Input tax credit adjustment defeated interest and penalty where reassessed tax demand was fully coverable and no evasion was shown.

Where reassessment produced an additional tax demand but the assessee had sufficient carried forward input tax credit to absorb it, the demand could be adjusted against that credit and no intention to evade or avoid tax was found. In that setting, the statutory basis for penalty was not attracted, and interest and penalty could not be sustained merely because the reassessment created an additional liability. Interest and penalty were therefore deleted, and the Revenue's challenge failed.

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Issues: Whether interest and penalty were leviable when the assessee had surplus input tax credit available for adjustment against the reassessed tax liability.

Analysis: The assessment disclosed that the assessees had sufficient carried forward input tax credit to meet the additional tax demand. On that footing, the demand could be adjusted out of the available credit and the element of intention to evade or avoid tax was absent. In that situation, the statutory basis for penalty was not attracted, and interest and penalty could not be sustained merely because the reassessment resulted in an additional demand.

Conclusion: Interest and penalty were rightly deleted, and the challenge by the Revenue failed.

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