Purchasing dealer registration cannot be cancelled for seller fraud alone absent proof of knowledge or connivance.

A purchasing dealer's GST registration cannot be cancelled or refusal of revocation sustained merely because the selling dealer was later found fraudulent or non-existent. The Odisha GST Rules permit cancellation only on specific statutory grounds, and those grounds were not established against the purchaser. Where invoices were issued by a seller whose registration was then valid, the Department had to prove that the purchaser knowingly participated in the fraud or acted in connivance; mere reliance on alleged fake invoices or the seller's later cancellation was insufficient. The HC set aside the cancellation and appellate orders, restored registration, and allowed filing of pending returns.

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Issues: (i) Whether the registration of a purchasing dealer could be cancelled or refused revocation merely because the selling dealer was later found to be fraudulent or non-existent and alleged invoices were fake; (ii) whether the authorities could sustain cancellation without showing that the purchasing dealer knowingly participated in the fraud or acted in connivance with the seller.

Issue (i): Whether the registration of a purchasing dealer could be cancelled or refused revocation merely because the selling dealer was later found to be fraudulent or non-existent and alleged invoices were fake.

Analysis: The registration of the petitioner had been cancelled on the vague ground that the clarification furnished was unsatisfactory, and the appellate authority sustained the cancellation only as a preventive measure. Rule 21 of the Odisha Goods and Services Tax Rules, 2017 permits cancellation only where the registered person does not conduct business from the declared place, issues invoices without supply, or violates Section 171. Those situations were not established against the petitioner. The alleged fraud related to the selling dealer, and there was no legal basis to mechanically extend that fraud to the purchasing dealer merely because input tax credit was claimed on invoices issued by the seller.

Conclusion: The cancellation and refusal to revoke registration could not be justified on the ground of the selling dealer's alleged fraud alone and were unsustainable against the petitioner.

Issue (ii): Whether the authorities could sustain cancellation without showing that the purchasing dealer knowingly participated in the fraud or acted in connivance with the seller.

Analysis: The purchases were made when the selling dealer's registration was still valid, and the later cancellation of that registration could not, by itself, establish that the petitioner knew the seller was non-existent. To attribute fraud to the purchasing dealer, the Department had to show deliberate participation, knowledge of the seller's non-existence, or connivance to defraud revenue. That burden was not discharged. The impugned orders also failed to deal meaningfully with the petitioner's explanation.

Conclusion: In the absence of proof of knowledge or connivance, the allegation of fraudulent availment of input tax credit against the petitioner could not be sustained.

Final Conclusion: The impugned cancellation and appellate orders were set aside, and the petitioner's registration was directed to be restored, with consequential permission to file pending returns.

Ratio Decidendi: A purchasing dealer's registration cannot be cancelled merely because the selling dealer is later found to be fraudulent or non-existent unless the revenue establishes that the purchaser knowingly participated in the fraud or acted in connivance, and the specific statutory grounds for cancellation are otherwise made out.

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