Input tax credit cannot be reversed from a purchaser solely for the seller's alleged tax default without record verification.

Input tax credit cannot ordinarily be reversed from a purchasing dealer merely because the selling dealer allegedly failed to remit tax, where the purchaser has paid tax and validly claimed credit. The department must verify the purchase records before fastening liability, and if the documents show that tax was not paid on the purchases, recovery may be made in accordance with law. A notice based only on the seller's default is therefore not sufficient for final recovery without examination of the relevant transactions. The matter is to be treated as a show-cause notice, with the dealer required to produce purchase records and submit an explanation for fresh adjudication on verification.

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Issues: Whether input tax credit could be reversed or recovered from the purchasing dealer on the allegation that the selling dealer had not remitted the tax, and whether the impugned notice could be sustained without verification of the purchase records.

Analysis: The notice proceeded on the footing that the petitioner had availed input tax credit and that the seller had not paid the tax at the other end. The governing principle applied was that, where the purchasing dealer has paid the tax on purchase and has validly claimed input tax credit, any default by the selling dealer in remitting tax cannot ordinarily be fastened on the purchasing dealer. The order also noted that the department must examine the relevant purchase documents, and if the verification shows that tax was not paid on the purchases, recovery may be made in accordance with law. The petitioner was therefore directed to treat the notice as a show-cause notice and submit an explanation.

Conclusion: The liability for non-remittance of tax was held to lie primarily on the selling dealer, and the impugned notice was not finally upheld as a recovery demand against the petitioner; instead, the matter was left for verification and fresh adjudication by the authority.

Final Conclusion: The writ petitions were disposed of with a direction to produce purchase records and respond to the notice, leaving the tax liability to be decided on verification and in accordance with law.

Ratio Decidendi: Input tax credit cannot be reversed from a purchasing dealer merely because the selling dealer has allegedly failed to remit tax, unless the purchasing dealer's entitlement is shown to be incorrect on verification of the purchase transactions.

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