HC Quashes Assessment Order and Remands Matter for Fresh Adjudication, Citing Violation of Natural Justice
The petitioners, a batch of registered dealers from Nagercoil Assessment Circle, are engaged in the trade of Raw Rubber Sheets. They had purchased goods from two individuals, Charles and his wife, Shanthi. The specific case of the petitioners is that a substantial portion of the sale consideration was paid only through banking channels. The payments made by the petitioners to the sellers also included the tax component. The problem came up when revenue authorities attempted to reverse the input tax credit enjoyed by the petitioners on the basis that sellers had not paid the tax to the government.
The petitioners alleged that they had remitted the entire amount to the sellers and that the sellers must be confronted and cross-examined in the course of the enquiry. The impugned orders, imposing the entire tax liability on the petitioners without involving the sellers, were issued. The revenue department, nevertheless, justified its move by claiming that, as the tax was not paid to the government, it was entitled to reverse the ITC taken by the petitioners.
Issue Raised: Whether the revenue authorities can reverse the input tax credit of the purchasing dealer without taking recovery action against the selling dealer, and without giving the purchasing dealer a chance to cross-examine the sellers.
HC’s Decision: The court found that the assessment orders suffered from fundamental flaws, including the non-examination of the sellers in the enquiry and the non-initiation of recovery action against them in the first place. The court observed that the tax had been collected by the sellers from the petitioners, and the department should have first proceeded against the sellers for non-remittance. The court set aside the assessment orders and remanded the matters back to the respondent for a fresh enquiry. It was directed that Charles and his wife, Shanthi, must be examined as witnesses. The court also directed that a parallel recovery action must be initiated against the sellers. The court emphasised that the liability may have to be borne by either the buyer or the seller, but in this case, the authorities had not taken any recovery action against the seller for the present transactions.
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