Penalty can’t be levied on a Bonafide Dealer for purchasing Goods from Dealer whose VAT Registration was subsequently Cancelled: Allahabad HC [Read Order]

The Allahabad High Court has recently held that a bonafide dealer cannot be punished for making purchases with a dealer whose registration was subsequently cancelled by the department under the UP Value Added Tax Act.

In the instant case, the assessee- Company purchased sand from another entity. After the purchase, the department cancelled the registration of that entity.

While rejecting the claim of input tax credit of the assessee, the department held that the seller-firm was a bogus firm which never indulged any kind of purchase and sale business, it is therefore, claimed that thepresent revisionist was also indulged in the said bogus activities, hence the penalty proceedings are carried out against the revisionist under Section 54(1)(11) of the Act.

After hearing both the parties, Justice Ashok Kumar held that the penalty proceeding which is initiated in the instant case against the revisionist, is totally illegal, arbitrary for the reason that in case if a registered dealer is effecting the purchases from a registered dealer whose registration is subsequently cancelled then in that event unless and until the purchaser is aware or is informed by the department it cannot be presumed that he was aware about the proceedings for cancellation of registration of a dealer/seller.

“The purchase of sand by the revisionist in the instant case, appears to be affected bona fidely as the revisionist was not aware about the fact that the seller who was affecting the sales is not a registered dealer or his registration is cancelled. In view of the aforesaid reasons, in my opinion, the revisionist cannot be held guilty nor he is liable to pay the penalty,” the Court said.

The Court, however, said that it is open to the department to take appropriate action, in accordance with law against the seller whose registration was cancelled.