Madras HC quashes Levy of Purchase Tax under TNGST Act on Buyer owing to Default of Seller [Read Order]
Madras HC Quashes Levy of Purchase Tax on Buyer under TNGST Act for Seller’s Default
![Madras HC quashes Levy of Purchase Tax under TNGST Act on Buyer owing to Default of Seller [Read Order]](https://images.taxscan.in/h-upload/2025/11/05/2102618-madras-hc-levy-of-purchase-tax-tngst-act-taxscan.webp "Madras HC quashes Levy of Purchase Tax under TNGST Act on Buyer owing to Default of Seller [Read Order]")
The Madras High Court has held that purchase tax under Section 7A of the Tamil Nadu General Sales Tax Act, 1959 (TNGST Act) cannot be levied on a buyer merely because the seller failed to remit tax, and quashed the impugned order of the Tamil Nadu Sales Tax Appellate Tribunal (STAT).
The petitioner, engaged in manufacturing asphalt roofing sheets, had purchased asphalt from Sri Vinayaga Agencies and Sri Mahalakshmi Agencies, both registered dealers under the TNGST Act. The Enforcement Wing later observed that these vendors had not discharged tax liabilities on the sales.
Consequently, the Assessing Officer invoked Section 7A of the TNGST Act and levied purchase tax on Light Roofings Ltd., treating the purchases as having been made “in circumstances in which no tax was payable.”
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While the Appellate Assistant Commissioner had earlier remanded and then deleted the levy on finding the investigation inadequate, the STAT later reversed the relief and reinstated the tax demand.
Counsel for the petitioner, P. Rajkumar contended that Section 7A applies only where a transaction is not liable to tax-not where the seller is liable but fails to pay. The levy on the buyer was therefore unwarranted. The Revenue, represented by Government Advocate (Tax) Mr. V. Prashanth, argued that non-payment by the seller triggered the buyer’s liability under Section 7A.
The Court clarified that Section 7A of the TNGST Act is a separate charging provision that applies only where purchases are made “in circumstances in which no tax is payable.” It noted that the sellers’ turnovers exceeded the taxable threshold and their sales were, in fact, liable to tax under Section 3(2). Hence, the purchases could not be treated as made in non-taxable circumstances.
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The Division Bench comprising Justice S.M. Subramaniam and Justice Mohammed Shaffiq, citing the Supreme Court’s ruling in State of Tamil Nadu v. M.K. Kandaswami and the Kerala High Court’s judgment in Kerala Premo Pipe Factory Ltd. v. State of Kerala, held that the expression “no tax is payable” does not include cases where tax is payable but remains unpaid by the vendor.
The Bench observed that if a seller fails to remit tax, the Revenue must proceed against the seller rather than burden the buyer with purchase tax liability. Finding the STAT’s reasoning misconceived, the Court quashed the order and allowed the writ petitions.
The decision also clarifies that liability under Section 7A arises only when the purchase itself is exempt from tax, not due to a seller’s failure to discharge their dues.
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