Input tax credit cannot be denied to a bona fide purchaser when the selling dealer collects tax but fails to remit it.

A purchasing dealer who paid tax to registered selling dealers and satisfied the statutory conditions for input tax credit could not be denied credit merely because the sellers allegedly failed to remit the tax to the Department. The Madras HC reasoned that the purchaser was entitled to proceed on the bona fide assumption that tax collected under tax invoices would be remitted, and that denying credit in such circumstances would amount to impermissible double taxation. The proper remedy lay in proceeding against the defaulting selling dealers, not in fastening the liability again on the purchaser. The impugned orders were therefore unsustainable.

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Issues: Whether input tax credit could be denied to the purchaser when tax had been paid to the selling dealer but the dealer had allegedly not remitted the tax to the Department.

Analysis: The petitioner had purchased goods from registered dealers, paid tax to them, and claimed input tax credit under the Tamil Nadu Value Added Tax Act, 2006. The Court noted that the selling dealers had issued tax invoices after collecting tax and that the purchaser was entitled to proceed on the bona fide assumption that the collected tax would be remitted. It held that denial of credit to the purchaser in such circumstances would amount to impermissible double taxation. The proper course for the Department was to proceed against the defaulting selling dealers, and not to fasten the liability again on the purchaser. The Court followed the earlier decisions relied upon before it.

Conclusion: Input tax credit could not be denied to the petitioner on the admitted facts, and the impugned orders were unsustainable.

Ratio Decidendi: A purchasing dealer who has paid tax to a registered selling dealer and satisfies the statutory conditions for input tax credit cannot be denied that credit merely because the selling dealer failed to remit the tax; the Department must pursue the defaulting seller instead.

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