Input tax credit cannot be disallowed only due to retrospective vendor cancellation; strong prima facie case justified relief from pre-deposit.

Disallowance of input tax credit could not rest solely on retrospective cancellation of the vendor's registration; the authority had to show, in the context of section 11(7A) of the Gujarat Value Added Tax Act, 2003, that tax had not been paid on the goods actually purchased. Because the assessees had not been supplied the vendor's cancellation order, they lacked an effective opportunity to meet the adverse material. The Court therefore treated the assessees as having a strong prima facie case against the substantial pre-deposit demanded for admission of the second appeals, and accepted that the offered immovable property could be taken as security. The pre-deposit orders were set aside and the matters remanded to the first appellate authority.

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Issues: Whether the orders directing substantial pre-deposit for admission of the second appeals were justified when input tax credit had been disallowed on the basis of retrospective cancellation of the vendor's registration and the assessees had not been supplied the vendor's cancellation order.

Analysis: The controversy turned on the disallowance of input tax credit arising from purchases made from a registered dealer whose registration was later cancelled. The Court noted that, at the time of assessment, the assessees did not have the vendor's cancellation order and therefore had no effective opportunity to meet the adverse material relied upon against them. It further held that disallowance of credit could not be made merely because the vendor's registration was cancelled retrospectively; the authority had to establish, in the context of section 11(7A) of the Gujarat Value Added Tax Act, 2003, that tax had not been paid on the very goods purchased. On these facts, the assessees had made out a strong prima facie case, and the insistence on large pre-deposit amounts was not justified. The Court also accepted that the offered immovable property could be treated as security for the purpose of the appeals.

Conclusion: The pre-deposit orders were set aside, the matters were remanded to the first appellate authority, and the assessees were permitted to proceed with the appeals on the basis of the amount already deposited and by furnishing the offered property as security.

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