Natural justice and input tax credit protect compliant purchasers when reassessment relies on undisclosed grounds.

A reassessment order was held unsustainable where the final basis differed from the show-cause notice, because a ground not put to the assessee cannot be introduced at the final stage, and the defect breached natural justice. On input tax credit, a registered purchasing dealer who satisfies the statutory requirements cannot be denied credit merely because the selling dealer later fails to remit tax; liability in that situation lies against the seller, not the purchaser. The assessment was set aside, with liberty for fresh notice and reconsideration after hearing the assessee.

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Issues: (i) Whether the impugned reassessment order was vitiated for want of conformity between the show-cause notice and the final order, thereby offending principles of natural justice; (ii) whether input tax credit could be denied or reversed from the purchasing dealer when tax had been paid to the selling dealer and the prescribed requirements were otherwise complied with.

Issue (i): Whether the impugned reassessment order was vitiated for want of conformity between the show-cause notice and the final order, thereby offending principles of natural justice.

Analysis: The notice did not allege the very ground ultimately used in the assessment, namely non-production of way-bills, whereas the final order rejected the claim on that basis. A ground not put to the assessee in the notice cannot be introduced at the stage of final order. The omission was material, especially because the factual matrix regarding sale and purchase at the port yard and the supporting documents had not been properly addressed.

Conclusion: The reassessment order was vitiated for breach of natural justice and could not be sustained.

Issue (ii): Whether input tax credit could be denied or reversed from the purchasing dealer when tax had been paid to the selling dealer and the prescribed requirements were otherwise complied with.

Analysis: Under Section 19(1) of the Tamil Nadu Value Added Tax Act, 2006 read with Rule 10(2) of the Tamil Nadu Value Added Tax Rules, 2007, a registered purchasing dealer who satisfies the prescribed requirements cannot be denied input tax credit merely because the selling dealer later defaults in remitting tax. The liability in such a situation lies against the seller, not the purchaser, and the authority was bound to consider the proof of tax payment and the supporting material produced by the assessee.

Conclusion: Input tax credit could not be reversed against the purchasing dealer on the stated grounds.

Final Conclusion: The impugned assessment was set aside, and the matter was left open for a fresh notice and reconsideration in accordance with law after affording the assessee an opportunity of hearing.

Ratio Decidendi: A purchasing dealer's input tax credit cannot be denied merely on the selling dealer's default where the purchaser has complied with the prescribed statutory requirements, and a final order cannot rest on grounds not contained in the show-cause notice.

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