M/S.Sree Maruthi Traders vs. The State Tax Officer, (Inspecton Cell)

Held

The Court held that the impugned orders suffered from fundamental flaws and were liable to be quashed. The reasoning was based on the findings from a previous batch of writ petitions (W.P.(MD)No.2127 of 2021 etc.) which were allowed on similar grounds. The Court emphasized that for ITC to be admissible, the goods must have been received, and the tax charged must have been actually paid to the Government. In this case, the respondent did not appear to have taken any recovery action against the vendors, Charles and his wife Shanthi, who had collected the tax but failed to remit it. Furthermore, the Court found it imperative that the vendors be examined and confronted during the inquiry, especially since the respondent alleged that the petitioner had not even received the goods and had availed ITC based on generated invoices without movement of goods. The failure to examine the vendors and the non-initiation of recovery action against them were identified as critical procedural defects. Consequently, the impugned orders were quashed, and the matters were remitted back to the respondent for a fresh inquiry, during which Charles and his wife Shanthi must be examined as witnesses, and parallel recovery action against them must be initiated. The stage up to the reception of the petitioner's reply was to hold good.

Facts

The petitioner, M/s. Sree Maruthi Traders, is challenging three separate orders dated January 11, 2021, passed by the State Tax Officer (Inspection Cell), Virudhunagar. These orders pertain to the tax periods 2017-18, 2018-19, and 2019-20. The petitioner had availed input tax credit (ITC) based on purchases from vendors, Charles and his wife Shanthi. It was discovered that these vendors, despite collecting tax from the petitioner, had not remitted it to the government. The respondent issued show cause notices, and the petitioner had previously filed writ petitions (W.P.(MD)Nos.14641, 14645 & 14648 of 2020) which were disposed of on October 28, 2020, directing the respondent to consider the petitioner's replies and supporting documents. The impugned orders were passed after the non-remittance by the vendors came to light, leading to the reversal of ITC.

Key Issues

1. Whether the impugned orders reversing the input tax credit availed by the petitioner are sustainable in law, considering the non-remittance of tax by the petitioner's vendors, Charles and his wife Shanthi, and the procedural lapses in the inquiry process, particularly concerning Section 16(2)(c) of the CGST Act, 2017, which requires tax to be actually paid to the Government. The petitioner argued that the respondent failed to conduct a proper inquiry. Specifically, the vendors, Charles and his wife Shanthi, were not examined, nor were they confronted with the allegations. The petitioner contended that the respondent did not initiate recovery action against the vendors first, despite knowing they had collected tax. The petitioner also highlighted that the assessment of the seller was finalized by excluding the subject transactions, which they found to be an improper approach. The petitioner relied on the principle that the liability should ultimately be borne by one party, either the seller or the buyer, and that the respondent's actions were flawed. The respondent did not appear to have presented any specific arguments in defense of the impugned orders, as the judgment notes that the case was covered by a previous batch of writ petitions allowed on similar terms.