2026 (3) TMI 586 - HC - VAT / Sales Tax

Year-wise settlement scheme prevents cross-year refund adjustments; refund restored and subsequent year settlement must proceed without adjustment.

Year-wise settlement under the 2023 Settlement Act is a self-contained statutory scheme whose definitions and procedures prescribe year-specific discharge ... Adjustment of refund for the tax period 2007-08 against the demand for the tax period 2008-09 - Prohibition on importing MVAT Section 50 into Settlement Act proceedings - self contained code - amnesty scheme - Prohibition on importing MVAT Section 50 into Settlement Act proceedings - Refund adjustment barred where settlement extinguishes dues - Requirement of reasonable opportunity before adverse settlement action - principles of natural justice. Settlement Act - Prohibition on importing MVAT Section 50 into Settlement Act proceedings - Refund adjustment barred where settlement extinguishes dues - HELD THAT:- The Court held that the Settlement Act constitutes a self-contained code setting out conditions, method and consequences of settlement; it does not authorize designated authorities to import or exercise the specific power of adjustment under Section 50 of the MVAT Act when determining settlement amounts. Section 6 of the Settlement Act and the definitions of 'arrears', 'disputed tax' and 'un-disputed tax' show that a refund is not a 'payment made in respect of a statutory order' for the purposes of arriving at settlement dues, and the Settlement Act prescribes year wise computation of arrears for settlement. Accordingly, where an assessee had applied under the Settlement Act and the settlement amount for 2008-09 had been determined/paid as per the scheme, the department could not, in the settlement exercise, adjust an independently determined refund for 2007-08 by invoking Section 50 of the MVAT Act; such an adjustment would defeat the scheme's object of giving quietus to litigation and is without jurisdiction. [Paras 20, 21, 22, 25, 26] Impugned settlement order adjusting the 2007-08 refund against 2008-09 demands was quashed and the petitioner's settlement for 2008-09 shall be accepted without such adjustment. Requirement of reasonable opportunity before adverse settlement action - HELD THAT:- The Court found that the designated authority passed the impugned order adjusting the refund without giving the petitioner an opportunity to make submissions as contemplated by Section 13(2) and the proviso to Section 13(3) and the general requirements of natural justice. Passing the adverse settlement order without affording the opportunity to be heard rendered the action liable to be set aside. [Paras 24, 26] Impugned order set aside for violation of principles of natural justice. Final Conclusion: The Settlement Order dated 18th April 2024 adjusting the refund for 2007-08 against 2008-09 was quashed: the Settlement Act cannot be used to import Section 50 MVAT adjustment powers, the impugned order breached natural justice, and the petitioner is entitled to the refund for 2007-08 to be paid with interest while the 2008-09 settlement proceeds without that adjustment. Issues: Whether the Settlement Order dated 18th April 2024 adjusting the refund of Rs. 33,29,000/- (tax period 2007-08) against alleged dues for tax period 2008-09 could be validly made by invoking Section 50 of the MVAT Act when the petitioner had availed the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fees Act, 2023 and no defect notice or Section 50 order had been made prior to the settlement.Analysis: The Settlement Act is a self-contained statutory scheme enacted to allow year-wise settlement of arrears by specified procedures and payments; its definitions (including 'arrears', 'disputed tax' and 'un-disputed tax'), conditions (including withdrawal of appeals and year-wise application) and Section 13 prescribe the circumstances in which a settlement order discharges liability. Section 6(1)(a) governs adjustment of payments made on or before 30th April 2023 and contemplates sequential application of such payments towards undisputed tax, disputed tax, interest, penalty and late fee; it does not treat refunds of other years as a payment made in respect of a statutory order for the year applied for. Section 50 of the MVAT Act permits refund adjustment under the MVAT statutory regime but does not supply authority for the Designated Authority under the Settlement Act to import Section 50 to recalculate settlement dues for a different year. Precedent of this Court (Andrea Stihl; TML Business Services) establishes that authorities exercising powers under the Settlement Act must not intermingle or invoke adjustment powers under the MVAT Act in a manner that defeats the year-wise settlement scheme. Procedurally, Section 13(2) and Section 13(3) require that applications be processed and, where rejection or rectification is contemplated, the applicant be afforded opportunity to be heard; in the present facts the impugned order effected an adjustment without issuance of any Section 50 order or defect notice and without affording hearing to the petitioner.Conclusion: The impugned Settlement Order dated 18th April 2024 adjusting the refund of Rs. 33,29,000/- for tax period 2007-08 against alleged dues for 2008-09 is quashed and set aside; the petitioner is entitled to the refund of Rs. 33,29,000/- for tax period 2007-08 with interest and the settlement application for 2008-09 shall be accepted without adjustment of that refund.