Bona fide purchaser protection: input tax credit cannot be denied for seller's tax default, and writ relief remained open.

A bona fide purchasing dealer that paid VAT to the seller and received tax invoices could not be denied input tax credit or consequential interest merely because the selling dealer failed to file returns or remit the tax to the treasury. The court treated the purchaser's compliance in good faith as decisive and held that the statutory restriction could not be used to penalise one dealer for another dealer's default. The existence of alternative appellate and revisional remedies did not bar writ relief on these facts, where the impugned recovery was unwarranted and garnishee recovery had already been made. The assessment order and demand notice were quashed, with refund directed.

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Issues: (i) Whether input tax credit and consequential interest could be denied to a purchasing dealer who had paid VAT to the selling dealer and acted bona fide, but where the selling dealer failed to file return and deposit the tax in the Government treasury; (ii) whether the availability of statutory alternative remedies barred the writ petition in the facts of the case.

Issue (i): Whether input tax credit and consequential interest could be denied to a purchasing dealer who had paid VAT to the selling dealer and acted bona fide, but where the selling dealer failed to file return and deposit the tax in the Government treasury.

Analysis: The purchase transactions, payment of VAT to the seller, and issuance of tax invoices were admitted. The denial of ITC rested on the amended restriction under Section 18(8)(xvii) of the Jharkhand Value Added Tax Act, 2005, but the Court found that the purchaser had discharged its liability in good faith and that the default was entirely on the selling dealer, who had not filed the return or deposited tax into the Government treasury. The Court held that the legislative intent could not be to penalise a dealer acting bona fide for the default of another dealer, especially where no mechanism enabled the purchaser to compel the seller to comply.

Conclusion: The denial of ITC and the consequential interest were unsustainable and were quashed in favour of the assessee.

Issue (ii): Whether the availability of statutory alternative remedies barred the writ petition in the facts of the case.

Analysis: Although an alternative appellate and revisional framework existed, the Court found the impugned action to be wholly unwarranted against a dealer who had acted bona fide and had already suffered recovery by garnishee proceedings. In these circumstances, the existence of an alternate remedy was not treated as a bar to writ jurisdiction.

Conclusion: The writ petition was maintainable notwithstanding the alternative remedies.

Final Conclusion: The assessment order and demand notice were set aside, the amount recovered by garnishee was directed to be refunded, and liberty was reserved to proceed against the defaulting seller for recovery in accordance with law.

Ratio Decidendi: A purchasing dealer who has acted bona fide and paid VAT to the seller cannot be penalised by denial of input tax credit or interest merely because the selling dealer failed to file return or remit the tax to the treasury; punitive recovery must be directed against the defaulting dealer.

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