The Bombay High Court has clarified that the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Act, 2023 is a self-contained code, and Authorities designated under this Act cannot invoke and exercise powers from another statute, such as the power of refund adjustment under Section 50 of the MVAT Act, 2002, while processing a settlement application.
The High Court therefore ruled that once a taxpayer applies for settlement of tax arrears for a specific period under the Settlement Act and pays the requisite amount, the dues for that period are considered settled. Consequently, no ‘outstanding dues’ remain for that period against which a refund pertaining to another tax period can be adjusted.
The adjustment of a refund from one financial year against the dues of another year for which a settlement application has been made is impermissible, as the Settlement Act mandates that arrears and settlement amounts be calculated separately for each financial year, added the Court, while observing that passing a settlement order that adversely affects an applicant by adjusting a refund without affording an opportunity of being heard constitutes a violation of the principles of natural justice and renders the order liable to be set aside.
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe observed that the Settlement Act is a self-contained code enacted to give quietus to long-pending tax litigation. Its purpose is to unlock revenue and reduce disputes, and it should be interpreted in a manner that achieves this objective. The Bench thus held that the Department’s interpretation, which would lead to further disputes, is contrary to the intention of an amnesty scheme.
The Bench held that the Settlement Act does not provide any scope to import the provisions of Section 50 of the MVAT Act (regarding refund adjustment) into the settlement proceedings. The powers under the MVAT Act and the Settlement Act are distinct and cannot be intermixed. An authority acting under the Settlement Act cannot exercise powers granted under the MVAT Act. In this case, no separate order for adjustment under Section 50 of the MVAT Act had been passed before the impugned settlement order.
The Bench accepted the Petitioner’s argument that once the requisite amount under the Settlement Act was paid for the tax period 2008-09, there were no ‘outstanding dues’ for that period. Therefore, the pre-condition for invoking Section 50 of the MVAT Act, i.e., the existence of an amount due for recovery, was not met at the time the impugned order was passed.
Further, the Bench reiterated the settled legal position that each financial year is a separate unit for assessment. This principle is codified in Section 12 of the Settlement Act, which requires separate applications for each year. The scheme requires the calculation of arrears for ‘each year’ independently. Therefore, adjusting a refund from one year against the dues of another year (which is under settlement) is contrary to the structure of the Settlement Act.
Briefly, the Petitioner, a proprietorship firm and a registered dealer under the Maharashtra Value Added Tax Act, 2002 (MVAT Act), was subjected to an investigation for the tax periods 2007-08, 2008-09, and 2009-10 for allegedly claiming ineligible Input Tax Credit (ITC). The assessment for the tax period 2007-08 initially resulted in a refund of Rs. 27.74 Lakh. Subsequently, on appeal, the Deputy Commissioner of State Tax (Appeals), sanctioned an enhanced refund of Rs. 33.29 Lakh for the tax period 2007-08.
In parallel, assessment orders for the tax periods 2008-09 and 2009-10 resulted in demands for tax, interest, and penalty payable by the Petitioner. While rectification applications for these periods were pending, the State of Maharashtra introduced the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fee Act, 2023. The Petitioner opted to avail the benefit of this scheme for the tax periods 2008-09 and 2009-10. For the tax period 2008-09, the Petitioner applied under the ‘One Time Payment Option’, and the requisite amount payable was determined to be Rs. 9.12 Lakh, which the Petitioner paid.
No defect notice was issued by the tax department regarding the Petitioner’s settlement applications. However, the Respondent No. 2 passed a Settlement Order for the tax period 2008-09. In this order, the refund amount of Rs. 33.29 Lakh due to the Petitioner for the tax period 2007-08 was adjusted against the alleged pending dues for the tax period 2008-09. The Petitioner challenged this settlement order, arguing that such an adjustment was unlawful as there were no ‘dues for recovery’ for 2008-09 after they had availed the benefit of the Settlement Act.
Appearances:
Advocates Manohar Samal, Ruchi Rathod, Aishwarya Jain, and Ratan Samal, for the Petitioner
Advocates Naira Jeejeebhoy, Jyoti Chavan, and Amar Mishra, for the Respondent
