Sales tax settlement arrears: clause selection turns on the true nature of default, with interest from return filing.

Under the Tamil Nadu Sales Tax (Settlement of Arrears) Act, 2011, the settlement clause applicable to arrears depends on the actual nature of the default, not the label of the assessment. Where admitted tax shown in returns remained unpaid and tax was retained under a deferral arrangement, the higher-payment provision was treated as applicable rather than the reduced-payment clause for best judgment arrears. The scheme was also read to require interest from the date of filing of returns, because the dealer had collected and retained tax in breach of the deferral arrangement. The article states that the settlement claim on the contrary basis was not maintainable.

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Issues: (i) Whether the applicants' cases fell under Section 7(a) or Section 7(c) of the Tamil Nadu Sales Tax (Settlement of Arrears) Act, 2011 for the purpose of settlement under the scheme. (ii) Whether interest under the scheme was payable from the date of assessment or from the date of filing of returns.

Issue (i): Whether the applicants' cases fell under Section 7(a) or Section 7(c) of the Tamil Nadu Sales Tax (Settlement of Arrears) Act, 2011 for the purpose of settlement under the scheme.

Analysis: Section 7 of the 2011 Act provides different modes of computation depending on the nature of the arrears. The clauses are not mutually exclusive in the sense urged by the assessee. The scheme is intended to settle arrears and does not reward a defaulting dealer by allowing a lower payment merely because the demand ultimately arose through best of judgment assessment. Where the admitted tax shown in the returns remained unpaid, and the dealer had retained tax collected from customers under a deferral arrangement, the demand squarely attracted the clause relating to arrears of tax admitted as due under the returns. The prior orders of remand and the changed procedural position also meant that the assessee could not insist on treating the matter only as best of judgment assessment arrears.

Conclusion: The case was rightly treated as falling under Section 7(c) and not Section 7(a); the assessee was not entitled to the reduced payment contemplated by Section 7(a).

Issue (ii): Whether interest under the scheme was payable from the date of assessment or from the date of filing of returns.

Analysis: The statutory scheme had to be read with the background agreement under the deferral arrangement. The assessee had collected tax and retained it under the benefit of a deferred-payment scheme, then breached that arrangement. In that context, the authorities were justified in insisting that interest be computed from the date of filing of returns. The precedent relied on by the assessee concerning supplementary returns and bona fide conduct was held inapplicable because the present case involved a breach of a deferral agreement rather than a bona fide dispute about return filing.

Conclusion: Interest was correctly required to be paid from the date of filing of returns.

Final Conclusion: The statutory settlement applications were not maintainable in the manner claimed by the assessee, and the rejection of relief under the settlement scheme was upheld.

Ratio Decidendi: In a settlement scheme for sales tax arrears, the clauses prescribing payment for different classes of arrears must be construed according to the actual nature of the default, and a dealer who retained collected tax under a deferral arrangement cannot invoke a lower-payment clause contrary to the scheme's purpose or escape interest from the date the tax became payable under the returns.

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