Input tax credit cannot be denied on cancelled vendor registration alone; tax non-payment on the same goods must be proved first.

Input tax credit under section 11(7A) of the Gujarat Value Added Tax Act, 2003 could not be denied merely because a vendor's registration had been cancelled or the vendor was alleged to have dues. The authority had to first establish that tax on the very goods purchased was not actually paid, and the assessee had to be given a fair opportunity to meet any adverse material. On the facts, later material showed no outstanding dues for two vendors and the third vendor's dues did not relate to the petitioners' transactions, so the petitioners had a strong prima facie case. The insistence on a substantial pre-deposit was therefore unjustified, and the orders insisting on pre-deposit and dismissing the appeal were set aside.

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Issues: Whether the Tribunal and the first appellate authority were justified in insisting upon a substantial pre-deposit for admitting the appeal and staying recovery, and whether disallowance of input tax credit under section 11(7A) of the Gujarat Value Added Tax Act, 2003 could be sustained on the basis of cancelled or allegedly defaulting vendor registrations without first establishing that tax on the very goods purchased had not been paid.

Analysis: The petitioners were denied input tax credit on purchases from three vendors on the basis of adverse material that had not been supplied to them when the assessment was made. Later material obtained from two vendors showed that no dues were outstanding for the relevant year, and the third vendor clarified that its dues did not relate to the petitioners' transactions. The statutory restriction in section 11(7A) permits denial of credit only where it is shown that, in respect of the same goods purchased, tax was not actually paid. Mere reliance on cancelled registrations or a percentage-based disallowance, without establishing non-payment of tax on those specific goods and without affording an effective opportunity to meet the adverse material, was not sufficient. The petitioners therefore had a strong prima facie case, and the demand of a huge pre-deposit was unjustified.

Conclusion: The insistence on pre-deposit was not justified. The orders requiring pre-deposit and dismissing the appeal for non-compliance were set aside, and the appeal was restored to be heard on merits without insisting on pre-deposit.

Ratio Decidendi: Input tax credit cannot be denied under section 11(7A) of the Gujarat Value Added Tax Act, 2003 merely because a vendor's registration was cancelled or the vendor was alleged to have dues; the authority must first establish that tax on the very goods purchased was not paid, and an assessee must be given a fair opportunity to meet the adverse material before credit is disallowed.

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