Input tax credit cannot be denied to a bona fide purchaser merely because the supplier failed to remit tax.

A bona fide purchasing dealer cannot be denied input tax credit merely because the supplier failed to deposit the tax collected, where the transactions are genuine and statutory requirements have been complied with. The Department may proceed against the defaulting supplier, but can sustain demand, interest or penalty against the purchaser only on material showing lack of bona fides or collusion. Applying that principle, the HC quashed the assessment and appellate orders and set aside the impugned demand, while leaving open the authorities' liberty to act in accordance with law if the transactions are later found to be non-bona fide or collusive.

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Issues: Whether input tax credit could be denied to a bona fide purchasing dealer solely because the supplier allegedly failed to deposit the tax collected, and whether the consequential demand, interest and penalty could be sustained.

Analysis: The writ petition was decided by applying the earlier Division Bench ruling that a purchaser who has entered into genuine transactions with a registered supplier and has complied with the statutory requirements cannot be penalised for the supplier's default in depositing tax. The proper remedy in such a situation lies against the defaulting supplier, while the Department may proceed against the purchaser only where material exists to show lack of bona fides or collusion.

Conclusion: Denial of input tax credit on the sole ground of the supplier's failure to remit tax was not justified, and the impugned demand and appellate order were liable to be set aside in favour of the petitioner.

Final Conclusion: The assessment and appellate orders were quashed, while leaving open the authorities' liberty to proceed in accordance with law if the transactions are found to be non-bona fide or collusive.

Ratio Decidendi: A bona fide purchasing dealer cannot be denied input tax credit merely because the supplier failed to deposit the tax collected from the purchaser, unless the Department establishes collusion or absence of bona fide transactions.

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