Natural justice and input tax credit cannot be defeated by retrospective dealer registration cancellation after valid purchases

Assessment orders were set aside for breach of natural justice because the dealer was not given an effective personal hearing and the records showed inconsistency on objections and their consideration. The court also reaffirmed that input tax credit is determined by the position when the purchases are made: if goods were bought from dealers holding valid registration and tax was charged on the invoices, later retrospective cancellation of the sellers' registration does not by itself defeat credit already availed under the Tamil Nadu Value Added Tax Act, 2006. The matter was remanded for fresh decision after a proper hearing.

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Issues: (i) whether the assessment orders were vitiated for violation of the principles of natural justice by denying an effective personal hearing; (ii) whether retrospective cancellation of the selling dealers' registration certificates could justify reversal or denial of input tax credit to the purchasing dealer.

Issue (i): whether the assessment orders were vitiated for violation of the principles of natural justice by denying an effective personal hearing.

Analysis: The assessment records showed confusion on the part of the assessing officer and inconsistency regarding the receipt and consideration of objections. The absence of a proper personal hearing meant that the petitioner was not given a fair opportunity to clarify the factual position or answer the specific points relied upon in the assessments.

Conclusion: The assessments were vitiated on the ground of violation of natural justice, and the petitioner succeeded on this issue.

Issue (ii): whether retrospective cancellation of the selling dealers' registration certificates could justify reversal or denial of input tax credit to the purchasing dealer.

Analysis: The governing principle applied was that the purchasing dealer's entitlement to input tax credit is judged with reference to the position obtaining when the purchases were made. Where goods were purchased from dealers who held valid registration certificates and tax was paid on the invoices, a later retrospective cancellation of the sellers' registration cannot nullify the credit already validly availed under Section 19 of the Tamil Nadu Value Added Tax Act, 2006.

Conclusion: Retrospective cancellation of the selling dealers' registration could not, by itself, defeat the petitioner's input tax credit claim, and the petitioner succeeded on this issue as well.

Final Conclusion: The impugned assessments were quashed and the matter was sent back for a fresh decision after giving the petitioner a proper personal hearing and considering the governing legal position on input tax credit.

Ratio Decidendi: A purchasing dealer's validly availed input tax credit cannot be nullified merely because the selling dealer's registration is cancelled retrospectively after the transaction, and an assessment made without a fair opportunity of hearing is liable to be set aside.

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