Bona fide purchaser protection limits VAT penalty where seller's registration was cancelled later without proof of buyer's knowledge.

Penalty under Section 54(1)(11) of the U.P. VAT Act, 2008 cannot be fastened on a purchaser who bought goods from a dealer shown as registered at the time of sale, where the seller's registration was cancelled later and there is no proof that the purchaser knew of the cancellation or acted in collusion. The provision contemplates wrongful conduct established after inquiry and hearing, and bona fide purchases cannot be treated as culpable merely because the seller's registration was subsequently cancelled. The department may proceed against the seller in accordance with law.

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Issues: Whether penalty under Section 54(1)(11) of the U.P. VAT Act, 2008 could be sustained against a purchaser who had bought goods from a dealer whose registration was cancelled later, without proof that the purchaser knew of the cancellation or had acted in collusion.

Analysis: Section 54 of the U.P. VAT Act, 2008 authorises penalty where the specified wrongful conduct is established after inquiry and opportunity of hearing. On the facts, the purchases were made when the seller was shown as registered, while the cancellation of the seller's registration occurred later. In the absence of material showing that the purchaser knew of the cancellation or was informed by the department, the purchaser could not be presumed to have participated in any wrong. The transaction was treated as bona fide, and penalty could not be fastened on the purchaser merely because the seller's registration was later cancelled. The department was left free to proceed against the seller in accordance with law.

Conclusion: The penalty against the purchaser was unsustainable and was set aside in favour of the assessee.

Ratio Decidendi: Penalty under Section 54(1)(11) of the U.P. VAT Act, 2008 cannot be imposed on a bona fide purchaser of goods from a dealer whose registration was cancelled later unless the purchaser's knowledge of the cancellation or involvement in the wrongful conduct is established.

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