Bombay High Court quashes settlement order that adjusted dealer’s MVAT refund against later-year dues, directs immediate refund with interest

A Division Bench of Justices G. S. Kulkarni and Aarti Sathe heard a writ petition by a dealer challenging a Settlement Order dated 18 April 2024 in which the Sales Tax Department adjusted a refund determined for tax period 2007–08 against alleged dues for 2008–09. The petition raised whether the refund under the Maharashtra Value Added Tax Act, 2002 (MVAT Act) could be adjusted against amounts the dealer had sought to settle under the Maharashtra Settlement of Arrears Act, 2023 (Settlement Act).

The High Court set aside the impugned Settlement Order and directed payment of the refund with interest. The Court held that the Settlement Act was a self-contained code and the Department could not import Section 50 of the MVAT Act to adjust a refund that was due for a different tax period where the taxpayer had availed the amnesty scheme and paid the requisite settlement amount. The Court observed that the adjustment "is not manner acceptable and defeats the very purpose and intention for which the Settlement Act has been introduced by the Government" and that if the Revenue's approach were accepted "the assessee would never be able to achieve quietus of litigation." The Court, in its reasoning, observed: “It is our firm view on a harmonious reading of the provisions of Section 50 of the MVAT Act and Rule 60 of the MVAT Rules, along with the provisions of the Settlement Act, the adjustment of refund for the tax period 2007-08 against the demand for the tax period 2008-09 as sought to be made by the Department, is not manner acceptable and defeats the very purpose and intention for which the Settlement Act has been introduced by the Government. ... 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.” The Court further recorded that the impugned order was passed without affording the petitioner an opportunity to be heard and therefore violated principles of natural justice.

Background The petitioner, President Trade and Exim Corporation, a registered dealer in paper products, faced assessment and recovery proceedings for tax periods 2007–08, 2008–09 and 2009–10 arising from alleged inadmissible input tax credit. An assessment for 2007–08 yielded a net refund entitlement, which on appeal was increased to Rs. 33,29,000 by an appellate order dated 10 May 2023. For 2008–09 and 2009–10 the petitioner availed the One Time Payment option under the Settlement Act and obtained acknowledgements in August 2023 fixing the settlement dues (Rs. 9,12,887 for 2008–09 and Rs. 6,30,633 for 2009–10). No defect notices were issued under Section 13 of the Settlement Act and the petitioner repeatedly sought issuance of settlement orders and payment of the 2007–08 refund.

On 18 April 2024 Respondent No.2 passed a Settlement Order which adjusted the 2007–08 refund against alleged pending dues for 2008–09. The petitioner challenged that order by this writ petition under Article 226, contending that Section 50 of the MVAT Act could not be invoked to adjust a refund once settlement proceedings under the Settlement Act had been validly initiated and the settlement amount paid; and that no opportunity was afforded before the adjustment. The State maintained that Section 50 required first application of any excess payment towards recovery of dues and that the petitioner had acknowledged arrears by applying under the Settlement Act.

The Bench analysed the Settlement Act (including Sections 6, 11, 13 and 15), Section 50 MVAT and Rule 60 MVAT Rules, and held that the Settlement Act formed a special, self-contained code for achieving "quietus" of pre‑GST litigation. The Court accepted precedent of this Court (Andrea Stihl Pvt. Ltd. and TML Business Services) that authorities exercising powers under the Settlement Act could not import Section 50 powers of the MVAT Act to recalculate settlement dues by adjusting refunds of different years. The Court also found that the impugned order was passed without giving a reasonable opportunity to be heard, contrary to Section 13(2) and principles of natural justice.

Resulting order The Court quashed and set aside the Settlement Order dated 18 April 2024 to the extent it adjusted the Rs. 33,29,000 refund for 2007–08 against 2008–09. The Settlement Application for 2008–09 was directed to be accepted without that adjustment. Respondents were ordered to refund Rs. 33,29,000 with interest as per the MVAT Act, to be credited to the petitioner’s account within two weeks of uploading of the order. The petition was disposed of with no costs.

Case Details: Case No.: WRIT PETITION NO. 5048 OF 2025 Case Title: President Trade And Exim Corporation v. The State of Maharashtra & Ors. Appearances: For the Petitioner(s): Mr. Manohar Samal a/w. Ms. Ruchi Rathod and Ms. Aishwarya Jain, i/b. Mr. Ratan Samal For the Respondent(s): Ms. Naira Jeejeebhoy, Spl. Counsel a/w. Ms. Jyoti Chavan, Addl. G.P., and Mr. Amar Mishra, AGP