Input tax credit cannot be denied merely for cancelled dealer registration; actual non-payment on the goods must be proved.

Predeposit for admission of a tax appeal was held unjustified where the petitioners had not been given the vendor-related assessment material and subsequent records showed no attributable dues for some sellers. The Court also held that input tax credit could not be denied merely because the selling dealers' registrations were cancelled; under section 11(7A) of the GVAT Act, disallowance requires proof that tax was not actually paid on the very goods purchased. The predeposit and dismissal orders were set aside, the appeal was restored for decision on merits, and recovery remained stayed until disposal of the appeal.

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Issues: (i) Whether the Tribunal and the first appellate authority were justified in insisting on predeposit for admission of the appeal and stay of recovery. (ii) Whether input tax credit could be disallowed merely because the selling dealers' registrations were cancelled, without establishing non-payment of tax on the very goods purchased.

Issue (i): Whether the Tribunal and the first appellate authority were justified in insisting on predeposit for admission of the appeal and stay of recovery.

Analysis: The petitioners were not supplied the assessment material relating to the vendors when the assessment order was passed. Subsequent material showed that two vendors had no outstanding dues for the relevant year and the remaining vendors stated that the outstanding dues were not attributable to the sales made to the petitioners. In these circumstances, a strong prima facie case was shown, and the demand of a substantial predeposit for admission of the appeal was not justified.

Conclusion: The insistence on predeposit was unjustified and the orders directing such predeposit could not stand.

Issue (ii): Whether input tax credit could be disallowed merely because the selling dealers' registrations were cancelled, without establishing non-payment of tax on the very goods purchased.

Analysis: Section 11(7A) of the GVAT Act permits disallowance only where the tax credit claimed exceeds the tax actually paid on the same goods. Mere reliance on cancellation of the sellers' registrations or on percentage-based disallowance from cancelled dealers is insufficient unless it is first shown that tax was not paid on the specific goods purchased by the dealer. The petitioners' subsequent material also indicated that the vendors' dues were unrelated to the petitioners' transactions.

Conclusion: Input tax credit could not be disallowed on the stated basis alone.

Final Conclusion: The writ petition succeeded, the predeposit and dismissal orders were set aside, and the appeal was restored for decision on merits without insisting on predeposit while recovery remained stayed until disposal of the appeal.

Ratio Decidendi: Under section 11(7A) of the GVAT Act, input tax credit cannot be denied on a mere cancellation of the selling dealer's registration; the authority must establish that tax was not actually paid on the very goods purchased.

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