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<h1>Tax authorities cannot issue show cause notices after One Time Settlement without fraud allegations</h1> <h3>M/s. ACME Cleantech Solutions Pvt. Ltd. Versus Deputy Commissioner ST STUI.</h3> The Telangana HC ruled that tax authorities cannot issue show cause notices after entering into a One Time Settlement (OTS) with a taxpayer absent fraud ... 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. ISSUES PRESENTED AND CONSIDERED 1. Whether, having entered into a One Time Settlement (OTS) under the State OTS policy, the revenue authority retains jurisdiction and competence to issue show cause notices proposing enhancement/revision of tax demand. 2. Whether issuance of show cause notices after acceptance and recording of settlement under the OTS is barred in absence of an allegation of fraud or misrepresentation by the taxpayer. 3. Whether a writ under Article 226 is maintainable to challenge show cause notices on the limited ground that the authority lacked jurisdiction to issue them post-OTS, in light of authorities restricting interference at the show-cause stage. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction to issue show cause notices after OTS Legal framework: The OTS schemes were executive policy measures providing a mechanism for taxpayers to settle disputed tax liabilities, involving scrutiny by a prescribed three-member committee and issuance of confirmation before payment and recording of settlement. Section 32 of the VAT Act confers revisionary powers on the Commissioner and prescribed authorities to reopen or revise assessments. Precedent treatment: The Court considered a precedent where a statutory settlement scheme was held to be conclusive (Killick Nixon), acknowledging that KVSS determinations and payments produced immunity from reopening except where the declaration contained false material particulars. Authorities restricting writ intervention at the show-cause stage (Kunisetty Satyanarayana; Coastal Container Transporters Association) were examined and their scope delineated. Interpretation and reasoning: The Court distinguished between the statutory conclusive scheme in Killick Nixon and the State OTS as a policy decision, but emphasized the common functional purpose: to induce finality and encourage settlement of disputes. The OTS implementation vested the revenue with the power to determine amounts via a senior-officer committee and thereafter to accept the taxpayer's proposal and record settlement. Where the revenue, with actual knowledge (from the Audit Officer's communication) of alleged short-levy, nonetheless proceeded to scrutinize, propose, accept and record the OTS, it is inferred that the objection was considered and rejected. Permitting the same authority thereafter to issue show cause notices to re-open or enhance demands would nullify the finality intended by the settlement and frustrate the OTS scheme's object and policy. Section 32, being part of the statutory code enacted before the OTS policy, does not by itself authorize post-OTS reopening where the authority already undertook the OTS determination and accepted settlement with knowledge of the relevant objection; otherwise the purpose of the OTS would be defeated. Ratio vs. Obiter: Ratio - Where a revenue authority, after receiving material indicating potential short-levy, proceeds to scrutinize, offer, accept and record an OTS settlement, it is not open to the same authority subsequently to issue show cause notices to revise or enhance the settled demand in absence of fraud or misrepresentation. Obiter - Observations distinguishing statutory settlement schemes from executive policy OTS schemes and commentary on the broader effect of Section 32 on OTS generally. Conclusions: The Court held that, in the facts before it, after entry into and recording of the OTS, issuance of the impugned show cause notices was impermissible and the notices could not be sustained. Issue 2: Role of fraud/misrepresentation in permitting reopening after OTS Legal framework: Principles from precedent (as in Killick Nixon) acknowledge an exception to finality where declarations contain false material particulars; fraud or misrepresentation can justify reopening of settled assessments under a statutory scheme. Precedent treatment: The Court relied on Killick Nixon's principle that reopening is barred except where falsity of material particulars is shown; applied analogous reasoning to OTS settlements arrived at by the revenue. Interpretation and reasoning: There was no allegation in the show cause notices that the taxpayer committed fraud or furnished false material particulars in the OTS application. Given the absence of such allegations and the revenue's prior knowledge of the audit objection before recording the OTS, the Court inferred that the revenue had considered and rejected the objection prior to settlement. Therefore, the narrow exception for reopening (fraud/falsehood) did not apply. Ratio vs. Obiter: Ratio - The exception permitting reopening on account of fraud/false particulars is a necessary precondition to post-settlement revision; absent such fraud, post-OTS show cause notices are impermissible. Obiter - Discussion on presumptions of consideration by revenue when it proceeds to record settlement despite prior audit objections. Conclusions: Reopening or issuing show cause notices after OTS cannot be justified in absence of fraud or material misrepresentation; the impugned notices failed on this ground. Issue 3: Maintainability of writ against show cause notices Legal framework: Jurisprudence commonly restrains courts from adjudicating the merits of a show cause notice at the pre-decisional stage and counsels against writ relief unless there is absence of jurisdiction or other exceptional circumstances. Precedent treatment: The Court considered authorities limiting writ intervention at the show-cause stage and declined to accept a blanket bar, stressing that those authorities do not preclude judicial review where the challenge is to the issuing authority's jurisdiction or competence. Interpretation and reasoning: The Court found that the petitioner's challenge was limited to the jurisdictional question whether the authority could issue the show cause notices after entering into and recording the OTS. Because the contention went to jurisdiction and the finality of the OTS, the Court treated the matter as an appropriate subject for writ adjudication at that stage. The precedents cited by the revenue were distinguished on that basis. Ratio vs. Obiter: Ratio - A writ under Article 226 is maintainable to challenge a show cause notice when the challenge raises a jurisdictional defect arising from prior recording of an OTS settlement; general principles restraining pre-decisional review do not apply where jurisdiction is in issue. Obiter - Remarks on the limited scope of intervention in ordinary cases challenging show cause notices. Conclusions: The petition was maintainable to the extent it raised a jurisdictional challenge to post-OTS issuance of show cause notices, and judicial interference was justified. Final Disposition The Court set aside the impugned show cause notices issued after recording of the OTS on the ground that issuance of such notices was impermissible in the absence of allegations of fraud or misrepresentation and where the revenue had earlier determined and recorded the settlement with knowledge of the audit objection; no costs were awarded.