Input tax credit denial requires proof of non-payment on the goods purchased; pre-deposit was unjustified without vendor material.

Input tax credit could not be denied merely because vendors' registrations had been cancelled; section 11(7A) required the authority to show that tax on the very goods purchased was not actually paid. Where the assessee was not furnished the vendor assessment material relied upon for disallowance, insistence on pre-deposit for admission of the appeal and stay of recovery was unjustified. The pre-deposit condition was therefore set aside, and the matter was to proceed to merits with recovery kept in abeyance pending disposal of the appeal.

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Issues: Whether the insistence on pre-deposit for admission of the appeal and stay of recovery was justified when input tax credit had been disallowed without furnishing the vendor assessment material relied upon for invoking section 11(7A) of the Gujarat Value Added Tax Act, 2003.

Analysis: The disallowance of input tax credit was founded on the premise that the vendors' registrations had been cancelled and that tax had not been paid in respect of the purchases. However, at the time of assessment, the assessee had not been supplied with the assessment orders or other material relating to the vendors. Subsequent material obtained from the vendors indicated that in respect of two vendors no dues were outstanding for the relevant year, and in respect of the remaining vendors the alleged dues were not connected with the sales made to the assessee. Section 11(7A) permits denial of tax credit only where it is shown that tax on the same goods was not actually paid, and not merely because the vendor's registration stood cancelled.

Conclusion: The pre-deposit direction was unjustified and unsustainable, and the assessee was entitled to have the appeal heard on merits without insisting on pre-deposit.

Final Conclusion: The challenge to the pre-deposit condition succeeded, the appeal matter was sent back for merits consideration, and recovery remained stayed pending disposal of the appeal.

Ratio Decidendi: Input tax credit cannot be denied merely on the basis of a vendor's cancelled registration or percentage-based disallowance; the authority must first establish that tax on the very goods purchased was not actually paid, and denial of a hearing on the underlying vendor material justifies interference with the pre-deposit order.

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