Input tax credit offset defeated interest and penalty where no intent to evade tax was shown.

Interest did not survive where the assessee's available input tax credit was sufficient to offset the additional assessed tax liability, because the levy could not be sustained on the facts found. Penalty was also unwarranted since the governing provision required proof that the dealer acted to evade or avoid payment of tax, and the existence of adequate credit negatived any such inference. The Gujarat HC therefore upheld deletion of both interest and penalty and rejected the challenge to the Tribunal's order.

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Issues: Whether interest and penalty were rightly deleted when the assessee had sufficient input tax credit to meet the additional tax liability and there was no material to show an intention to evade or avoid payment of tax.

Analysis: The available input tax credit was sufficient to be adjusted against the additional assessed liability, so the levy of interest could not survive on the facts found. For penalty, the governing provision required satisfaction that the dealer acted in order to evade or avoid payment of tax. The finding that the assessee had enough credit to offset the demand negatived any inference of evasion or avoidance.

Conclusion: The deletion of interest and penalty was upheld and the challenge to the Tribunal's order failed.

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