Tax penalty not sustainable without intent to evade where input tax credit offsets the assessed liability

Penalty for tax default is not sustainable where the assessee has available input tax credit to adjust against the assessed liability and the factual record does not show an intention to evade or avoid tax. The Tribunal's deletion of interest and penalty was upheld on that footing, while the assessed demand remained intact. The court also treated the controversy as covered by its earlier decision, and therefore found that no substantial question of law arose for consideration.

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Issues: Whether the Tribunal was justified in deleting the penalty and interest after permitting adjustment of carried forward input tax credit, and whether any substantial question of law arose for consideration.

Analysis: The assessed demand was maintained, but the Tribunal deleted the interest and penalty on the footing that the assessee had available input tax credit which could be adjusted against the additional tax liability. The controlling principle applied was that penalty under the relevant provision requires an element of evasion or avoidance of tax, and where the factual position shows no such intention and the tax liability is met through available credit adjustment, interference is not warranted. The Court also treated the issue as covered by its earlier decision on the same legal controversy.

Conclusion: The deletion of penalty and interest was upheld, and no substantial question of law arose.

Ratio Decidendi: Penalty for tax default is not sustainable in the absence of an intention to evade or avoid tax, particularly where available input tax credit can be adjusted against the assessed liability.

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