Input tax credit cannot be reversed for a seller's reporting default when the buyer paid tax and claimed credit on invoices.

Input tax credit cannot be reversed merely because the selling dealer failed to report the transaction in its returns when the purchasing dealer had paid tax, held the Madras HC. The buyer had reflected the purchase in its return and the tax payment was admitted; denial of credit based only on the seller's omission was therefore unsustainable. Applying the earlier interpretation of Section 19(16) of the Tamil Nadu Value Added Tax Act, 2006, the Court held that the provision does not permit reversal of credit on that sole ground, and the department's remedy lies against the defaulting seller. The demand for tax and penalty was set aside.

---

---

Issues: Whether input tax credit could be reversed merely because the selling dealer failed to report the transaction in its returns, when the purchasing dealer had paid tax and claimed credit on the basis of purchase invoices.

Analysis: The purchasing dealer had paid tax to the seller and reflected the purchase in its return. The denial of input tax credit was founded only on the seller's omission to disclose the transaction. The Court held that the buyer cannot be penalised for the seller's default where the tax payment by the buyer is admitted. The reliance on the earlier decision applying Section 19(16) of the Tamil Nadu Value Added Tax Act, 2006 was found applicable, as that provision does not authorise reversal of credit on the sole ground that the selling dealer failed to pay or report tax, and the department's remedy lies against the defaulting seller.

Conclusion: The revision of input tax credit and the consequential demand of tax and penalty were unsustainable and were set aside in favour of the assessee.

---