Proportionate input tax credit disallowance upheld for exempt sales, while penalty was deleted for a debatable return position.

Input tax credit had to be reduced proportionately where taxable and VAT-exempt sales were both involved, and reverse tax on the excess credit was sustainable; the Tax Board's contrary view was quashed by following the High Court's earlier precedent on identical facts. Penalty under Section 61 was deleted because the assessee's claim of full credit raised a debatable issue and did not show mala fide conduct, entitling it to the benefit of doubt. The disposal was also made subject to any favourable decision by the Supreme Court in the related special leave petition.

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Outcome: Revision petition dismissed in light of the earlier judgment.

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