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August 19, 2023

D Y Beathel Enterprise vs. State Tax Officer – Liability of Buyer for Unpaid GST by Seller

D Y Beathel Enterprise vs. State Tax Officer – Liability of Buyer for Unpaid GST by Seller


In the legal case of D Y Beathel Enterprise vs. State Tax Officer, the court overturned the decision of a GST officer who had imposed GST liability on a buyer due to the seller’s failure to pay the GST. The court found that burdening the buyer with GST when the seller had not fulfilled their tax obligations was unjustified.


The applicants, D Y Beathel Enterprise, operated as dealers of Raw Rubber Sheets. They engaged in transactions with a couple who acted as sellers. The applicants diligently paid the seller, which included the tax component, through bank transactions. In due course, they claimed Input Tax Credit (ITC) for the GST paid on their purchases.

However, the applicants received a show cause notice from the GST officer as the seller couple had not remitted the GST to the government. The applicants contended that the officer unjustly targeted them without addressing the seller’s non-compliance, which led to the filing of this writ application (WP) by the purchasers.


The central issue revolved around whether it was justifiable to hold the purchaser accountable for the entire GST amount, despite the non-compliance of the seller, and whether the GST officer’s action was lawful.


The applicants referenced a precedent case that held that the GST authority lacked the jurisdiction to reverse ITC already availed by the buyer based on the seller’s failure to pay taxes. They also referred to a press release issued by the GST Council on May 4, 2018, which specified that the buyer’s ITC wouldn’t be automatically reversed if the seller defaulted. Reversal of credit from a buyer would only be considered as a last resort under circumstances such as the dealer’s disappearance, business closure, or financial constraints.

Observation and Judgment

The court delved into Section 16 of the CGST Act and noted that while the buyer had paid GST to the seller, the latter had failed to remit the taxes to the government. The absence of any movement of goods heightened the gravity of the situation, necessitating the initiation of inquiries with the seller.

The court found significant flaws in the tax authorities’ order and quashed it. It further directed that the seller couple who defaulted on tax payments should be examined, and recovery proceedings initiated against them by the GST office.


The petitioner in this case, the purchaser, had acted diligently from a purchasing standpoint by paying the GST on their purchases. Only upon receiving a show cause notice did they realize the seller, a couple, had not paid the GST nor transferred the goods as required. The GST officer’s approach was deemed incorrect, as proper inquiry should have been directed towards the seller’s tax non-compliance.

The court’s decision to uphold the purchaser’s writ application was justified, as it sought to protect the interests of the GST Act. The officer’s failure to fulfill his duty in investigating the tax default was noted, and the court appropriately granted the relief sought by the purchaser. The judgment underscored the importance of fairness and due process in enforcing GST regulations.

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