Haryana One Time Settlement Scheme, 2026: A Practitioner’s Guide to Closing Legacy VAT/CST Disputes

By CA Ankit Gulgulia (Jain), Chartered Accountant

Introduction

On 29th May 2026, the Excise and Taxation Department, Government of Haryana, notified the Haryana One Time Settlement Scheme for Recovery of Outstanding Dues, 2026 (“the Scheme” or “OTS 2026”) under Section 3 of the Haryana Settlement of Outstanding Dues Act, 2017. The Scheme comes into force from 1st June 2026 and is designed to close out old, pre-GST era disputes — VAT, CST, Entry Tax, Luxury Tax, Entertainment Duty, LADT and General Sales Tax — that have clogged assessment files, appellate dockets and departmental recovery registers for years.

For dealers still carrying legacy demands from the VAT/CST regime (periods up to 30th June 2017), this is the third such window Haryana has opened — after the 2023 and 2025 OTS schemes — but with sharper waiver slabs, a cleaner document-linked relief mechanism, and a fully electronic, form-driven workflow. This article breaks down the Scheme clause by clause, explains the computation mechanics with a worked example, and flags the practical pitfalls a taxpayer or consultant must watch for.

1. Why This Scheme Matters

Even nine years after GST subsumed VAT, thousands of Haryana dealers continue to carry quantified — and sometimes contested — dues under the erstwhile sales tax laws. Interest and penalty, compounding since 2017 or earlier, often dwarf the principal tax. The Scheme’s core value proposition is simple: pay a computed “settlement amount” (a fraction of net tax, with interest and penalty waived in full) and walk away with a conclusive, unappealable closure of that year’s dispute.

Unlike an appeal, which can drag on for years before the Joint Commissioner (Appeals), the Haryana Tax Tribunal, or the Punjab & Haryana High Court, the Scheme offers finality within months — provided the dealer is prepared to withdraw pending litigation unconditionally.

2. Legal Basis and Applicability

The Scheme derives its authority from Section 3 of the Haryana Settlement of Outstanding Dues Act, 2017, and applies to quantified outstanding dues — tax, interest, penalty, or any other statutorily assessed amount — remaining unpaid for any period up to 30th June 2017, under the following seven Acts:

1. Haryana Value Added Tax Act, 2003
2. Central Sales Tax Act, 1956
3. Haryana Tax on Luxuries Act, 2007
4. Haryana Entertainment Duty Act, 1955
5. Haryana General Sales Tax Act, 1973
6. Haryana Local Area Development Tax Act, 2000
7. Haryana Tax on Entry of Goods into Local Areas Act, 2008

A crucial threshold relief is built in at the outset: where the quantified outstanding tax for a particular assessment year does not exceed ₹1 lakh, the entire due — tax, interest and penalty together — stands waived automatically, without the dealer even needing to file an application. This single provision should immediately be checked by every small and mid-sized dealer with legacy files before they invest time in the full OTS process.

3. Two Waiver Mechanisms: Standard Waiver and Declaration Linked Waiver (DLW)

The Scheme’s computational heart lies in two distinct — and stackable — reliefs.

3.1 Standard Waiver (Interest and Penalty)

Under Clause 8, 100% of interest and penalty is waived for every year an applicant opts into the Scheme. What remains payable is the tax component, reduced further by a slab-based standard waiver, applied progressively (like income tax slabs) based on the net tax demand:

Schedule I (dues only under HGST, 1973):

Schedule IA (dues under VAT/CST/Entry Tax/Luxury Tax/Entertainment Duty/LADT, i.e., all relevant Acts other than HGST 1973):

Note the slab mechanics: an applicant with, say, a ₹5 crore net tax demand gets 100% waiver on the first ₹1 lakh, 60% on the next ₹9 lakh, 50% on the next ₹90 lakh, and 40% on the balance up to ₹5 crore — not a flat 40% on the whole amount. This is spelled out in the illustrative worked example appended to the notification (a CST dealer with a ₹83 crore gross demand, ₹73 crore of which survives after Declaration Linked Waiver, ends up paying roughly ₹42.87 crore net of standard waiver — an effective ~52% haircut on the residual tax, with 100% of interest and penalty forgone).

