There shall not be any automatic reversal of input tax credit from the 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. Reversal of credit from buyer shall also be an option but only for exceptional situations.
Section 16 of the CGST Act, 2017- Input Tax credit – The petitioner a dealer purchased goods from another dealer. Based on the returns filed by the sellers, the petitioners availed ITC. During inspection by the respondent, it was observed that the sellers did not pay any tax to the Government. The respondent had issued show cause notices to the petitioners. The petitioners submitted their replies specifically taking the stand that all the amounts payable by them had been paid to the seller and therefore, seller will have to be necessarily confronted during enquiry. But the respondent passed orders without involving the seller levying the entire liability on the petitioners. The petitioner challenged these orders in the writ petitions. The petitioner’s counsel relied the decision of the Madras High Court in Sri Vinayaga Agencies Vs. The Assistant Commissioner, CT Vadapalani, wherein it was held that the authority does not have the jurisdiction to reverse the ITC already availed by the assesses on the ground that the selling dealer has not paid the tax. The petitioner’s counsel submitted that the respondent while finalising the assessment of the seller excluded the subject transactions alone.
Held that:- The Hon’ble High Court quashed the orders and remitted the matters back to the respondent and directed the respondent that enquiry will have to be held afresh after examining the sellers.