Till recently we were reading about cases where revenue authorities were issuing notices to recipients when they were unable to trace fraudulent suppliers. Targeting recipients for the mistake of the supplier was a second step in the process; the first being finding and slamming the supplier with notice and recovering dues. However, recently in one of the cases, the revenue authorities took the liberty of issuing show-cause notices to recipients directly without even trying to contact the supplier. The officers ignored the guilty and directly went out and panned the innocent party who was not involved in the scam.
In the case of D.Y. Beathel Enterprises Vs State Tax Officer (Data Cell) (Madras High Court)[2021-TIOL-890HC-MAD-GST], petitions of traders were bunched to be decided by the Madras High Court (HC). The traders purchased goods from a vendor and the majority of payments were done through banking channels including the tax amount. The vendor filed GST returns, the basis of which the petitioners availed Input Tax Credit (ITC). Subsequently, it was discovered that the vendor had not paid the collected tax to the Government. In response to this, the petitioners were served notices to which they replied asking the revenue officers, the presence of the vendor at the inquiry for confrontation. However, the officers did not call upon the vendor and affixed the entire liability upon the petitioners.
The HC held that the orders of the revenue suffer from fundamental flaws and hence were quashed. The HC opined that the revenue has not taken any recovery steps against the supplier, even when they were made aware that the seller collected tax and still did not deposit it. Instead of taking stringent action against the seller, the officers went after the petitioners and issued notices. The HC remitted the file back and ordered a fresh enquiry.
Following the suit of other HC judgments, we are forced to wonder if this specific judgment would invite another amendment in the ITC laws under GST? In the last three years, a consistent practice of the Government is that whenever the judiciary finds a flaw in the law, points it out and asks revenue to not cross the line, the revenue very easily pushes the line to where their actions would not be called illegitimate, by way of amendments in the law. Some instances have been listed below:
These are only a few instances where the Government has nullified court rulings by way of amendments to the law. Now, it will have to be seen whether the CBIC also comes up with an amendment that does not mandate the revenue officers to investigate the supplier for not depositing tax, before they reach out to the bonafide recipients for recovery of ITC.
Let’s try to understand the expectation that the CBIC has from taxpayers in the country especially from the ITC perspective. The revenue wants the recipients to know whether their suppliers are genuine, whether they collect and deposit tax timely, whether they file GST returns timely, whether they are a part of a scam for fake invoicing or tax evasion racket, whether the supplier’s registration has been suspended and the list goes just on. From a medium-sized industry’s perspective, which may have an average of 300-500 vendors, conducting this due diligence for availing ITC may itself cost more than the ITC. Putting the industry in a situation like this could lead to adverse effects such as:
Why the Government should take the onus of identifying fake suppliers instead of passing the baton to the recipients:
The idea is that taxpayers have businesses to run, they cannot chase each and every supplier and carry out due diligence on them to check if they are associated with any rackets or scams or have any intent to evade taxes. Nonetheless, collection of tax and avoidance of tax evasion is the responsibility of the Government. They cannot delegate this responsibility to the citizens and expect them to fulfill it or face the music of penalties. Moreover, not every court decision has to be nullified by way of amendments to the law. If that’s the case, the legislators should stop giving the right of appeal to citizens and make the revenue’s decision final and unappealable. The judiciary powers should not be taken for granted. There is a reason that as a democracy we have three legs of the Government – Judiciary, Legislative and Executive. If one leg starts undermining the other, a citizen is bound to suffer!
Mr. Jigar Doshi
Jigar is a Chartered Accountant with over 17 years of work experience in the field of indirect taxation. His domain of expertise includes GST, Customs, erstwhile Indirect Taxes, and UAE VAT legislation.
Mr. Sagar Shah
Sagar is a Chartered Accountant with over 12 years of work experience in the field of indirect taxation. His domain of expertise includes business advisory and tax technology in indirect tax.
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