3.2 Declaration Linked Waiver (DLW)

This is the Scheme’s most distinctive feature. Many old VAT/CST demands arose not because tax was genuinely payable, but because the dealer failed to furnish statutory concessional forms in time — VAT D-1, VAT D-2, Tax Invoice/C-4, C-Form, F-Form, H-Form, E-1 and E-2. DLW allows the applicant to now submit these forms (physically, within seven days of the online application) and get the tax demand itself reduced by the amount of concession/deduction the form would have generated, before the standard waiver slabs are applied.

Key operational points on DLW:

• Forms must be genuine and must not have been already rejected in the original assessment/rectification/reassessment/revision order.
• Forms declared bogus or fake, or belonging to entities under criminal proceedings, get no benefit.
• Verification must commence within 15 days of physical receipt in the jurisdictional ward and be completed within 3 months of the Scheme’s closure (extendable by the Excise & Taxation Commissioner).
• If verification cannot be completed in time, the DLW claim simply fails for that form — the applicant still gets the other benefits of the Scheme, but is issued a “deficiency notice” (Form OTS-3) and must make good the shortfall in settlement amount within 15 days, failing which the application is rejected ab initio.

Practically: DLW is where a competent CA earns their fee. Reconciling old C-Forms, tracking down counter-party confirmations, and ensuring the physical bundle matches the OTS-1 declaration table (Table-V) exactly, within a seven-day physical-filing window, requires disciplined document management well before the application is filed.

4. Adjustment of Prior Payments — The Fine Print That Trips People Up

Clause 5 lays down a detailed (and taxpayer-unfriendly in places) mechanism for adjusting amounts already deposited before the appointed day:

• If a treasury challan/receipt specifies the purpose (tax/interest/penalty) and year, that specification is honoured.
• If it does not specify a year, no benefit is given for that deposit at all — it is simply not counted towards any assessment year’s dues.
• Where it specifies a year but not the head, it is deemed applied first to tax, then interest, then penalty for that year.
• No cross-year adjustment and no refund is permitted under any circumstances — excess payment in one year cannot offset shortfall in another, and any amount paid under the Scheme, once paid, is non-refundable even if the application is later rejected (it simply gets adjusted against the outstanding dues).

The lesson for practitioners: before filing, reconcile every historical treasury challan against its year and head. A deposit that cannot be traced to a specific assessment year with documentary specificity effectively evaporates for OTS purposes.

5. Who Cannot Use the Scheme

Clause 17 carves out three exclusions, each applied year-wise and Act-wise (not as a blanket bar on the dealer):

1. Demands relating to erroneous refunds for that year.
2. Years for which criminal/penal proceedings have already been instituted.
3. Dealers who had earlier applied under the 2023 OTS or 2025 OTS schemes and whose applications were not rejected as of the appointed day — i.e., you cannot “double dip” or restart a settlement that is already in motion or concluded under an earlier scheme.

Separately, under Clause 6, an application also cannot be generated (system-blocked) where the dealer confirms in the declaration (Sr. No. 6 and 7 of Form OTS-1) that criminal proceedings are pending or that the demand relates to erroneous refund for that year.

6. The Application Architecture: Forms OTS-1 to OTS-6

The Scheme runs entirely online through the Department’s portal, with a tightly choreographed sequence of forms:

6.1 Registration and Filing

A dealer first self-registers on the Department’s portal with email ID and mobile number; a one-time password is generated. All applications (OTS-1 onward) must be filed electronically, digitally signed and verified through an Electronic Verification Code.

6.2 Timelines to Track

• Application window: 120 days from the appointed day (i.e., broadly up to end-September 2026, unless extended).
• Ward allocation cross-check by the department: 10 days.
• Examination/verification of a non-DLW application: 30 days from acknowledgment/correct-ward allocation.
• DLW verification: as per the 15-day/3-month cycle discussed above.
• Reply to a deficiency notice (OTS-3): 15 days.
• Passing of settlement order after a satisfactory reply: 15 days.
• Withdrawal of pending appeal (Form OTS-6): 60 days from receipt of the provisional order (OTS-4A).
• Rectification of apparent errors in a settlement order: department can act suo motu or on application within 45 days of the order.

