Input tax credit cannot be denied to a bona fide purchaser for supplier tax default absent collusion or sham dealings.

Input tax credit cannot be denied to a bona fide purchasing dealer who bought from a registered supplier, received the goods, and complied with statutory requirements merely because the supplier failed to deposit tax. The proper remedy lies against the defaulting supplier, not the purchaser, unless the Department shows collusion or lack of bona fides in the transaction. On that basis, demand, interest and penalty were held unsustainable against the purchaser, and the impugned orders were set aside, while the Department's right to proceed on evidence of non-genuine dealings was preserved.

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Issues: Whether input tax credit could be denied and demand, interest and penalty sustained against a bona fide purchasing dealer solely because the supplier allegedly failed to deposit tax or the transaction was alleged to be non-genuine.

Analysis: The Court applied the settled principle that a bona fide purchasing dealer who has dealt with a registered supplier, received goods and complied with the statutory requirements cannot be visited with denial of input tax credit merely because the supplier defaults in depositing tax. The proper remedy in such a case lies against the defaulting supplier. At the same time, the Court noted that the Department remains free to proceed where materials indicate that the transactions were not bona fide or were entered into in collusion.

Conclusion: The demand, interest and penalty were not sustainable against the petitioner on the basis of supplier default alone, and the impugned orders were set aside and quashed.

Final Conclusion: The writ petition succeeded, and the petitioner obtained relief from the adjudicated GST demand, while the Department's liberty to proceed in cases of lack of bona fides was preserved.

Ratio Decidendi: Denial of input tax credit cannot be sustained against a bona fide purchaser solely on account of the supplier's failure to remit tax; recovery must ordinarily be pursued against the defaulting supplier unless collusion or lack of bona fides is shown.

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