D.Y. Beathel Enterprises V/s State Tax Officer, Tirunelveli – High Court of Madras


The High Court held that ITC availed by the buyer cannot be reversed on the account of seller’s failure to deposit the tax collected unless a separate enquiry or proceedings were initiated against the seller, or he is examined during the assessment of the buyer.

Background of the Case:

The petitioners “ D Y Beathel Enterprises” are traders of raw rubber sheets who purchased certain materials from sellers and made substantial payment which included a tax component as well. The Sellers however did not remit the tax to the government. During an inspection the state tax officer chose to recover such taxes from the buyer invoking the provision of Section 16. Aggrieved by the proceeding the petitioner chose to file a writ petition with the High Court.

Press Release issued by the Central Board of GST Council on May 4th 2018 :

Link for the Press Release

The court relied on the press release issued by the Central Board of GST Council dated May 04th 2018. The (iv) point of the press release says No automatic reversal of credit: There shall not be any automatic reversal of input tax credit from buyer on non-payment of tax by the seller. In case of default in payment of tax by the seller, recovery shall be made from the seller however reversal of credit from buyer shall also be an option available with the revenue authorities to address exceptional situations like missing dealer, closure of business by supplier or supplier not having adequate assets etc.” 

The court observed that the officer had not initiate any recovery action with respect to this transaction against the sellers. The order passed by the officer was quashed and directed the department to hold the enquiry afresh where sellers will have to be examined as witnesses also, recovery action should be initiated against the sellers.

Steps to be taken by Assesses:

  1. Know your Customers and Suppliers: Please understand the financial position of these organisations before dealing.
  2. Verify their GST Filing status through the GST Portal. Link is provided here https://services.gst.gov.in/services/searchtp
  3.  Verify the GSTR 2B / GSTR 2A statement on a monthly / quarterly basis and send email reminders to the suppliers who have not complied with filing your invoice with the department.

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