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Issues: (i) Whether section 8(3) of the Haryana Value Added Tax Act, 2003 and rule 20(1) and 20(4) of the Haryana Value Added Tax Rules, 2003 are ultra vires Articles 14 and 19(1)(g) of the Constitution of India. (ii) Whether a purchasing registered dealer can be denied input tax credit merely because the selling registered dealer did not deposit the tax in the State treasury, in the absence of fraud, collusion or connivance.
Issue (i): Whether section 8(3) of the Haryana Value Added Tax Act, 2003 and rule 20(1) and 20(4) of the Haryana Value Added Tax Rules, 2003 are ultra vires Articles 14 and 19(1)(g) of the Constitution of India.
Analysis: The provision requiring production of a tax invoice and the prescribed certificate does not make the selling dealer's declaration conclusive, but authorises scrutiny of its genuineness. The statutory scheme permits the authority to verify truthfulness and allows the State to protect revenue. The provisions are capable of being sustained by reading them so that the purchasing dealer is not saddled with an impossible burden, while the authority retains power to examine false or collusive declarations.
Conclusion: The challenge to section 8(3) and rule 20(1) and 20(4) fails; they are not ultra vires.
Issue (ii): Whether a purchasing registered dealer can be denied input tax credit merely because the selling registered dealer did not deposit the tax in the State treasury, in the absence of fraud, collusion or connivance.
Analysis: Once the purchasing dealer produces the prescribed invoice and certificate, the burden is discharged. The purchaser cannot be required to establish, by independent inquiry, that the selling dealer actually remitted the tax. Liability may be fastened only where the declaration is bogus or where fraud, collusion or connivance between the purchasing dealer and the selling dealer or predecessors is established. Otherwise, fastening liability on the purchaser would amount to impermissible vicarious liability and would defeat the scheme of input tax credit.
Conclusion: Input tax credit cannot be denied to the purchasing dealer merely for the selling dealer's default, unless fraud, collusion or connivance is proved.
Final Conclusion: The statutory provisions were upheld, but they were confined in operation so that the purchasing dealer is not made liable for the seller's non-deposit of tax except in cases of fraud, collusion or connivance; the assessment orders were therefore set aside and the matters remanded for fresh assessment in accordance with law.
Ratio Decidendi: A taxing provision affecting input tax credit must be construed to avoid unconstitutional vicarious liability, and the purchaser's burden is discharged by producing the prescribed invoice and certificate unless the revenue proves fraud, collusion or connivance.
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