The Calcutta High Court has held that there is no service tax liability on the service recipient for default of the seller. The adjudicating authority, without resorting to any action against the supplier ignored the tax invoices produced by the appellant as well as the certificates issued by the Chartered Accountants(CA), which are erroneous.
The petitioner/assessee, Lokenath Construction Pvt ltd has challenged a show-cause notice issued by the West Bengal Goods and Service Tax (WBGST) authorities on the ground that the notice has been issued without causing any verification from the supplier’s end and denying credit to the appellant. The Writ Court disposed of the writ petition by directing the appellant to file the objection to the show-cause notice, and the authority was directed to consider it and take note of the judgment relied on by the appellant.
The respondent department issued notice holding that the appellant had failed to produce any evidence from which it can be ascertained that the suppliers had paid tax to the government on those supplies. The appellant had availed and utilized input tax credit (ITC) in contravention of Section 16(2)(c) of the Act. Therefore, it was proposed that the ITC of IGST be found reversible along with interest payable as per the provisions of Section 50 of the GST Acts.
A division bench of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya has observed that If the authority has admitted the fact that the recipient, who is the appellant, has made payment of the tax to the supplier against the transaction, If it is the case of the department that such tax has not been remitted to the state exchequer, the elementary principle to be adopted is to cause an inquiry with the supplier, and without doing so to penalize the appellant, it would be arbitrary, illegal, and without jurisdiction.
The court set aside the order impugned in the writ petition as well as the show-cause notice with a direction to the authorities to first proceed against the supplier and only under exceptional circumstances, as clarified in the press release issued by the Central Board of Indirect Taxes and Customs (CBIC), and then only proceedings can be initiated against the appellant.
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