Telangana High Court Quashes Tax Authority's Show Cause Notices To Assessee As Demand Was Settled Under State's One Time Settlement Scheme

The Telangana High Court recently quashed two show cause notices issued by the tax authority to a company, demanding tax which was already settled under the state government's One Time Settlement (OTS) scheme, while noting that there was "no allegation of fraud" committed by the company in the notices. A division bench of Justice Sujoy Paul and Justice Namavarapu Rajeshwar Rao in its August 28 order said, that in the "peculiar facts and circumstances of this case", after the petitioner company had availed the One Time Settlement Scheme of the state government, then it was not open for the tax authorities to issue the show cause notice to the petitioner. "Putting it differently, in the peculiar facts and circumstances of this case, in our opinion, 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," the bench said. The high court said this after noting that "very purpose" of bringing such OTS scheme was to "encourage the tax payers to settle their disputes".BackgroundAn Assessment Order (A.O.) was issued by the Assistant Commissioner (CT), Audit, Begumpet Division, Hyderabad on November 4, 2020 to the petitioner company confirming the demand of Rs.3,25,87,464 for 2015-16, 2016-17 and 2017-18 (up to June 2017). Thereafter on November 28, 2020 another AO was was issued by the Assistant Commissioner demanding penalty of 25% on the tax demand, which amounted to Rs.81,46,866. The petitioner, feeling aggrieved by the aforesaid orders preferred appeals before the Appellate Deputy Commissioner challenging the AOs issued demanding Value Added Tax (VAT) and penalty and pre-deposited an amount equivalent to 12.5% of the tax and penalty, which was increased to 50% of the demand of tax and penalty.The One Time Settlement (OTS) schemes dated May 9, 2022, June 25, 2022 and July 4, 2022 were launched by the Telangana Government as per its 'G.O.Ms.Nos.45, 61 and 71' to enable the tax payers to settle the disputed tax amounts under the Telangana Value Added Tax Act (VAT Act) and the Central Sales Tax Act (CST Act).Respondent No. 1, Deputy Commissioner (ST) STU-1, Begumpet Division, Hyderabad sent an intimation on May 17, 2022 to the petitioner under the OTS scheme for paying the tax demand of Rs.3,25,87,464 and tax balance of Rs.1,22,20,164. This intimation was in relation to the earlier to AOs. The petitioner moved a plea on June 22, 2022 showing its willingness for availing OTS scheme. On July 11, 2022 the concerned Audit Officer wrote a letter to respondent No.1 indicating short levy of tax and penalty as confirmed in the previous two AOs. During the course of hearing, the respondent authorities counsel informed the court that this letter was indeed received by the respondents.Thereafter on August 16, 2022 petitioner deposited the desired amount vide challan No.6201664297 and consequently, a letter of acceptance issued on August 17, 2022 by the respondent No.2–Assistant Commissioner, Begumpet Division, Hyderabad acknowledged the receipt of arrears and recorded settlement. Subsequently, a show cause notice were issued to the petitioner on October 31, 2022 proposing raising the demand to Rs. 7,58,43,382. The petitioner raised objections stating that after entering into the OTS scheme, a show cause notice could not issued. Thereafter on January 19 this year a revised show cause notice was issued revising the tax proposed to the tune of Rs.2,46,53,240 in lieu of previous determination of Rs.7,58,43,382. ContentionsThe petitioner contended that the primary challenge to show cause notices was twofold. Firstly, the petitioners claimed that the show cause notices issued were wholly without jurisdiction in as much as they proceed to re-open the assessment proceedings without making reference to any provision of law, pursuant to which a concluded assessment (settled through OTS) were proposed to be revised/reopened by the Respondents.Secondly, the Impugned notices have been issued in the teeth of the benefit extended to the Petitioner vide the OTS in as much as they proceed to raise a fresh demand of tax and penalty for the very same Assessment Orders and the same period as were covered under the said Scheme.Advocate Mannat Waraich appeared on behalf of the Petitioner and argued that the benefit of the OTS scheme was made available to the Petitioner only after a thorough scrutiny of the application of the Petitioner was undertaken by a competent committee. Additionally, during this period, while the application for...

Telangana High Court Quashes Tax Authority's Show Cause Notices To Assessee As Demand Was Settled Under State's One Time Settlement Scheme

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