Input tax credit denied for non-genuine purchases where dealers failed to prove actual movement of goods.

The Gujarat HC reiterated that the Tribunal could decide the second appeals on merits even though the first appellate authority had dismissed them for non-payment of predeposit, because the appellants had also challenged the assessment orders and argued the merits before the Tribunal. It also affirmed that input tax credit may be denied where the dealer fails to prove the genuineness of the purchases and actual movement of goods; retrospective cancellation of the vendor's registration does not by itself determine the issue. The burden to establish genuine transactions remained on the credit claimant, and billing entries without proof of transport or delivery were insufficient.

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Issues: (i) Whether the Tribunal was justified in deciding the second appeals on merits notwithstanding that the first appellate authority had dismissed the appeals for non-payment of predeposit. (ii) Whether input tax credit could be denied where the purchases were held to be not genuine and the assessees failed to prove actual physical movement of goods, notwithstanding that the vendor's registration had been cancelled retrospectively.

Issue (i): Whether the Tribunal was justified in deciding the second appeals on merits notwithstanding that the first appellate authority had dismissed the appeals for non-payment of predeposit.

Analysis: The second appeals before the Tribunal challenged not only the predeposit-based dismissal but also the assessment orders, and the appellants themselves advanced detailed submissions on the merits of the assessments. In that situation, the Tribunal was not in error in examining the merits of the assessment orders and deciding the appeals accordingly.

Conclusion: The Tribunal was justified in deciding the appeals on merits; this contention fails and is against the assessee.

Issue (ii): Whether input tax credit could be denied where the purchases were held to be not genuine and the assessees failed to prove actual physical movement of goods, notwithstanding that the vendor's registration had been cancelled retrospectively.

Analysis: The claim for input tax credit was rejected not merely because the vendors' registrations were later cancelled, but because the assessees failed to establish the genuineness of the purchases and the actual movement of goods. The documentary material relied upon did not satisfactorily prove transportation or delivery of the goods, and the Court accepted the concurrent factual findings that the transactions were only billing transactions. The burden to prove genuineness of the purchases remained on the dealer claiming credit.

Conclusion: Denial of input tax credit was valid; this issue is decided against the assessee and in favour of the Revenue.

Final Conclusion: The common judgment upholding denial of input tax credit is sustained, and the tax appeals fail. The limited remand on penalty does not affect the dismissal of the appeals on the main issue.

Ratio Decidendi: A dealer claiming input tax credit must prove the genuineness of the purchases and actual movement of goods; retrospective cancellation of the vendor's registration does not by itself determine the issue, but failure to prove genuine transactions justifies denial of credit.

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