Penalty for wrong input tax credit under VAT law requires proof of tax evasion, not mere reversal of credit.

Penalty under the Tamil Nadu Value Added Tax Act is not automatic when wrong input tax credit is reversed in assessment based on returns and accounts; the authority must show an attempt to evade tax before invoking Section 27(4). The governing principle is that penal provisions tied to incorrect returns or assessment adjustments cannot be applied mechanically merely because an error in credit is detected. Where the record shows only a tax adjustment and no suppression, deliberate non-disclosure, or other material indicating evasion, penalty should not be sustained. On those facts, the deletion of penalty was upheld.

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Issues: Whether penalty under the value added tax law was leviable for wrong availment of input tax credit when the credit was reversed and the assessment was based on returns and accounts, and whether such penalty could be imposed mechanically without proof of an attempt to evade tax.

Analysis: The assessment arose from self-assessment under the Tamil Nadu Value Added Tax Act, 2006, and the dispute concerned reversal of wrong input tax credit and the levy of penalty under Section 27(4). The reasoning adopted the settled principle that penalty is not to be imposed in a mechanical manner merely because an assessment is revised or an error in claim is found. The authority must record a finding that the conduct disclosed an attempt to evade tax. Reliance was placed on the line of decisions explaining that penal provisions connected with assessment of incorrect or incomplete returns are attracted only where the assessment is founded on best judgment principles or where suppression or deliberate non-disclosure is established. On the facts, the tribunal had found no basis to sustain penalty independently of the tax adjustment, and the court found no reason to interfere.

Conclusion: Penalty was not leviable in the facts of the case and the deletion of penalty was upheld.

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