6.3 Payment in Instalments (Schedule II)

Recognising that settlement amounts can be substantial, the Scheme allows staggered payment:

A dealer may also defer the 2nd instalment up to the 3rd instalment’s due date by paying additional interest at 18% p.a. on the delayed portion. Missing the deadline is fatal: the provisional order is deemed withdrawn, the application is treated as never filed, and normal recovery proceedings resume under the parent Act — with whatever was already paid adjusted (not refunded) against the outstanding liability.

7. Where an Appeal Is Already Pending

If a dealer’s disputed demand is in appeal before the First Appellate Authority, the Haryana Tax Tribunal, the Punjab & Haryana High Court, or the Supreme Court, the Scheme can still be availed — but the appeal must be withdrawn fully and unconditionally within 60 days of the provisional settlement order (Form OTS-4A), with proof filed in Form OTS-6. Until such proof is accepted, the final order (Form OTS-4) will not be passed, and the appellate proceeding is meanwhile kept in abeyance. If withdrawal proof is not filed within the 60-day window, it is deemed that the OTS application was never made, and the pending appeal — plus normal recovery — continues unaffected.

This is an important strategic decision point: a dealer with a strong appeal on merits (say, a jurisdictional or limitation ground) should weigh the certainty and speed of OTS against the possibility of a full favourable appellate outcome, because OTS withdrawal is irrevocable.

8. Finality — and Its Limits

Once the final settlement order (Form OTS-4) is passed:

• The dealer is not liable for any further tax, interest or penalty for the matter and period covered.
• The dealer is immune from prosecution for that matter and period.
• The covered matter/period cannot be reopened in any other proceeding under the relevant Act.
• No appeal lies against a final settlement order or a rejection order — the department’s decision, and on general doubts the Excise & Taxation Commissioner’s ruling, is final (Clauses 16 and 18).

The one crack in this finality: if any material particular in the application is later found false, the settlement is deemed never to have existed, and full recovery proceedings — including presumably penalty and prosecution exposure for misrepresentation — revive. Officers acting in good faith under the Scheme are statutorily indemnified (Clause 20), though action against an officer for a later-discovered calculation error still requires evidence of misconduct.

9. Interaction with GST Recovery (Section 142A route)

Interestingly, the Scheme also extends to legacy VAT/CST dues that have already migrated into the GST recovery ecosystem — i.e., outstanding dues uploaded by the department in Form GST DRC-07A under Rule 142A of the Haryana GST Rules, 2017. Once OTS-4 is issued, the jurisdictional authority is required to correspondingly amend the GST demand and issue Form GST DRC-08A. Dealers who assumed their old VAT arrears “living” inside the GST portal were beyond the reach of OTS 2026 should note that this is explicitly not the case.

10. A Worked Numerical Illustration (from the Notification’s own Annexure)

To make the mechanics concrete, the notification itself carries an example under the CST Act for AY 2015-16:

• Total quantified outstanding dues (tax + interest + penalty) as per assessment order: ₹83,00,00,000
• DLW claimed on submission of “C” Forms worth ₹90 crore in sale value (tax effect not already included in the demand): ₹10,01,25,000
• Net outstanding dues after DLW: ₹72,98,75,000, of which interest ₹5 crore and penalty ₹5 crore are separately identified and fully waived
• Net tax demand for slab computation: ₹62,98,75,000
• Applying the Schedule-IA slabs progressively (100% up to ₹1 lakh, 60% up to ₹10 lakh, 50% up to ₹1 crore, 40% up to ₹10 crore, 35% up to ₹30 crore, 30% up to ₹60 crore, 0% beyond) yields a total standard waiver of ₹20,11,40,000
• Net amount payable under the Scheme: ₹42,87,35,000

Against an original demand of ₹83 crore, the dealer settles for roughly ₹42.87 crore — a combined relief (DLW + standard waiver + full interest/penalty waiver) of about 48%, achieved purely through timely form production and slab-based tax relief, without a single day in litigation.

11. One Consolidated Application, or Separate Applications Year-Wise and Act-Wise?

A question that comes up in almost every OTS consultation is whether a dealer with multiple years of arrears — possibly spread across VAT, CST and Entry Tax simultaneously — can bundle everything into a single application. The Scheme’s structure answers this clearly, and getting it wrong at the filing stage is a common, avoidable error.

