Input tax credit requires proof of actual sale; cancelled seller registration alone is not decisive without supporting evidence.

Input tax credit depends on the registered dealer proving an sale transaction with supporting evidence such as transport records or other collateral material. Cancellation of the seller's registration does not, by itself, determine every case, but where the purchaser cannot substantiate actual supply of goods, the credit may be denied or reversed. The Madras HC noted that reliance only on the seller's registration being active on the date of purchase was insufficient without proof of genuine sale, and the matter was remitted for reconsideration by the assessing authority.

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Issues: Whether input tax credit could be reversed when the selling dealer's registration had been cancelled and the purchaser had not produced proof of an actual sale, and whether the matter required remand for fresh consideration.

Analysis: The claim for input tax credit was examined against the statutory burden cast on the registered dealer to establish that there was in fact a transaction of sale. The record showed that the assessee had relied mainly on the seller's registration being alive on the date of purchase, without producing material to prove the actual supply of goods. The governing principle applied was that cancellation of the seller's registration does not by itself conclude every case, but where the purchaser cannot show real sale transactions through supporting documents such as transport records or other collateral evidence, the credit is liable to be denied or recovered. On that footing, the earlier order allowing the writ petition could not stand, and the matter had to go back to the assessing authority for reconsideration in light of the controlling legal position.

Conclusion: The challenge to reversal of input tax credit failed at this stage, and the order under appeal was set aside with the matter remitted to the assessing officer.

Ratio Decidendi: A registered dealer claiming input tax credit must prove an actual transaction of sale with supporting evidence, and in the absence of such proof the credit may be denied or revoked notwithstanding the seller's cancelled registration.

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