Madras High Court
M/S.Liberty Clothing Company vs The Union Of India on 3 February, 2023
W.P. No.2924 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 03.02.2023
CORAM:
THE HON'BLE MR. JUSTICE ABDUL QUDDHOSE
W.P. No.2924 of 2023 and
W.M.P. Nos.3023 and 3025 of 2023
M/s.Liberty Clothing Company,
represented by its Proprietor
Mrs.Meharaj ... Petitioner
vs.
1.The Union of India,
(represented by its Secretary),
Ministry of Finance,
Department of Revenue,
New Delhi.
2.The State of Tamil Nadu,
(represented by its Secretary),
Commercial Taxes and Religious B2 Department,
Fort St. George,
Chennai – 600 009.
3.The Deputy Commissioner,
Office of the Deputy Commissioner of
Central GST and Central Excise,
Tirupur Division,
51, Elementary School Street,
Kumar Nagar,
Tirupur – 641 603. ... Respondents
Prayer: Writ petition filed under Article 226 of the Constitution of India to
issue a Writ of Certiorari calling for the records on the file of the third
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W.P. No.2924 of 2023
respondent in FORM GST DRC-01 being Show Cause Notice bearing
SCN SL.NO.14/2022-DC-GST dated 29.12.2022 and quash the same as
being without its jurisdiction and authority of law.
For petitioner : Mr.R.Senniappan
For respondents : Mr.T.Ramesh Kutty,
Standing Counsel
for R1 and R3
Mr.K.Vasantha Mala,
Government Advocate for R2
ORDER
By consent of both the parties, this writ petition has been taken up
for final disposal at the admission stage itself.
2.This writ petition has been filed, challenging the Show Cause
notice dated 29.12.2022, issued by the third respondent in FORM GST
DRC-01.
3.The petitioner has challenged the impugned show cause notice
dated 29.12.2022 issued by the third respondent in FORM GST DRC-01
on the following grounds:
a)The condition requiring the buyer to prove the payment of tax by
the supplier of goods and services is unreasonable and beyond the control
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W.P. No.2924 of 2023
of the buyer. According to the petitioner, they have paid the tax to their
seller, which is not disputed by the respondents. Only on account of the
cancellation of registration of the seller, the respondents have issued the
impugned show cause notice to the petitioner, which is arbitrary and
illegal;
b)The respondents have not adhered to the provisions of Sections
42(3) of the GST Act 2017 as well as 43-A of the very same Act, which
makes it clear that the respondents will have to enquire both the buyer
(petitioner) as well as the seller. According to the petitioner, since the
show cause notice has been issued only to them, the same is arbitrary and
illegal. According to the petitioner, the respondents have predetermined
the issue in the impugned show cause notice.
4.Learned counsel for the petitioner relies upon the following
authorities in support of his contention that enquiry will have to be held
by the respondents only after giving notice to the buyer as well as to the
seller:
1)W.P. (MD) Nos.2127 of 2021 etc. batch dated 24.02.2021 in the
case of M/s.D.Y.Beathel Enterprises vs. The State Tax Officer (Data Cell);
2)W.P. No.15340 of 2022 dated 21.06.2022 in the case of
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W.P. No.2924 of 2023
M/s.G.K.Shetty Builders Pvt. Ltd. vs. The Joint Commissioner and
another;
According to them, the petitioner, being a buyer, had paid the tax
liability to the seller and therefore, the impugned show cause notice
cannot be issued to them alone.
5.Heard Mr.R.Senniappan, learned counsel for the petitioner,
Mr.T.Ramesh Kutty, learned Standing Counsel, who accepts notice on
behalf of the respondents 1 and 3 and Mrs.K.Vasantha Mala, learned
Government Advocate, who accepts notice on behalf of the second
respondent.
