Input tax credit cannot be denied solely for later retrospective cancellation of the selling dealer's registration.

Input tax credit could not be denied merely because the selling dealer's registration was later cancelled retrospectively, where the transaction occurred while both dealers held valid registration certificates. The Court noted that later cancellation did not by itself invalidate a purchase made in reliance on a valid registration at the time of sale. Denial of credit could still be examined on independent grounds such as complicity or connivance, but not solely on retrospective cancellation. The impugned report was set aside and the authority was directed to reconsider entitlement to input tax credit within those limits.

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Issues: Whether input tax credit could be denied solely because the selling dealer's registration was cancelled retrospectively, when the transaction took place while both dealers held valid registration certificates.

Analysis: The challenge was directed against the statutory basis for denial of credit where the purchasing dealer had verified the other dealer's valid registration at the time of the transaction. The Court found prima facie merit in the contention that a subsequent cancellation of the selling dealer's registration, even with retrospective effect, should not by itself invalidate transactions entered into when the registration was shown as valid. Denial of credit could still be considered on independent grounds such as complicity or connivance, but not merely on the basis of later cancellation.

Conclusion: Input tax credit could not be denied only because the other dealer's registration was subsequently cancelled retrospectively; the matter was remitted for reconsideration on other permissible grounds.

Final Conclusion: The impugned report was set aside and the authority was directed to reconsider the petitioner's entitlement to input tax credit within the limits indicated by the Court.

Ratio Decidendi: A transaction entered into with a dealer whose registration is valid at the time of sale cannot be disallowed for input tax credit merely because that registration is cancelled later with retrospective effect, unless independent grounds of involvement or complicity are shown.

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