DY Beathel Enterprises v. State Tax Officer
Madras High Court | 2022 (58) GSTL 269 (Mad.) | Jurisdiction: India
SECONDARY_KEYWORDS: recovery from seller; natural justice; Madras High Court; input tax credit conditions
CASE_TITLE: DY Beathel Enterprises v. State Tax Officer • PUBLISH_DATE: 2025-11-02 • AUTHOR_NAME: Gulzar Hashmi • LOCATION: India
Quick Summary
The Madras High Court dealt with a common GST problem: Can the department reverse a buyer’s ITC when the seller fails to pay tax? The Court said the department must first pursue the defaulting seller. Orders that pinned full liability on the buyer, without examining the sellers, were quashed and the matter was sent back for a fresh enquiry.
Issues
- Can authorities reverse the buyer’s input tax credit because the seller did not remit GST?
Rules
- The buyer must have received the goods.
- The tax charged on the supply must have been actually paid to the Government—in cash or via admissible ITC—for that supply.
Facts (Timeline)
Optional Illustration
Traders: Petitioners dealt in raw rubber sheets; they purchased from Charles and Shanthi.
Payments: Large payments were made through bank channels, including GST in the price.
ITC Availment: Based on the sellers’ returns, petitioners took input tax credit.
Default Found: Inspection showed the sellers had not paid GST to the Government.
Action: Department reversed ITC and put entire liability on buyers—without involving the sellers.
Writs Filed: Petitioners challenged these orders before the Madras High Court.
Arguments
Petitioners (Buyers)
- Goods were received; price plus tax was paid via bank.
- Department cannot proceed only against buyers when sellers collected tax but did not remit.
- Orders passed without examining sellers violate natural justice.
Respondent (Department)
- GST for the supply was not found as paid to Government.
- Hence the condition for availing ITC was not satisfied.
- Reversal and demand on buyers were justified.
Judgment
Optional Illustration
- Authorities must treat the seller’s failure seriously and initiate recovery against the seller who collected tax.
- Impugned orders quashed. Matter remitted for fresh enquiry; sellers (Charles and Shanthi) to be examined as witnesses.
- Only enquiry is to be redone; steps till reception of buyers’ reply remain valid.
Ratio Decidendi
Where the buyer has received goods and paid price + GST, the department should first proceed against the defaulting seller who collected tax but failed to remit it. Reversing ITC solely against the buyer, without examining and pursuing the seller, offends the scheme and fairness.
Why It Matters
- Protects bona fide buyers who paid tax and received goods.
- Directs the department to recover from defaulting sellers first.
- Clarifies procedural fairness in ITC disputes under GST.
Key Takeaways
- Buyer paid? Probe seller first.
- Examine sellers before reversing buyer’s ITC.
- Quash & Remit where seller action is missing.
Mnemonic + 3-Step Hook
Mnemonic: “Paid & Received? Seller Proceed.”
- Check Goods: Buyer received goods?
- Check Tax Flow: Buyer paid price + GST via bank?
- Then Action: Go after the seller first; reassess buyer only after due enquiry.
IRAC Outline
Issue: Whether reversing the buyer’s ITC is valid when the seller fails to remit GST.
Rule: ITC requires receipt of goods and actual payment of tax to Government; enforcement must first target the defaulting seller.
Application: Buyers paid tax through bank; department skipped action against sellers and fastened liability on buyers.
Conclusion: Orders quashed; matter remitted; sellers to be examined and recovery initiated against them.
Glossary
- Input Tax Credit (ITC)
- Credit of GST paid on purchases, usable against GST on sales.
- Natural Justice
- Fair hearing and unbiased decision-making by authorities.
- Recovery from Seller
- Proceedings to collect tax from the supplier who collected but didn’t remit.
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