Input tax credit cannot be denied solely for vendor tax default when purchase details and registration are established.

Input tax credit under the Tamil Nadu VAT framework could not be denied merely because the selling dealer allegedly failed to remit tax, where the purchasing dealer had furnished the prescribed purchase particulars and the vendor was a registered dealer. Section 19 and Rule 10(2) required proof of tax payment in the prescribed manner, but Section 19(16) was treated as dealing only with provisional credit and not as authority to reverse credit on that limited ground. The Madras HC set aside the orders reversing input tax credit and rejecting rectification, and remitted the matter for fresh consideration on merits in accordance with law.

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Issues: Whether input tax credit could be reversed or denied merely because the selling dealer had allegedly not remitted tax, and whether the impugned orders confirming reversal and rejecting rectification were sustainable.

Analysis: The challenge concerned reversal of input tax credit on the basis of alleged mismatch and non-remittance by the vendors. The governing scheme under Section 19 of the Tamil Nadu Value Added Tax Act, 2006 and Rule 10(2) of the Tamil Nadu Value Added Tax Rules, 2007 required the purchasing dealer to establish payment of tax on purchases in the prescribed manner. The cited precedents recognised that once the purchasing dealer had furnished the relevant purchase particulars and the vendor was a registered dealer, the Department could not deny credit solely because the vendor had failed to pay over the collected tax. Section 19(16) was held to deal with provisional credit and did not authorise revocation on that limited ground. In the present case, the respondent was unable to dislodge the petitioner's factual and legal position.

Conclusion: The impugned orders reversing input tax credit and rejecting rectification were set aside, and the matter was remitted to the authority for fresh consideration on merits in accordance with law.

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