Input tax credit penalty denied when disputed tax was reversed and paid before final reassessment.

Penalty under section 27(4) of the Tamil Nadu Value Added Tax Act, 2006 was not sustainable where the dealer had already reversed and paid the disputed input tax credit before final reassessment. The returns had earlier been accepted as deemed assessment, and although an audit detected defects and a revision notice was issued, the tax demand stood discharged before reassessment was completed. On those facts, no surviving tax liability remained for determination under section 27(2), and the factual basis for penalty was removed. The Madras HC therefore held that the revision petitions succeeded in favour of the assessee.

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Issues: Whether penalty under section 27(4) of the Tamil Nadu Value Added Tax Act, 2006 was sustainable when the dealer had already reversed and paid the disputed input tax credit before final reassessment.

Analysis: The dealer's returns had been accepted and the assessment had attained the character of deemed assessment. On audit, defects in input tax credit were noticed and a revision notice was issued, but the dealer paid the disputed amount before reassessment was completed. In that situation, there was no surviving tax liability requiring determination under section 27(2), and the factual basis for invoking penalty under section 27(4) was removed. The prior payment of tax before final reassessment brought the case within the principle that penalty is reduced or not warranted to the extent the revenue had already received its due before final assessment.

Conclusion: Penalty under section 27(4) was not sustainable on the facts, and the revision petitions succeeded in favour of the assessee.

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