6.Learned Standing Counsel appearing for the respondents 1 and 3
would submit on instructions that the Central Authority has already made
a communication to the State Authority that the notice will have to be sent
to the supplier from whom the petitioner had purchased the goods. He
would also submit that only in accordance with the procedure established
under the CGST Act 2017, further proceedings will be initiated by the
respondents. He would submit that the present writ petition is not
maintainable on the ground that the petitioner has challenged the show
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W.P. No.2924 of 2023
cause notice even without submitting a detailed reply to the same.
According to him, the contention of the petitioner as raised in this writ
petition can be considered only after they send a reply to the impugned
show cause notice and not before that.
7.Admittedly, a challenge has been made in this writ petition only
to a show cause notice. The petitioner contends that they are not liable to
pay the tax as they state that they have already paid the tax to their
supplier. However, the respondents, as seen from the impugned show
cause notice, have informed the petitioner that the tax amount has not
been paid to them either by the buyer (petitioner) or by the supplier. It is
also brought to the notice of the petitioner in the impugned show cause
notice that the GST registration of the supplier has already been cancelled
in the year 2019 and till date, the tax amount has not been paid for the
subject supplies. The petitioner relies upon Sections 42(3), 43-A and
16(2) of the GST Act 2017 and also the judgments rendered by this Court
referred to supra in order to substantiate their claim that before passing
any assessment order, the respondents will have to enquire both the
petitioner as well as the seller. The following Sections of the GST Act
2017 has to be necessarily adhered to by the respondents before passing
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W.P. No.2924 of 2023
final orders:
Sections 42(3), 43-A and 16(2) of the CGST Act 2017 are
extracted hereunder:
“ '42.Matching, reversal and reclaim of input tax
credit-
....
(3)Where the input tax credit claimed by a recipient in
respect of an inward supply is in excess of the tax declared
by the supplier for the same supply or the outward supply is
not declared by the supplier in his valid returns, the
discrepancy shall be communicated to both such persons in
such manner as may be prescribed.'
'43-A.Procedure for furnishing return and availing
input tax credit (1)Notwithstanding anything contained in
sub-section (2) of Section 16, Section 37 or Section 38, every
registered person shall in the returns furnished under sub-
section (1) of Section 39 verify, validate, modify or delete
the details of supplies furnished by the suppliers.
(2)Notwithstanding anything contained in Section 41,
Section 42 or Section 43, the procedure for availing of input
tax credit by the recipient and verification thereof shall be
such as may be prescribed.
(3)The procedure for furnishing the details of outward
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W.P. No.2924 of 2023
supplies by the supplier on the common portal, for the
purposes of availing input tax credit by the recipient shall
be such as may be prescribed.
(4)The procedure for availing input tax credit in
respect of outward supplies not furnished under sub-section
(3) shall be such as may be prescribed and such procedure
may include the maximum amount of the input tax credit
which can be so availed, not exceeding twenty per cent of
the input tax credit available, on the basis of details
furnished by the suppliers under the said sub-section.
(5)The amount of tax specified in the outward supplies
for which the details have been furnished by the supplier
under sub-section (3) shall be deemed to be the tax payable
by him under the provisions of the Act.
(6)The supplier and the recipient of a supply shall be
jointly and severally liable to pay tax or to pay the input tax
credit availed, as the case may be, in relation to outward
supplies for which the details have been furnished under
sub-section (3) or sub-section (4) but return thereof has not
been furnished.
(7)For the purposes of sub-section (6), the recovery
shall be made in such manner as may be prescribed and
such procedure may provide for non-recovery of an amount
of tax or input tax credit wrongly availed not exceeding one
thousand rupees.
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W.P. No.2924 of 2023
(8)The procedure, safeguards and threshold of the tax
amount in relation to outward supplies, the details of which
can be furnished under sub-section (3) by a registered
person,-
(i)within six months of taking registration;
(ii)who has defaulted in payment of tax and where
such default has continued for more than two months from
the due date of payment of such defaulted amount,
shall be such as may be prescribed.'
