged provision in the Delhi Value Added Tax Act, as highlighted in the Delhi High Court judgment.5. The Delhi High Court emphasized that laws must not burden bona fide purchasing dealers disproportionately and should target defaulting selling dealers. It held that the provisions should not be applied to genuine transactions with registered dealers.6. The Supreme Court upheld the Delhi High Court judgment and dismissed the Special Leave Petition, allowing the Department to proceed against non-bona fide cases.7. The High Court, after reviewing the Delhi High Court judgment and Supreme Court decision, set aside the show cause notices in the present case, following the Delhi High Court's reasoning. The Department was allowed to act in cases of non-bona fide transactions.8. The writ petitions were disposed of based on the alignment of the issues with the Delhi High Court decision, providing relief to petitioners with bona fide transactions while allowing action in other cases.This detailed analysis outlines the legal arguments, court decisions, and implications of the judgment concerning the challenge to specific provisions of the tax acts and show cause notices.