Input tax credit cannot be denied to a purchaser merely because the selling dealer failed to remit tax

Under the pre-amendment proviso to Section 19(1) of the Tamil Nadu VAT Act, a purchasing dealer could claim input tax credit if the tax on the purchase was paid in the prescribed manner. On the admitted facts, the purchaser had paid tax to the selling dealer, and that payment was recorded by the assessing authority. The seller's failure to remit the collected tax to the State did not, by itself, justify reversal of credit under Section 19(16). The proper remedy lay in recovery against the selling dealer, not denial of credit to the purchaser.

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Issues: Whether the purchasing dealer was entitled to input tax credit under Section 19(1) of the Tamil Nadu Value Added Tax Act, 2006 for the assessment period prior to the 2016 amendment, when the purchaser had paid tax to the selling dealer but the selling dealer had not remitted the tax to the State.

Analysis: The governing law for the relevant period was the pre-amendment proviso to Section 19(1), which required the registered dealer claiming credit to establish that the tax due on such purchase had been paid in the prescribed manner. The record showed that the assessee had paid the tax to the seller, and the assessing authority had also recorded that fact. On that basis, the proviso supported allowance of input tax credit in the hands of the purchaser. Section 19(16) did not justify reversal of credit on the sole ground that the selling dealer failed to deposit the collected tax. The Revenue's remedy lay against the selling dealer for recovery of the unpaid tax.

Conclusion: The purchasing dealer was entitled to input tax credit and denial of credit was not justified on the admitted facts.

Final Conclusion: The appellate court upheld the allowance of input tax credit to the purchaser and found no basis to interfere with the order under challenge.

Ratio Decidendi: Under the pre-amendment Section 19(1) regime, a purchasing dealer who proves payment of tax on the purchase cannot be denied input tax credit merely because the selling dealer failed to remit the tax to the treasury; the department's remedy is against the selling dealer.

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