VAT penalty for Input Tax Credit mismatch unsustainable where facts did not justify penal action despite confirmed tax liability.

Penalty under Section 27(4) of the Tamil Nadu Value Added Tax Act, 2006 was not sustainable where the assessment arose from mismatch verification of Input Tax Credit and the facts did not establish clear suppression or a bogus claim. The court noted that the tax liability had already been confirmed and paid, and the dispute survived only on penalty. Since the information relied on was not conclusive and the matter did not strictly fall within the penal provision, the penalty was set aside while the tax confirmation was left undisturbed.

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Issues: Whether penalty under Section 27(4) of the Tamil Nadu Value Added Tax Act, 2006 was sustainable where the assessment arose from mismatch in Input Tax Credit and the tax liability had already been confirmed.

Analysis: The dispute related to denial of Input Tax Credit on the basis of mismatch information obtained from departmental sources and the subsequent verification exercise carried out pursuant to earlier directions and Circular No. 5/2021 dated 24.02.2021. Although Section 27(4) of the Tamil Nadu Value Added Tax Act, 2006 is framed in mandatory terms, the facts showed that the assessment turned on information that was not conclusive, and the case was not one of clear suppression or bogus claim warranting penal action. The tax had already been paid and the challenge survived only on the question of penalty. The Court therefore held that the matter did not strictly fall within the scope of penalty under Section 27(4), even though determination had been made under Section 27(2).

Conclusion: Penalty under Section 27(4) of the Tamil Nadu Value Added Tax Act, 2006 was not justified and was set aside, while the tax confirmation was left undisturbed.

Ratio Decidendi: Where an assessment is based on mismatch verification and the facts do not establish a case strictly warranting penal action under the VAT penalty provision, penalty cannot be sustained merely because the tax demand has been confirmed.

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