Clause 4(2) is explicit on the filing architecture:

• An applicant may opt for the Scheme under one or more relevant Acts, but a separate OTS-1 application is mandatory for each relevant Act. A dealer with legacy VAT dues and CST dues cannot file one composite application covering both — VAT and CST each require their own OTS-1.
• Within a chosen Act, settlement is done assessment-year-wise. The applicant may pick one or more assessment years of choice, but here too, a separate application must be filed for each assessment year under that Act.

In other words, there is no single omnibus application that sweeps an entire multi-year, multi-Act arrear history into one filing. A dealer with, say, VAT dues for AY 2013-14, 2014-15 and 2015-16, plus CST dues for the same three years, will end up filing six separate OTS-1 applications — one per Act, per year.

Why this matters in practice:

1. Each application stands or falls independently. A deficiency, rejection, or procedural lapse (such as a missed instalment or an appeal not withdrawn in time) in one year’s application does not automatically taint the others — but it also means each file needs its own document set, its own DLW workpaper (where applicable), and its own instalment tracking.
2. You are not obligated to opt for every open year at once. A dealer can consciously choose to settle only the years where the arithmetic is clearly favourable (e.g., years with heavy DLW-eligible C-Form shortfalls or very old, interest-heavy demands) and leave a genuinely strong-on-merits year to be litigated separately. Because eligibility and waiver are computed year-wise, cherry-picking is legitimate and often the optimal strategy.
3. Administrative load should be planned for. Multiple parallel applications mean multiple OTS-2/OTS-2A acknowledgments, multiple potential deficiency notices (OTS-3), and multiple instalment schedules running on different clocks (each tied to its own OTS-4A date). A tracking sheet mapping Act → Assessment Year → OTS-1 reference number → due dates for each instalment is not optional — it is essential once you cross three or four applications.
4. Registration/ward-allocation confusion compounds with volume. Since each application is independently routed to the jurisdictional ward (with a departmental cross-check window), filing many applications together increases the chance that one or two get misrouted or delayed — reinforcing the need for a consolidated internal tracker rather than relying on the portal alone.

Practical recommendation: Before filing, prepare a master reconciliation — Act-wise and year-wise — quantifying gross demand, likely DLW, applicable standard-waiver slab, and settlement amount for each year separately. Only then decide which combination of years/Acts to opt into. Do not default to “opt for everything” merely because the window is open; equally, do not assume one filing will cover the whole arrear history — it will not.

12. The Appeal-Withdrawal Trap: A Procedural Lapse Can Collapse the Entire Settlement

This deserves emphasis beyond the passing mention earlier, because it is the single most common way a genuinely well-computed OTS settlement unravels — not on the numbers, but on paperwork.

If any assessment year covered by the application has a matter pending before the First Appellate Authority, the Haryana Tax Tribunal, the Punjab & Haryana High Court, or the Supreme Court, availing the Scheme is conditional on the dealer withdrawing that appeal fully and unconditionally. This is not a formality to be handled “later” — it is a hard, time-bound obligation with severe consequences for delay:

• The withdrawal must be effected, and proof of withdrawal filed in Form OTS-6, within 60 days of receipt of the provisional settlement order (Form OTS-4A). This is a strict clock — it runs from the date of the provisional order, not from the date the dealer decides to act on it.
• Until Form OTS-6 is accepted, the final settlement order (Form OTS-4) will simply not be issued. The dealer’s file remains suspended in provisional status indefinitely.
• If OTS-6 is not filed within the 60-day window, the law does not treat this as a curable delay or grant a grace period — it triggers a deeming fiction: it is presumed that the OTS application was never made at all. The provisional order collapses, an order of rejection (Form OTS-5) is passed, and the original recovery proceedings under the parent Act resume in full — as if the dealer had never approached the Scheme.
• Critically, any settlement amount already paid — first instalment, second instalment, whatever stage reached — is not refunded. It is merely adjusted against the (now fully revived) outstanding liability under the relevant Act. The dealer effectively loses the benefit of every waiver negotiated, while the cash already paid is retained by the department as a part-payment of the original, unreduced demand.
• Pending the process, the appellate forum itself is expected to keep the proceeding in abeyance only until the provisional order is passed — meaning the dealer must actively coordinate the timing of withdrawal filings before the appellate authority and proof-submission on the OTS portal so neither lapses.

