Wrongful input tax credit and mandatory penalty: first detection attracted the lower penalty, with notice requirements satisfied.

Wrongful availment of input tax credit without entitlement attracted mandatory penalty under the statutory scheme. Because the excess credit was detected for the first time, the case was held to fall under the provision prescribing a fifty per cent penalty rather than the higher one hundred per cent penalty. The notice and opportunity to show cause were found to have been complied with. The penalty was therefore sustained in favour of the Revenue, and the Tribunal's restriction of the levy to the first-detection penalty was upheld.

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Issues: Whether penalty was leviable on wrongful availment of input tax credit and, if so, whether the case fell under the first-detection provision or the higher penalty provision.

Analysis: The assessee had admittedly availed input tax credit without entitlement under the statutory scheme. On that admitted wrongful availment, the penalty provision was held to operate mandatorily. Since it was the first detection, the matter was held to fall under the provision prescribing fifty per cent penalty and not the provision prescribing one hundred per cent penalty. The requirement of notice and opportunity to show cause was also found to have been complied with.

Conclusion: The penalty was upheld in favour of the Revenue, and the Tribunal's modification limiting it to the first-detection penalty was sustained.

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