Purchaser Can't Be Punished For Failure Of Seller To Deposit Tax: Gauhati High Court

The Gauhati High Court has held that a purchasing dealer cannot be punished for the act of the selling dealer in case the selling dealer had failed to deposit the tax collected by it.

The bench of Chief Justice Vijay Bishnoi and Justice Suman Shyam has observed that the Department is precluded from invoking Section 9(2)(g) of the DVAT to deny ITC to a purchasing dealer who has bona fide entered into a purchase transaction with a registered selling dealer who has issued a tax invoice reflecting the TIN number. In the event that the selling dealer has failed to deposit the tax collected by him from the purchasing dealer, the remedy for the Department would be to proceed against the defaulting selling dealer to recover such tax and not deny the purchasing dealer the ITC.

The petitioners/assessee have challenged the validity of Sections 16(2)(c) and 16(2)(d) of the Assam Goods and Services Tax Act, 2017 as well as the validity of Sections 16(2)(c) and 16(2)(d) of the Central Goods and Services Tax Act, 2017 along with the show cause notices issued to the petitioners.

The assessees contended that the provisions of Section 9(2)(g) of the Delhi Value Added Tax Act, 2004 can be read down and the demand raised against the purchasing dealers, who have entered into bona fide transactions, cannot be sustained.

The court relied on the decision of the Delhi High Court in the case of On Quest Merchandising India Private Limited vs. Government of NCT of Delhi & Ors., in which it was held that the purchasing dealer is being asked to do the impossible, i.e., to anticipate the selling dealer who will not deposit with the government the tax collected by him from those purchasing dealers and therefore avoid transacting with such selling dealers. Alternatively, what Section 9(2)(g) of the DVAT Act requires the purchasing dealer to do is somehow ensure that the selling dealer does in fact deposit the tax collected from the purchasing dealer, and if the selling dealer fails to do so, undergo the risk of being denied the ITC. Indeed, Section 9(2)(g) of the DVAT Act places an onerous burden on a bona fide purchasing dealer.

The court quashed the show cause notices and the consequential orders and granted the liberty to the Department to act in those cases, where the purchase transactions are not bona fide, in accordance with law.

Counsel For Petitioner: A. Saraf, P.K. Bora

Counsel For Respondent: S.C. Keyal

Case Title: National Plasto Moulding Versus State Of Assam

Case No.: WP(C)/2863/2022

Click Here To Read The Order