Payment towards bankrupted party

[yujin kim]

Dear sir

We have paid some amount towards bankrupted party.

In our company if we have to pay tax, then we receive proper tax invoice written supplier's TIN no.

and we are checking whether this TIN no is available from sales tax website.

After we paying tax, we found this party is bankruptcy and they didn't do VAT return properly.

In this situation, can we get the benefit of paid VAT refund(CENVAT credit) ? and we are not sure which party we have to pay tax, and for receiving proper tax refund, which action we can do?

In conclustion, after paying tax, we found supplier is not available, or not registered in vat no, so vat no is not available. then how  can we get te tax benefit which is we've paid already.

[YAGAY andSUN]

In Corporation Bank v. Saraswati Abharansala and another, (2009) 19 VST 84 (SC) it was held that:-

“Sales tax is leviable on sale of goods. It must be collected by the dealer as an agent of the State at such rate as may be specified. Neither the State nor the agent is entitled to collect tax at a rate higher than specified.”

The above contention was also supported with the observation of Supreme Court in State of Punjab and Others V Atul Fastners Ltd. (2007) 4 SCC 471.

Another contention raised on behalf of the petitioners was that no liability could be fastened on the petitioner on account of non-deposit of input tax received by the selling dealer from the purchasing dealer as the term “paid”[under Rule 20(1)] is to be interpreted to mean “ought to have been paid” as held by the Supreme Court in Sanjana,Assistant Collector of Central Excise, Bombay and others v. TheElphinstone Spinning and Weaving Mills Co. Ltd., , AIR 1971 Supreme Court 2039.

The Judgment delivered has far reaching effects in settling down the issues relating to cases where purchasing dealers are disallowed ITC on the ground that the seller has not paid the tax collected by him from the purchaser. The Judgment makes it clear that the selling dealer collects tax as an agent of the Government and if he makes any default to deposit the same with the treasury then innocent purchasing dealer cannot be disallowed the claim of such tax as ITC. However, if the collusion between the purchasing dealer and selling dealer is being proved then the Purchaser can certainly be held liable.

AI Summary

Input tax credit survives seller default if purchaser paid with proper invoice, unless collusion is proved. A purchaser who has paid VAT to a selling dealer and possesses the relevant tax invoice is not automatically barred from claiming Input Tax Credit/CENVAT credit if the selling dealer later fails to remit the tax; the seller is treated as an agent of the State, and purchaser entitlement survives seller default except where collusion between purchaser and seller is proven.