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by sayum
31 July 2026 11:05 AM
“An Amnesty Scheme Must Bring Quietus To Litigation, Not Create New Disputes”, Bombay High Court delivered a significant ruling in President Trade and Exim Corporation v. State of Maharashtra & Others, addressing the interpretation of the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fees Act, 2023 in the context of refund adjustment under the Maharashtra Value Added Tax Act, 2002 (MVAT Act).
The Division Bench comprising Justice G. S. Kulkarni and Justice Aarti Sathe held that the tax department cannot adjust a refund of one financial year against the demand of another year while issuing a settlement order under the Amnesty Scheme. The Court ruled that such action defeats the very purpose of the Settlement Act, which was enacted to resolve pending tax disputes and provide finality to litigation.
The Court observed that an interpretation allowing the department to demand payment under the scheme while simultaneously withholding legitimate refunds would run contrary to the legislative intent behind the scheme.
Background of the Case
The petitioner President Trade and Exim Corporation, a proprietorship concern engaged in wholesale trade of paper and paper-based products, was registered under the MVAT Act.
An investigation was initiated by the Sales Tax Department in respect of the tax periods 2007–08, 2008–09 and 2009–10, alleging that the petitioner had claimed ineligible input tax credit (ITC). During the investigation the petitioner deposited ₹10 lakh and filed revised returns.
Assessment proceedings were thereafter conducted. For the tax period 2007–08, the assessment order ultimately resulted in the petitioner becoming entitled to a refund. Dissatisfied with the quantum of refund, the petitioner filed an appeal before the Deputy Commissioner of State Tax (Appeals). By order dated 10 May 2023, the appellate authority enhanced the refund and held that the petitioner was entitled to ₹33,29,000.
However, assessment orders for tax periods 2008–09 and 2009–10 resulted in demands of tax, interest and penalty. Appeals were filed against those orders and rectification applications were also moved.
During this period, the Maharashtra Settlement of Arrears of Tax, Interest, Penalty or Late Fees Act, 2023 was introduced by the State Government as an Amnesty Scheme aimed at settling old disputes arising under pre-GST indirect tax laws including the MVAT Act.
The petitioner opted to avail the scheme. Under the One Time Payment Option, where outstanding dues were below ₹50 lakh, an assessee could settle the dispute by paying 20% of the arrears, with the remaining 80% waived.
For the tax period 2008–09, the department determined that the petitioner was required to pay ₹9,12,887 under the scheme. The petitioner paid the amount and applied for settlement. Similarly, an application was made for tax period 2009–10 and the requisite payment was made.
Despite repeated requests from the petitioner to release the refund for 2007–08, the department issued a Settlement Order dated 18 April 2024 adjusting the ₹33,29,000 refund of 2007–08 against the alleged dues of 2008–09.
Challenging this adjustment, the petitioner approached the Bombay High Court under Article 226 of the Constitution.
Legal Issues Before the Court
The central question before the Court was whether the refund determined for the tax period 2007–08 could be adjusted against the demand for tax period 2008–09 while issuing a settlement order under the Settlement Act, 2023.
The dispute required interpretation of Section 50 of the MVAT Act relating to refund adjustment, read with Rule 60 of the MVAT Rules, and the provisions governing settlement under the Settlement Act, 2023, particularly Sections 2(d), 6, 11, 12 and 13.Purpose Of The Settlement Act
The Court examined the Statement of Objects and Reasons of the Settlement Act and emphasized that the scheme was enacted to unlock revenue locked in litigation and reduce old pending tax disputes.
Justice Aarti Sathe noted that the scheme was designed to encourage taxpayers to settle disputes by paying a portion of the outstanding dues and obtaining waiver of the remainder. The Court observed:
“The object behind the scheme was to bring quietus to litigation which the assessee does not choose to pursue anymore, while simultaneously enabling recovery of revenue.”
The Bench held that interpreting the scheme in a manner that deprives the assessee of legitimate refunds would undermine its fundamental objective.
“Settlement Act Is A Self-Contained Code – Nothing More Or Less Can Be Read Into It”
The Court held that the Settlement Act constitutes a self-contained statutory framework, and once an assessee fulfills the statutory conditions and pays the required amount, the settlement must be granted.
The Bench observed: “On a holistic reading of the provisions of the Settlement Act, it is clear that the same is a self-contained code and nothing more or less can be read into it.”
According to the Court, once the petitioner paid the settlement amount for the year 2008–09, the tax department could not rely upon provisions of another statute to alter the settlement calculation.
Adjustment Of Refund Defeats The Amnesty Scheme
A key finding of the Court was that adjusting the refund for the year 2007–08 against the demand for 2008–09 fundamentally defeats the purpose of the scheme.
The Court observed that such adjustment would prevent the assessee from achieving the intended closure of disputes.
Justice Sathe remarked: “If the interpretation suggested by the Revenue is accepted, the assessee would never be able to achieve quietus of litigation insofar as tax disputes are concerned.”
The Court further observed that compelling the assessee to pay settlement dues while withholding legitimate refunds creates an unreasonable and contradictory situation.
In a strong observation, the Court held: “The Department cannot make an assessee pay for its tax dues under the amnesty scheme and at the same time deny legitimate benefit of refund which is due to the assessee.”
“Authorities Under Settlement Act Cannot Import Powers From MVAT Act”
The Revenue attempted to justify its action by relying upon Section 50 of the MVAT Act, which permits adjustment of excess payment against outstanding dues.
The Court rejected this contention.
It held that the Settlement Act and MVAT Act operate in distinct fields, and powers available under one statute cannot automatically be exercised while acting under another.
The Court explained: “Authorities acting under the Settlement Act cannot import provisions of Section 50 of the MVAT Act unless a separate order is passed under the MVAT Act.”
The Bench emphasized that although the same officer may function under both statutes, he cannot intermingle the powers granted under different enactments.
Each Financial Year Must Be Treated Separately
The Court further held that the Settlement Act requires settlement applications to be filed year-wise, and therefore the outstanding arrears must also be computed year-wise.
The Bench explained that the statute does not permit adjustment of refunds from one financial year while determining arrears of another year.
The Court clarified: “There is no provision under the Settlement Act which provides for calculation of arrears of a particular year after adjustment of refund for another year.”
Accordingly, the department’s action of adjusting the 2007–08 refund while determining settlement for 2008–09 was found to be without statutory authority.
Violation Of Principles Of Natural Justice
The Court also noted that the impugned order was passed without giving the petitioner any opportunity of being heard.
Section 13(2) of the Settlement Act mandates that if the authority proposes to reject or adversely affect a settlement application, the applicant must be given an opportunity of hearing.
Since the adjustment was made without such opportunity, the Court held that the order was also vitiated by violation of natural justice.
Decision: The Bombay High Court concluded that the impugned settlement order was legally unsustainable, as it ignored the scheme and purpose of the Settlement Act while improperly invoking provisions of the MVAT Act.
The Court held that the action of adjusting the refund not only lacked statutory authority but also defeated the legislative objective of resolving tax disputes through the amnesty scheme.
Accordingly, the Court quashed the settlement order dated 18 April 2024, directed that the petitioner’s settlement application for tax period 2008–09 be accepted without adjusting the refund, and ordered the State to refund ₹33,29,000 for the tax period 2007–08 with interest within two weeks.
The ruling reiterates that tax amnesty schemes must be interpreted liberally to promote settlement and closure of disputes rather than to generate new controversies between taxpayers and revenue authorities.
Date of Decision: 12 March 2026
