Input tax credit denial set aside for breach of natural justice and remanded for fresh consideration of supplier-based allegations.

Denial of input tax credit based on the seller's ab initio cancelled registration could not stand where the purchaser was not served with the cancellation order or given an effective opportunity to answer the adverse findings recorded against the seller. The court held that reliance on material against the seller without disclosure offended natural justice, so the credit disallowance was unsustainable and the matter had to be remanded for fresh adjudication. It also noted that invoices, vouchers and weigh bills alone are insufficient; a dealer claiming input tax credit must establish actual movement of goods and the genuineness of the transaction.

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Issues: Whether the denial of input tax credit on purchases from a seller whose registration had been cancelled ab initio could stand without supplying the cancellation order to the purchaser and without affording an effective opportunity to meet the findings recorded against the seller.

Analysis: The disallowance of input tax credit was founded on the cancellation of the seller's registration and the finding that the seller had indulged only in billing activities. The purchaser was not served with the order cancelling the seller's registration, and therefore was not confronted with the basis on which the adverse findings against the seller were used to deny credit. At the same time, production of bills, vouchers and weigh bills by itself was held to be insufficient, because a dealer claiming input tax credit must also establish the actual movement of goods and the genuineness of the transaction.

Conclusion: The denial of input tax credit could not be sustained in the absence of compliance with natural justice, and the matter was required to be remanded to the adjudicating authority for fresh consideration after giving the purchaser an opportunity to meet the material relied upon against the seller.

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