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.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the respondents had the authority and jurisdiction to issue show cause notices after entering into a One Time Settlement (OTS) with the petitioner.
Whether the absence of allegations of fraud affects the validity of the show cause notices.
Whether the statutory framework, specifically Section 32 of the VAT Act, allows for revisionary actions despite the OTS agreement.
The impact of the OTS scheme, as a policy decision, on the ability of the respondents to issue subsequent demands.

2. ISSUE-WISE DETAILED ANALYSIS

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

Relevant Legal Framework and Precedents: The case references the judgment in Killick Nixon Ltd., which discusses the conclusive nature of settlements under statutory schemes like the Kar Vivad Samadhan Scheme, 1998.
Court's Interpretation and Reasoning: The court noted that once a settlement is reached under an OTS, it should be final and conclusive. The respondents, having entered into the OTS with full knowledge of the facts, including any alleged short levy, cannot subsequently issue show cause notices.
Key Evidence and Findings: The court found that the respondents were aware of the alleged short levy before finalizing the OTS, as indicated by the Audit Officer's communication dated 11.07.2022.
Application of Law to Facts: The court applied the principles from Killick Nixon, emphasizing that settlements should conclude disputes unless there is a statutory provision allowing for reopening, which was not applicable here.
Treatment of Competing Arguments: The respondents argued that Section 32 of the VAT Act allowed for revisionary actions. However, the court found this inapplicable post-OTS, as the section existed before the OTS scheme.
Conclusions: The court concluded that the respondents lacked jurisdiction to issue the show cause notices after the OTS was finalized.

Issue 2: Absence of Fraud Allegations

Relevant Legal Framework and Precedents: The absence of fraud was significant in the Killick Nixon case, where reopening was only permissible if fraud was involved.
Court's Interpretation and Reasoning: The court highlighted that the show cause notices did not allege fraud, which further undermined their validity.
Key Evidence and Findings: The court noted the absence of any fraud allegations in the show cause notices.
Application of Law to Facts: Without fraud allegations, the court found no legal basis for reopening the settled tax matters.
Conclusions: The absence of fraud allegations contributed to the court's decision to set aside the show cause notices.

Issue 3: Statutory Framework and Section 32 of the VAT Act

Relevant Legal Framework and Precedents: Section 32 of the VAT Act allows for revisionary actions but does not explicitly address post-OTS scenarios.
Court's Interpretation and Reasoning: The court reasoned that Section 32 could not be applied to undermine the finality of an OTS agreement.
Key Evidence and Findings: The court considered the timing and knowledge of the respondents when entering the OTS.
Application of Law to Facts: The court found that the OTS scheme's purpose would be defeated if Section 32 were used to reopen settled matters.
Conclusions: Section 32 did not provide a legal basis for the show cause notices post-OTS.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The court quoted, "The settlement should draw the curtains for all times to come otherwise the very meaning of OTS will pale into insignificance."
Core Principles Established: The finality of settlements under OTS schemes should be respected, and reopening is not permissible without statutory authority or allegations of fraud.
Final Determinations on Each Issue: The court set aside the show cause notices, affirming the finality of the OTS agreement and rejecting the respondents' jurisdiction to issue further demands.