2024 (10) TMI 271 - HC - GST

Petitioner cannot pay GST under reverse charge mechanism when full tax already discharged to exchequer

Karnataka HC held that petitioner cannot be made liable to pay GST under reverse charge mechanism where entire tax amount discharge is undisputed and ... Reverse charge mechanism - double taxation - discharge of entire tax amount - quashing of assessment order - remand for verification of payment by service providerReverse charge mechanism - double taxation - discharge of entire tax amount - Liability of the petitioner to pay GST under the reverse charge mechanism where the entire tax has been discharged by the service provider. - HELD THAT: - The Court held that the decision in M/s. Zyeta Interiors Pvt. Ltd. is directly applicable: where the entire tax has been discharged and that fact is not disputed, the reverse charge mechanism does not result in double taxation and the recipient cannot be fastened with an additional liability. The Court relied on the view that mere non-adherence to prescribed payment ratios between recipient and service provider cannot convert a paid tax into an unpaid liability when the exchequer has received the tax; the principle in the cited Division Bench decision that reverse charge will not lead to double taxation was applied to the present facts. [Paras 9]Petitioner cannot be made liable to pay double tax under reverse charge where the entire tax amount has been discharged by the service provider; the Zyeta Interiors ratio applies.Quashing of assessment order - remand for verification of payment by service provider - Validity of the impugned order-in-original and the appropriate remedial course. - HELD THAT: - The Court quashed the impugned assessment order and remitted the matter to the assessing authority for limited further action: to verify whether the service provider has paid the necessary GST and thereafter to proceed in accordance with law. The remand is for verification of payment by the service provider and consequential proceedings, not for rehearing on the applicability of the Zyeta Interiors principle which the Court found controlling. [Paras 9]Impugned order quashed and matter remitted to respondent No.1 for verification of payment by the service provider and further action in accordance with law.Final Conclusion: Petition allowed; the impugned order is quashed and the matter is remanded to the assessing authority to verify whether the service provider discharged the GST, applying the principle that reverse charge does not occasion double taxation where the entire tax has been paid. Issues:Petition seeking writ of Certiorari to quash order-in-original and show-cause notice, liability to pay GST under reverse charge mechanism, applicability of previous judgments.Analysis:The petitioner sought relief through a writ petition to quash the order-in-original and show-cause notice issued by the respondents. The petitioner's liability to pay GST under the reverse charge mechanism was the primary issue. The petitioner received communication following an inspection, leading to a series of replies and notices culminating in the impugned order-in-original dated 21.03.2024. The petitioner contended that the liability issue was covered by a previous judgment of the High Court, which necessitated setting aside the assessment order for further verification by respondent No. 2.The respondents opposed the petition, arguing against its merit and supporting the impugned order. The petitioner's liability to pay GST under the reverse charge mechanism was deemed to be covered by a previous Division Bench decision of the High Court, which had remitted a similar matter to the Settlement Commission for reconsideration. The arguments presented by both parties revolved around the interpretation of relevant tax provisions and the applicability of previous legal precedents to the current case.The High Court, after considering the submissions of both parties and the material on record, addressed the two legal issues raised in the petition. Firstly, it ruled that the discharge of the entire tax amount without dispute precluded the imposition of double taxation under the reverse charge mechanism. Secondly, regarding the issue of photocopies of invoices for CENVAT Credit, the Court noted the readiness of the assessee to produce original invoices and remanded the matter for fresh consideration. The Court disposed of the appeal by directing the Settlement Commission to re-examine the case in accordance with the law, leaving all rights and contentions of the parties open.The Court relied on the previous judgment in M/s. Zyeta Interiors Pvt. Ltd. to support its decision, emphasizing its direct applicability to the current case. Consequently, the Court allowed the petition, quashed the impugned order, and remitted the matter back to respondent No. 1 for further verification regarding the payment of GST by the service provider.