Madras HC: Liability to be borne by seller or buyer in case of tax default

Madras High Court Law InsiderMadras High Court Law Insider

Aryan Grover

A single judge bench of Justice GR Swamynathan of the High Court of Madras has, in its ruling, laid down that if the tax has not reached the kitty of the government, the liability for it will have to eventually be borne by one party, which may be the seller or the buyer.

The petitioners, who are traders in Raw Rubber Sheets, are dealers registered with Nagercoli Assessment Circle and they submitted that they had purchased goods from an individual Charles, and Charles’ wife Shanthi.

Charles and his wife are dealers also registered with the Nagercoli Assessment Circle and the petitioners submitted that a considerable part of the payment was made to the sellers through banking channels, which included the tax component.

The petitioners availed input tax credit based on the returns filed by the sellers.

However, in later inspection by the respondent, it was revealed that Charles and his wife had not paid any tax to the government, which necessitated the institution of the impugned proceedings. Thereby the respondent had issues show-cause notices to the petitioners.

The petitioners, however, contended that they had paid all the amounts payable to Charles and his wife Shanthi and therefore, it is those two who must be confronted in enquiry.

Nevertheless, Charles and his wife not having been impleaded in this case, the impugned orders levied the entire liability on the petitioners.

The court, in this manner, quashed the impugned order, and the matter was remitted back to the file of the respondent.

A fresh enquiry was ordered where Charles and his wife are examined as witnesses and a parallel recovery action against the two will also be initiated by the respondent.

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