Input tax credit cannot be denied for retrospective seller registration cancellation when the buyer relied on a valid certificate at sale.

Input tax credit cannot be reversed merely because a seller's registration was cancelled retrospectively where the purchaser relied on a valid registration certificate at the time of supply; retrospective cancellation does not, by itself, defeat credit already availed on a then-subsisting registration. The Court also held that the challenge to the retrospective cancellation order required fresh consideration because the affected authority had not been given an adequate opportunity to respond. Accordingly, the credit-reversal appeals failed, while the cancellation challenge was remanded for reconsideration on the merits.

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Issues: (i) Whether input tax credit availed by purchasing dealers could be reversed merely because the selling dealers' registration certificates were cancelled retrospectively. (ii) Whether the order cancelling the seller's registration certificate with retrospective effect required interference and remand for fresh consideration.

Issue (i): Whether input tax credit availed by purchasing dealers could be reversed merely because the selling dealers' registration certificates were cancelled retrospectively.

Analysis: The governing provisions recognised that input tax credit is provisional and that the burden of proving entitlement to such credit lies on the dealer. The Court also considered the statutory consequence of cancellation of the seller's registration and the Revenue's contention that retrospective cancellation justified reversal of credit. However, the decisive factor was that the purchasing dealers had acted upon valid registration certificates that were current on the dates of transaction. The Court applied the settled principle that a later retrospective cancellation cannot prejudice a purchaser who relied on a subsisting registration at the time of sale.

Conclusion: The reversal of input tax credit solely on the basis of retrospective cancellation of the seller's registration certificates was not sustainable, and the assessee was entitled to relief on this issue.

Issue (ii): Whether the order cancelling the seller's registration certificate with retrospective effect required interference and remand for fresh consideration.

Analysis: The challenge to the retrospective cancellation order was found to require fresh adjudication because the affected authority had not been given an adequate opportunity to place a counter affidavit or meet the grounds raised in the writ petition. In these circumstances, the Court considered it appropriate to set aside the writ court's order and remit the matter for reconsideration on the merits.

Conclusion: The cancellation challenge was remanded for fresh consideration, with the writ court's order set aside.

Final Conclusion: The batch of appeals concerning reversal of input tax credit failed, while the appeal relating to retrospective cancellation of the seller's registration certificate was remitted for fresh decision.

Ratio Decidendi: A purchasing dealer who has acted on a registration certificate that was valid at the time of the transaction cannot be denied input tax credit merely because the seller's registration was cancelled retrospectively.

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