Input tax credit cannot be reversed for seller default, and fair hearing is required before adverse assessment orders are made.

Input tax credit cannot be reversed merely because the selling dealer failed to remit tax, where the purchasing dealer has met the statutory conditions and produced the relevant invoices and vendor particulars. The liability for the seller's non-payment cannot be shifted to the purchaser on that ground alone. Assessment orders reversing credit without granting or deciding a request for time to respond also breach fair procedure and are unsustainable. The Court therefore treated the adverse orders as liable to be set aside and remitted the matter for fresh consideration after hearing the assessee.

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Issues: (i) Whether input tax credit could be reversed solely because the selling dealer had not paid tax. (ii) Whether the assessment orders were unsustainable for want of a fair opportunity before reversal of input tax credit.

Issue (i): Whether input tax credit could be reversed solely because the selling dealer had not paid tax.

Analysis: The entitlement to input tax credit depended on the purchasing dealer satisfying the statutory requirements and producing the relevant invoices and vendor particulars. The liability for non-remittance of tax by the selling dealer could not be shifted to the purchasing dealer merely on that ground. The provisions governing input tax credit did not authorise reversal of credit only because the selling dealer failed to pay the collected tax.

Conclusion: The answer is in favour of the assessee. Input tax credit could not be denied or revoked merely because the selling dealer had not remitted tax.

Issue (ii): Whether the assessment orders were unsustainable for want of a fair opportunity before reversal of input tax credit.

Analysis: The petitioner had sought time to respond to the notices, but the impugned orders were passed without granting or rejecting that request. The Court treated this as a breach of fair procedure and found the orders unsustainable. The proper course was to set aside the orders and permit reconsideration after hearing the petitioner.

Conclusion: The answer is in favour of the assessee. The impugned orders were liable to be set aside and the matter remitted for fresh consideration after hearing the petitioner.

Final Conclusion: The dispute was not finally decided on the merits of the assessment alone, but the adverse orders were annulled and the matter sent back for reconsideration in accordance with law after affording an opportunity of hearing.

Ratio Decidendi: Input tax credit cannot be reversed merely on the basis of the selling dealer's default in remitting tax, and an assessment order passed without fair opportunity is liable to be set aside for fresh adjudication.

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