'16.Eligibility and conditions for taking put tax credit.
(2)Notwithstanding anything contained in this Section,
no registered persons shall be entitled to the credit of any
input tax in respect of any supply of goods or services or
both to him unless,-
(a)he is in possession of a tax invoice or debit note
issued by a supplier registered under this Act, or such other
tax paying documents as may be prescribed;
[a(aa)the details of the invoice or debit note referred
to in clause(a) has been furnished by the supplier in the
statement of outward supplies and such details have been
communicated to the recipient of such invoice or debit note
in the manner specified under Section 37;]
(b)he has received the goods or services or both.
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W.P. No.2924 of 2023
Explanation – For the purposes of this clause, it shall
be deemed that the registered person has received the goods
or, as the case may be, services
(i)where the goods are delivered by the supplier to a
recipient or any other person on the direction of such
registered person, whether acting as an agent or otherwise,
before or during movement of goods, either by way of
transfer of documents of title to goods or otherwise;
(ii)where the services are provided by the supplier to
any person on the direction of and on account of such
registered person.]
(c)subject to the provisions of [section 41 or section
43A], the tax charged in respect of such supply has been
actually paid to the Government, either in cash or through
utilisation of input tax credit admissible in respect of the
said supply; and
(d)he has furnished the return under Section 39;
Provided that where the goods against an invoice are
received in lots or instalments, the registered person shall
be entitled to take credit upon receipt of the last lot or
instalment:
Provided further that where a recipient fails to pay to
the supplier of goods or service or both, other than the
supplies on which tax is payable on reverse charge basis,
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W.P. No.2924 of 2023
the amount toward the value of supply along with tax
payable thereon within a period of one hundred and eighty
days from the date of issue of invoice by the supplier, an
amount equal to the input tax credit availed by the recipient
shall be added to his output tax liability, along with interest
therein, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to
avail of the credit of input tax on payment made by him of
the amount towards the value of supply of goods or services
or both along with tax payable thereon.' ”
8.In fact, in the decisions relied upon by the learned counsel for the
petitioner, both the Hon'ble Judges of this Court have consistently held
that Section 42 of the CGST Act 2017 referred to supra has to be
necessarily adhered to by the respondents. Being a show cause notice,
that too when the same has been issued on account of non payment of the
GST as per FORM GST DRC-01, this Court cannot entertain this writ
petition at this stage. Necessarily the petitioner will have to submit a reply
to the impugned show cause notice, raising the contentions that have been
raised in this writ petition. On receipt of the same, it is for the
respondents to consider it, on merits and in accordance with law.
However, the respondents will have to adhere to the aforementioned
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W.P. No.2924 of 2023
Sections and also give due consideration to the decisions of this Court
referred to supra, before passing final orders.
9.For the foregoing reasons, this writ petition is disposed of by
directing the petitioner to submit an additional reply raising the
contentions that have been raised in this writ petition to the respondents,
within a period of three weeks from the date of receipt of a copy of this
order. On receipt of the said additional reply, the respondents, after
affording a personal hearing to the petitioner, shall pass final orders, on
merits and in accordance with law, as expeditiously as possible.
Consequently, connected W.M.Ps stand closed. No costs.
03.02.2023
vga
Index: Yes/No
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W.P. No.2924 of 2023
ABDUL QUDDHOSE, J.
vga
To
1.The Union of India,
(represented by its Secretary),
Ministry of Finance,
Department of Revenue,
New Delhi.
2.The State of Tamil Nadu,
(represented by its Secretary),
Commercial Taxes and Religious B2 Department,
Fort St. George,
Chennai – 600 009.
3.The Deputy Commissioner,
Office of the Deputy Commissioner of
Central GST and Central Excise,
Tirupur Division,
51, Elementary School Street,
Kumar Nagar,
Tirupur – 641 603.
W.P. No.2924 of 2023 and
W.M.P. Nos.3023 and 3025 of 2023
03.02.2023
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