CHENNAI: The Madras High Court has ruled that GST authorities are not responsible for taking action under Section 76 of the Goods and Services Tax Act, 2017, against a person who allegedly collects tax for the supply of goods from another person but fails to pay it to the government, if the collection of tax was not brought to their notice.
However, the court held that the payer of the tax can initiate proceedings against the person who collected it but did not remit it to the government, for the loss incurred.
Justice Krishnan Ramasamy issued the ruling recently while dismissing a petition filed by Rajaratnam Sinna Natchiappan, a businessman, who had taken on rent premises belonging to the second respondent, Durai Seenivasan Udayar, in Chennai since 16 February 2017. He had allegedly been paying GST since 1 July 2017, when the GST Act came into effect. However, Durai had not remitted the tax to the government.
As a consequence, Natchiappan was unable to avail of the input tax credit (ITC) provided under the GST Act as it was not reflected on the electronic credit ledger (ECL). Moreover, the Superintendent of Central Tax, Range-I, Chennai, initiated proceedings against him for non-payment of tax.
He filed the petition in the court seeking action against Durai Seenivasan Udayar under Section 76 of the GST Act.
The judge noted that the petitioner believed he was absolved of his liabilities since he had paid the tax to the supplier, and thus, if there was any failure on the part of the supplier, it was only for the GST Department to initiate appropriate legal action and recover the GST amount.
But the GST Department could not be treated as an agent for collecting the tax from the supplier. Instead, the petitioner could have followed it up with the supplier to ensure proper remittance.
The judge held that the right course of action available for the petitioner was to initiate recovery proceedings against the supplier.
“Of course, the petitioner can initiate proceedings against the supplier to the extent of loss incurred by him due to the reversal of the ITC by the department on the ground of non-remittance of GST by the supplier, by taking appropriate legal action for recovery of the amount,” the judge said.
He noted that once the amount was remitted, the provisional credit available with the ECL of the petitioner would become absolute and made available for him to avail the ITC.
Further, the judge observed that the petitioner could inform the first respondent (GST authorities) about the non-remittance of the tax amount by the supplier. However, it would be up to the authorities to initiate proceedings under Section 76 of the GST Act.