Unregistered Suppliers Liable Under Section 76 of JGST Act: Jharkhand High Court’s Key Verdict on Tax Evasion

In a significant development under the Jharkhand Goods and Services Tax Act (JGST), 2017, the Jharkhand High Court has delivered a judgment that broadens the scope of responsibility for tax compliance. The Court clarified that the term “every person” under Section 76 of the Act includes unregistered suppliers and even those falling under the Central GST (CGST) jurisdiction.

This decision has far-reaching implications for businesses relying on third-party vendors and suppliers for services, especially when Input Tax Credit (ITC) gets denied due to non-compliance by suppliers.

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Background of the Case

The case was filed by M/s R.K. Transport & Constructions Ltd., a GST-registered company engaged in coal transportation. The company hired commercial vehicles from M.B. Enterprises (Respondent No. 6) between October 2020 and March 2021, for a total invoice value of ₹73.34 lakh, which included ₹11.18 lakh as CGST and JGST.

Although the entire payment, including tax, was made to the supplier, the taxes never appeared in the petitioner’s GSTR-2A records. The reason? The supplier did not file GSTR-1 returns, which effectively blocked ITC for the petitioner.

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Court’s Key Observations

The GST department argued that the supplier was under CGST jurisdiction and that the State authorities had no power to initiate proceedings.

However, the Division Bench, comprising Chief Justice M.S. Ramachandra Rao and Justice Rajesh Shankar, rejected this defense and made the following crucial observations:

• Section 76 of the JGST Act applies to “every person” who collects tax, regardless of registration status or jurisdiction.
• If a person collects GST, they are legally bound to deposit it with the government.
• The State cannot avoid its responsibility by citing jurisdictional limitations.
• Failure to deposit the tax collected is a clear violation, and recovery proceedings must follow, including a penalty equal to the amount collected.

The Court emphasized that by not acting against the supplier, the State GST department failed its duty, which led to a financial loss for the petitioner who lost rightful ITC.

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Supplier’s Defense Rejected

The supplier, M.B. Enterprises, attempted to escape liability by claiming:

1. They were not liable to pay GST, and
2. The issue had already been dealt with in an earlier writ petition (res judicata).

The Court dismissed both arguments. It clarified that the earlier writ petition only allowed the petitioner to file a fresh representation—it did not decide the matter on merit. Additionally, the invoices raised by the supplier clearly included CGST and JGST, making their denial of GST liability false and misleading.

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Final Verdict

The Jharkhand High Court:

• Allowed the writ petition filed by M/s R.K. Transport & Constructions Ltd.
• Directed the State GST authorities to initiate action against the supplier under Section 76 within eight weeks.
• Imposed a cost of ₹1,00,000 on the supplier for illegally withholding tax and causing financial loss to the petitioner.
• Reiterated that non-remittance of collected tax is a serious violation, even if the supplier is unregistered or under CGST jurisdiction.

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Key Takeaways for Businesses

• Always verify GSTR-2A to ensure ITC availability before finalizing payments.
• Collect proof of tax remittance from suppliers—payment of invoice doesn’t ensure tax was deposited.
• If suppliers fail to file returns or deposit tax, buyers can and should pursue legal recourse.
• The State GST authorities are empowered to act, irrespective of supplier jurisdiction or registration status.

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FAQs

Q1. Who is covered under Section 76 of the JGST Act?
A: The term “every person” under Section 76 includes all individuals or entities, whether registered or not, who collect GST from recipients.

Q2. Can the State GST department act against a supplier under CGST jurisdiction?
A: Yes. The Jharkhand HC clarified that jurisdiction is not a barrier to enforcing Section 76 if the supplier collected tax but didn’t deposit it.

Q3. What should I do if my supplier doesn’t file GSTR-1?
A: You should raise the issue with the supplier and GST department immediately. You may also consider legal action, especially if Input Tax Credit is denied.

Q4. Is collecting tax without depositing it a punishable offense?
A: Absolutely. Section 76 imposes recovery proceedings and penalties equal to the amount collected but not remitted.

Q5. What happens if the supplier includes GST in the invoice but denies liability?
A: Such an act is considered misrepresentation, and courts may impose financial penalties as seen in this case.

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Conclusion

The Jharkhand High Court’s ruling is a wake-up call for businesses and GST officers alike. It firmly establishes that responsibility to deposit collected tax lies with every supplier, registered or not, and regardless of jurisdiction. This judgment also strengthens the rights of honest taxpayers and provides a clear mechanism for recovery and redressal.

Businesses must remain vigilant, conduct regular GST compliance checks, and take immediate steps if a supplier’s non-compliance jeopardizes ITC claims. This judgment helps ensure transparency and accountability in GST administration.