The Kerala High Court on 29 October held that amounts already paid or recovered towards tax and penalty demands must be deducted when calculating settlement liability under the Kerala Amnesty Scheme, 2024, even if the payments preceded the revised demand orders.

Justice Ziyad Rahman A.A. allowed a petition filed by P.I. Marketing Private Limited, holding that the State cannot deny credit for payments made towards the same liabilities merely because the appellate authority issued revised penalty orders later. The Bench held:

“...the payment affected towards the liability pertaining to the specified order or the amount recovered pursuant to the said order, shall be deducted, while determining the settlement amount payable by the applicant for availing benefit under the Amnesty scheme. It is to be noted that, sub section (2) of section 11 referred to above, contains a non obstante clause with respect to the other provisions of the Scheme as such, and therefore it would override the other provisions”.

P.I. Marketing had faced penalty proceedings under the Kerala Value Added Tax Act following an inspection by the Intelligence Wing. While its appeals against the penalty orders were pending, the company was directed to deposit 50% of the disputed penalty.

After it failed to comply, the department initiated recovery proceedings and recovered Rs. 66,75,240 from its bank accounts. Subsequently, P.I. Marketing paid another Rs. 75,12,706 in two instalments, taking the total amount paid or recovered to Rs. 1,41,87,946.

The appellate authority later modified the original penalty orders and directed the assessing authority to revise the penalties. The revised orders determined the tax component at Rs. 1,20,26,381 for Assessment Year (AY) 2009-10 and Rs. 14,10,012 for AY 2010-11, with penalties imposed at twice the respective tax amounts.

After the Kerala Government introduced the Amnesty Scheme, 2024, P.I. Marketing applied to settle its liabilities. It calculated the settlement amount at Rs. 1,03,26,111 and claimed that the amount already paid or recovered exceeded this liability. It therefore showed no further amount payable in its applications.

The department rejected the applications and raised further demands, reasoning that the payments could not be adjusted because P.I. Marketing had made them before the revised penalty orders. The department also rejected the company's objections, prompting it to approach the High Court.

The company argued that Section 11(2) of the Kerala Finance Act, 2024, expressly requires the deduction of amounts remitted or recovered towards the demand in a specified order. It contended that the payments related to the same liabilities subsequently reflected in the revised orders and could not be excluded merely because they preceded those orders. The State opposed the petition and defended the department's decision.

Examining the statutory scheme, the Court referred to Section 6(1)(a) of the Kerala Finance Act, 2024, which defines “admitted tax”. It noted that the proviso treats the tax or surcharge demand relating to a penalty as admitted tax, subject to the specified conditions. It said:

“...as per the proviso referred to above, the tax or surcharge demand relating to penalty shall be deemed to be the admitted tax. Therefore, in this case, since the liability that is sought to be settled is the penalty, the tax element involved in such penalty proceedings is deemed to be the admitted tax...”

It also examined Section 11(1), which prescribes the settlement rates under the Scheme. Where arrears exceed Rs. 10 lakh but do not exceed Rs. 1 crore, the settlement amount for admitted tax is 50% of the arrears. Where arrears exceed Rs. 1 crore, the applicable rate is 80%.

Applying these rates, the Bench calculated the settlement liability at Rs. 96,21,105 for AY 2009-10, representing 80% of the tax component of Rs. 1,20,26,381, and Rs. 7,05,006 for AY 2010-11, representing 50% of the tax component of Rs. 14,10,012. The total settlement liability was Rs. 1,03,26,111.

It noted that Section 11(2) begins with a non obstante clause and requires amounts remitted or deposited towards the demand in a specified order, or recovered through arrear recovery proceedings, to be deducted from the settlement amount payable under the Scheme.

The Court rejected the department's contention that the payments could not be adjusted because they preceded the revised penalty orders. P.I. Marketing had made the payments towards liabilities for the same assessment years while appeals against the original orders were pending. The appellate authority subsequently modified those orders and directed the issuance of revised orders.

It held that payments made towards the original demands were, in effect, payments towards the liabilities reflected in the revised orders. It further observed that the absence of any reference to those payments in the revised orders could not deprive P.I. Marketing of the benefit of Section 11(2).

Since P.I. Marketing had already paid or had recovered from it Rs. 1,41,87,946 against a settlement liability of Rs. 1,03,26,111, the Bench held that it had fulfilled its payment obligations under the Scheme and was entitled to a waiver of the remaining penalty and interest.

Accordingly, the High Court quashed the demand notices and rejection orders and directed the competent authority to issue settlement certificates within two months.

For Petitioner: S.K. Devi, M.R. Raj Mohan, Santhosh P.A. Abraham and Shanmugham D. Jayan, Advocates 

For Respondent: Sindhu Santhalingam

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Case Title :  P.I. Marketing Private Limited v. The Deputy CommissionerCase Number :  WP(C) NO. 12460 OF 2025CITATION :  2026 LLBiz HC(KER) 207
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