Retrospective cancellation of seller registration does not defeat genuine purchases, but bogus billing supports tax and interest demand.

Retrospective cancellation of a selling dealer's registration does not, by itself, defeat a purchasing dealer's claim where the transaction is genuine. However, where the revenue establishes that the purchases were only paper transactions, with no actual movement of goods and no credible proof of payment or source of cheques, input tax credit and consequential tax and interest demands may be sustained. On the facts discussed, the demand was based on a finding of bogus billing and nongenuine purchases, not merely on later cancellation of the sellers' registrations.

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Issues: (i) Whether the Value Added Tax Tribunal was correct in confirming the demand of tax and interest raised against the assessee. (ii) Whether demand could be sustained merely because the selling dealers' registrations were later cancelled retrospectively, notwithstanding the assessee's evidence of actual movement of goods.

Issue (i): Whether the Value Added Tax Tribunal was correct in confirming the demand of tax and interest raised against the assessee.

Analysis: The concurrent findings recorded by the authorities showed that the two selling dealers were found to be engaged only in bogus billing activities and had no genuine business in the goods stated to have been sold. The assessee's claim of genuine purchases was disbelieved on the evidence, including the inability to establish the actual movement of goods and the source and encashment of the cheques allegedly issued towards payment. In tax appeals, such factual findings were not shown to be perverse, and the Tribunal had independently upheld them.

Conclusion: The demand of tax and interest was rightly confirmed and the finding was against the assessee.

Issue (ii): Whether demand could be sustained merely because the selling dealers' registrations were later cancelled retrospectively, notwithstanding the assessee's evidence of actual movement of goods.

Analysis: Retrospective cancellation of a seller's registration does not, by itself, defeat the purchasing dealer's claim where the transaction is genuine. However, where the department establishes that the purchases themselves are not genuine and are only paper transactions, disallowance of input tax credit and consequential tax demand are permissible. On the facts, the demand was not founded merely on retrospective cancellation; it rested on a finding that the purchases were bogus and that there was no real physical movement of goods.

Conclusion: The demand was sustainable and the issue was decided against the assessee.

Final Conclusion: The legal effect of the decision is that the assessee was not entitled to relief against the tax and interest demand, as the transactions were found to be nongenuine rather than merely affected by later cancellation of the sellers' registrations.

Ratio Decidendi: Retrospective cancellation of a selling dealer's registration does not by itself invalidate a bona fide purchaser's claim, but input tax credit and related demands may be denied where the revenue proves that the purchases were bogus and lacked actual movement of goods.

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