M/S.Aryan Ispat And Power PVT.LTD. vs. State Of Orissa

Held

The Court held that Section 42(5) of the OVAT Act mandates the imposition of penalty equal to twice the assessed tax once an audit assessment is completed. There is no discretion for the Assessing Officer to waive or reduce this penalty, unlike in other sections or under different state VAT laws.

Facts

The Petitioner-Assessee contended that ineligible Input Tax Credit (ITC) should be adjusted against surplus ITC, resulting in 'NIL' tax due. The authorities imposed penalty under Section 42(5) of the OVAT Act for disallowed ITC, which the Petitioner argued was not permissible without mens rea or intent to evade tax.

Key Issues

Whether penalty under Section 42(5) of the OVAT Act is imposable when ineligible ITC is disallowed and there is surplus ITC available, and if the provision allows for discretion in penalty imposition.