2025 (1) TMI 4 - HC - VAT / Sales Tax

Authority and jurisdiction of respondent to issue show cause notices after entering into a One Time Settlement (OTS) with the petitioner - no allegation of any fraud being committed by the petitioner - HELD THAT - The fact remains that very purpose of bringing such OTS scheme is to encourage the tax payers to settle their disputes. Interestingly in the OTS scheme issued by the Government of Telangana the entire exercise of determination of tax/penalty amount was in the hands of the respondents and for that purpose a committee consisting of senior officers was constituted. After having undertaken the entire exercise of determination of amount a proposal was given by the respondents to the petitioner which was duly accepted. The most important thing is that between the date of acceptance dated 22.06.2022 and actual recording of OTS on 17.08.2022 the Audit Officer by communication dated 11.07.2022 informed the respondents about the alleged short levy of tax/penalty. Despite having full knowledge about it the respondent entered into OTS. There is no allegation against the petitioner in the show cause notice that petitioner had committed any fraud. After having entered into OTS it was not open for the respondents to issue the impugned show cause notice. Curtains were finally drawn by the respondents by entering into OTS. If we permit the respondents to undertake aforesaid exercise of issuance of show cause notices even after entering into settlement the very purpose of such scheme will vanish in thin air. This practice will certainly discourage the tax payers to enter into settlement. The settlement should draw the curtains for all times to come otherwise the very meaning of OTS will pale into insignificance. Conclusion - The finality of settlements under OTS schemes should be respected and reopening is not permissible without statutory authority or allegations of fraud. The impugned show cause notices cannot sustain judicial scrutiny - Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the issuance of show cause notices after entering into a One Time Settlement (OTS) is permissible under the legal framework governing the Telangana Value Added Tax Act, 2005 (VAT Act).
• Whether the respondents had the authority or jurisdiction to issue show cause notices after a settlement was reached under the OTS scheme.
• Whether the absence of allegations of fraud against the petitioner affects the validity of the show cause notices.
• Whether the principles established in the Supreme Court case of Killick Nixon Ltd. apply to the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Authority to Issue Show Cause Notices Post-OTS

• Relevant Legal Framework and Precedents: The Telangana VAT Act, particularly Section 32, and the OTS schemes issued by the Government of Telangana. The Supreme Court case of Killick Nixon Ltd. was also considered.
• Court's Interpretation and Reasoning: The court examined whether the statutory powers under Section 32 of the VAT Act could be exercised after an OTS was concluded. The court noted that Section 32 did not explicitly bar post-OTS actions but emphasized the purpose of the OTS scheme to resolve disputes conclusively.
• Key Evidence and Findings: The OTS was entered into with full knowledge of the alleged short levy, as indicated by the Audit Officer's letter dated 11.07.2022. The court found no allegations of fraud against the petitioner in the show cause notices.
• Application of Law to Facts: The court applied the principles from Killick Nixon Ltd., emphasizing that once a settlement is reached, it should be considered final unless fraud is involved.
• Treatment of Competing Arguments: The respondents argued that Section 32 allowed for revisions post-OTS. The court countered that the purpose of the OTS scheme would be undermined if settlements could be revisited without allegations of fraud.
• Conclusions: The court concluded that the issuance of show cause notices post-OTS was not permissible, as it would defeat the purpose of the settlement scheme.

Issue 2: Applicability of Killick Nixon Ltd. Principles

• Relevant Legal Framework and Precedents: The Supreme Court's decision in Killick Nixon Ltd., which dealt with the Kar Vivad Samadhan Scheme, 1998, was used as a precedent.
• Court's Interpretation and Reasoning: The court acknowledged the statutory nature of the scheme in Killick Nixon but found the underlying principles applicable to the present case.
• Key Evidence and Findings: The court noted that the OTS was a policy decision by the State Government, and the settlement was reached with full knowledge of all relevant facts.
• Application of Law to Facts: The court applied the principle that settlements should be final unless fraud is involved, as established in Killick Nixon.
• Treatment of Competing Arguments: The respondents' reliance on Section 32 was countered by the court's emphasis on the finality of settlements under the OTS scheme.
• Conclusions: The court concluded that the principles from Killick Nixon Ltd. applied, reinforcing the finality of the settlement reached under the OTS scheme.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: "Curtains were finally drawn by the respondents by entering into OTS. If we permit the respondents to undertake aforesaid exercise of issuance of show cause notices even after entering into settlement, the very purpose of such scheme will vanish in thin air."
• Core Principles Established: The finality of settlements under the OTS scheme should be respected unless there is evidence of fraud. The issuance of show cause notices post-settlement undermines the purpose of such schemes.
• Final Determinations on Each Issue: The court set aside the impugned show cause notices dated 31.10.2022 and 19.01.2024, concluding that they could not withstand judicial scrutiny.

The judgment emphasizes the importance of respecting the finality of settlements reached under government schemes designed to resolve tax disputes, aligning with broader principles of legal certainty and fairness. The court's decision underscores that such settlements should not be revisited without substantial justification, such as fraud, ensuring that taxpayers are encouraged to utilize these schemes without fear of future litigation.