Input tax credit penalty requires a specific finding of false or fraudulent invoices, not merely seller default.

Input tax credit and penalty under the U.P. VAT Act could not be sustained against the purchasing dealer unless there was a specific finding that the invoices relied upon were false, forged or fraudulent. The High Court noted that mere default or tax evasion by the selling dealer was insufficient to fasten liability on the buyer where the dealer's own invoices were not found to be non-genuine. The Tribunal had proceeded without recording such a finding, so its disallowance of input tax credit and consequential penalty could not stand. The order was set aside and the matter remitted for fresh consideration on the correct legal basis.

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Issues: Whether input tax credit and penalty under section 54(1)(19) of the U.P. VAT Act, 2008 could be sustained without a finding that the tax invoices relied upon by the dealer were false, forged, or fraudulent.

Analysis: The revision arose from disallowance of input tax credit on purchases of timber and the consequential penalty. The dispute turned on whether the purchasing dealer could be fastened with liability merely because the selling dealer was later found to have evaded tax. The Tribunal had proceeded on the footing that the invoices were forged and that VAT had not been deposited by the seller, but no specific finding was recorded that the invoices produced by the revisionist were not genuine or had been falsely or fraudulently claimed by the revisionist. In the absence of such a finding, liability could not be imposed on the purchasing dealer solely on the basis of alleged default by the selling dealer.

Conclusion: The disallowance of input tax credit and the penalty order could not stand without a clear finding of falsity or fraud in the invoices relied upon by the revisionist.

Final Conclusion: The Tribunal's order was set aside and the matter was sent back for fresh consideration in accordance with the above principles.

Ratio Decidendi: Penalty for fraudulent claim of input tax credit cannot be sustained unless there is a specific finding that the dealer's invoices or claim were false or fraudulent; mere default by the selling dealer is insufficient.

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