Agreement With Supplier Stating He Would Pay GST Is Not Tenable to Avoid RCM Liability | HC

Case Details: Devendra Kumar Singh Contractor vs. Union of India - [2025] 173 taxmann.com 627 (Allahabad)

Judiciary and Counsel Details

• Arun Bhansali, CJ. & Kshitij Shailendra, J.
• Sanjeet Kumar Yadav for the Petitioner.
• Anant Kumar Tiwari & Ankur Agarwal (SC) for the Respondent

Facts of the Case

The petitioner, a taxpayer, was issued a show cause notice by the department for non-payment of GST under the reverse charge mechanism (RCM). The show cause notice was issued due to the petitioner’s failure to deposit GST on a specific transaction. The petitioner responded to the notice by asserting that, under the work order agreement with the supplier, the supplier had agreed to pay the GST, and therefore, the petitioner should not be held liable for its payment under RCM. The petitioner’s contention was that the reverse charge mechanism allowed the supplier to assume responsibility for GST payment, thus absolving the petitioner from liability. However, the department rejected this defence, concluding that the petitioner’s failure to deposit the GST, based on the agreement with the supplier, resulted in the non-payment of the correct amount of tax. Consequently, the department issued a demand for the unpaid GST, disregarding the agreement between the petitioner and the supplier. The petitioner filed a petition before the Allahabad High Court challenging the demand raised by the department.

High Court Held

The Hon’ble Allahabad High Court held that the agreement between the petitioner and the supplier, stating that the supplier would bear the GST, could not absolve the petitioner from the statutory liability to pay GST under the reverse charge mechanism. The Court held that the liability remained with the petitioner as per the statutory provisions. The petitioner’s failure to cite a relevant notification under Section 9 of the GST Act meant the plea based on the agreement was rejected. The Court reinforced that private agreements cannot override statutory tax obligations.