Proceedings against Supplier and Recipient for non payment of tax

[Prakash and Thiagarajan]

Dear All,

During investigation, amounts were recovered from the recipient as ineligible ITC for the reason the supplier had not paid the taxes. Later, proceedings were initiated against the supplier and order passed confirming the demand towards non-payment of tax which covers the above transaction related to ineligible ITC. 

SCN is now issued on the recipient to appropriate the recovery made during investigation. Are there decisions which prohibits issuance of SCN on the recipient when the proceedings are already concluded against the supplier for the same issue (GST/VAT). 

Thanks. 

[Sadanand Bulbule]

2023 (12) TMI 739 - SC Order - THE ASSISTANT COMMISSIONER OF STATE TAX, BALLYGUNJGE CHARGE & ORS.   Versus SUNCRAFT ENERGY PRIVATE LIMITED & ORS

Denial of Input Tax Credit (ITC) - requirements of Section 16(2) of GST / WBGST Act fulfilled or not - Failure of the supplier to pay GST to the government - High Court while allowing the petition of the assessee, directed the GST authorities to first proceed against the fourth respondent (supplier) and only under exceptional circumstance as clarified in the press release issued by the Central Board of Indirect Taxes and Customs (CBIC), then and then only proceedings can be initiated against the appellant. [2023 (8) TMI 174 - CALCUTTA HIGH COURT]

Held that:- Having regard to the facts and circumstances of this case(s) and the extent of demand being on the lower side, we are not inclined to interfere in these matters in exercise of our powers under Article 136 of the Constitution of India.

SLP of the revenue dismissed.

[KASTURI SETHI]

I agree with the reply of Sh. Sadanand Bulbule, Sir, Also read the following :-

The department’s stand is not legally correct. This very issue stands decided by Hon’ble Supreme Court.

Peruse the judgement dated 9.10.2025 of Hon’ble Supreme Court in the case of Commissioner Trade and Tax Delhi Vs. Shanti Kiran India (P) Ltd. - 2025 (10) TMI 607 - SCH - VAT / Sales Tax. The department’s Appeal stands dismissed.

SAME ISSUE was involved in this case and hence judgement fully covers your case.

[Sadanand Bulbule]

Dear Sirji

Much obliged for your validation.

[Prakash and Thiagarajan]

Thank You Sirs.

[Ganeshan Kalyani]

Department to recover the tax from supplier.

[Shilpi Jain]

Also you can take support of Mafatlal case of SC which made clear the principle that the State cannot unjustly enrich itself. 

AI Summary

GST proceedings: authorities should pursue supplier first; recipient action allowed only in exceptional circumstances per rulings. Authorities should pursue supplier proceedings first where ineligible input tax credit arises from supplier non-payment; initiation of proceedings against the recipient is permissible only in exceptional circumstances, and departmental recovery should ordinarily be from the supplier, with the principle against unjust enrichment informing allocation.