Input tax credit cannot be denied to a compliant buyer merely because the selling dealer defaulted in filing returns or paying tax.

Input tax credit cannot be reversed against a purchasing dealer who has complied with the prescribed purchase and payment requirements merely because the selling dealer failed to file returns or pay tax. The Madras HC applied the statutory scheme under Section 19(1) of the Tamil Nadu VAT Act, 2006 read with Rule 10(2) of the Tamil Nadu VAT Rules, 2007, holding that the Revenue must proceed against the defaulting selling dealer instead of fastening the burden on the buyer. Reversal based only on website reports, cross-verification, or dealer return defaults was therefore unsustainable, and the impugned orders were quashed.

---

---

Issues: Whether input tax credit could be reversed solely on the basis of website reports or on the ground that the selling dealer had not filed returns or paid tax.

Analysis: The decision turned on the settled position that a purchasing dealer who has complied with the prescribed requirements and established payment of tax on purchases cannot be denied input tax credit merely because the selling dealer did not file returns or remit tax. The Court relied on the statutory scheme under Section 19(1) of the Tamil Nadu Value Added Tax Act, 2006 read with Rule 10(2) of the Tamil Nadu Value Added Tax Rules, 2007 and the principle that the Revenue must proceed against the defaulting selling dealer instead of fastening the liability on the purchasing dealer. The impugned reversal based only on cross-verification and website data was therefore unsustainable.

Conclusion: The reversal of input tax credit was invalid and the impugned orders were liable to be quashed in favour of the assessee.

Ratio Decidendi: Input tax credit cannot be denied to a purchasing dealer who has complied with the prescribed purchase and payment requirements merely because the selling dealer has not filed returns or paid tax.

---