Reversal of Input Credit interest and penalty is applicable

[MUNIRAJ SRINIVASAN]

Dear sir,

My client is wrongly availed input credit of ₹ 130000 for the month of Oct 2015 but he is not utilized the credit amount but next month Nov 2015 he was reversed the said amount department of Commercial Taxes put penalty and interest for said amount is applicable ? if any provision/ Case law is there ?

[Ganeshan Kalyani]

If the amount is nominal it is better to pay interest. and for penalty if you had reversed the credit and paid interest before issue of any notice from department then no penalty is leviable. plethora of case law is available for such scenario. This is my view.

[DR.MARIAPPAN GOVINDARAJAN]

Whether it is for service tax or for VAT?

[Ganeshan Kalyani]

From the word utilised I misinformed the reply. I request to ignore my previous reply.

[Ganeshan Kalyani]

Dear Muniraj VAT is state subject and therefore I request you to mention the state for which you are referring the issue to.

[DR.MARIAPPAN GOVINDARAJAN]

Shri Muniraj is from Bangalore. Therefore it may Karnataka VAT. Mr. Muniraj, please confirm.

AI Summary

Reversal of wrongly availed input credit attracts interest; penalty may be avoidable if credit reversed and interest paid before notice.
Reversal of wrongly availed input credit under VAT attracts interest; if the taxpayer reverses the credit and pays interest before any departmental notice, penalty is ordinarily not imposed. Treatment depends on state VAT law, with Karnataka VAT indicated as the likely applicable framework.