Input tax rebate cannot be rejected without transaction-wise inquiry into seller tax payment and purchase genuineness.

Input tax rebate cannot be denied merely because registration of a few selling dealers was later cancelled. The HC held that the assessment was unsustainable where the authority made no proper inquiry into whether the sellers had deposited tax, whether the purchaser knew of any cancellation at the relevant time, or whether the purchases were otherwise genuine. As the appellate order did not cure these factual gaps, both orders were set aside and the matter required fresh adjudication after detailed verification of the individual transactions.

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Issues: Whether rejection of the petitioner's input tax rebate on the basis of cancellation of registration of some selling dealers, without proper inquiry into the individual transactions and tax payment, was sustainable.

Analysis: The impugned assessment proceeded in a cursory manner and disallowed the entire input tax rebate claim merely because registration of only three out of seventeen dealers had been cancelled. No inquiry was made whether the sellers had deposited tax, whether the petitioner had knowledge of the cancellation at the relevant time, or whether the disputed purchases were otherwise genuine. The assessment order therefore lacked adequate factual verification and could not justify denial of rebate for all transactions. The appellate order also did not cure this defect.

Conclusion: The rejection of input tax rebate was unsustainable, and the assessment and appellate orders were liable to be set aside with a direction for fresh adjudication after detailed inquiry.

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