Why this trips people up in practice:

• Appeal withdrawal before a Tribunal or High Court is often not a same-day process — it may require drafting a withdrawal application, obtaining a hearing date, and securing a formal order recording withdrawal, especially in the higher judiciary. Sixty days can evaporate quickly if the withdrawal application isn’t filed with the appellate forum almost immediately upon receipt of OTS-4A.
• Where a dealer has multiple appeals for multiple years (see Section 11 above), each OTS-1/OTS-4A pair runs its own 60-day withdrawal clock — it is easy to lose track of which appeal must be withdrawn against which provisional order, particularly if different years are pending before different forums (say, one before the Tribunal and another before the High Court).
• Counsel handling the appeal and the consultant handling the OTS application are frequently different people — a coordination gap between the litigation team and the tax/OTS team is, in the author’s experience, the most frequent real-world cause of missed 60-day deadlines.

Practical recommendation: The moment Form OTS-4A is received, treat the 60-day appeal-withdrawal clock as the single most important date in the file — more urgent, in fact, than the instalment due dates, because a missed instalment merely attracts 18% interest (or, at worst, deemed withdrawal of that specific benefit), whereas a missed appeal-withdrawal deadline unwinds the entire settlement with no refund of amounts already paid. Brief the litigation counsel in advance that an OTS filing is underway, obtain a standing mandate to file the withdrawal application the same day OTS-4A is received, and diarise the 60-day deadline independently in at least two places (the file tracker and the consultant’s own compliance calendar) rather than relying on the portal to prompt action.

13. A Practitioner’s Action Checklist (Consolidated)

For CAs and tax consultants advising Haryana dealers with legacy VAT/CST exposure, here is a practical roadmap:

1. Inventory every open assessment year across all seven covered Acts — don’t assume GST-era compliance teams still have visibility into pre-2017 files.
2. Screen for the ₹1 lakh automatic waiver first; no application is needed for such years.
3. Hunt for unused/unfiled statutory forms (C, F, H, E-1, E-2, VAT D-1/D-2) that could trigger DLW — this is frequently the single largest lever available.
4. Reconcile historical treasury challans to specific years and tax heads; undocumented deposits will not be credited.
5. Decide application strategy year-wise and Act-wise — since no composite filing is permitted (Section 11), map out in advance exactly how many separate OTS-1 applications will be needed, and consciously choose which years/Acts to opt into rather than filing indiscriminately.
6. Map pending appeals against each disputed year and make a considered call on withdrawal versus continuing litigation — remember, withdrawal under OTS is final and unconditional, and the 60-day withdrawal-proof deadline (Section 12) is the single biggest risk point in the entire process.
7. Pre-brief litigation counsel before filing OTS-1 so that, the moment a provisional order (OTS-4A) is received, the appeal-withdrawal application can be filed with the appellate forum immediately — do not wait to “start looking into it” after the clock has begun running.
8. Build an instalment cash-flow plan aligned to the 60-day/120-day payment milestones, factoring in the 18% p.a. cost of any permitted deferral.
9. File within the 120-day window — track any government extension notifications carefully, as the Scheme empowers extension either suo motu or on stakeholder representation.
10. Maintain scrupulous documentation — the declaration in OTS-1 is a sworn statement, and any later-discovered falsity unwinds the entire settlement.

14. Concluding Thoughts

OTS 2026 is, in substance, Haryana’s continuing effort to sweep pre-GST litigation off its books while giving genuinely compliant-but-paperwork-delinquent dealers a fair route to closure through the Declaration Linked Waiver. Its design — full interest/penalty waiver, steep tax-slab relief, a document-driven concession mechanism, and hard finality — makes it attractive for dealers sitting on old, high-interest-accrued demands, particularly those where the underlying dispute was purely about missing “C” or “F” Forms rather than any real tax evasion.

The trade-off is procedural discipline: tight timelines, unconditional appeal withdrawal, no refunds, and an all-or-nothing declaration. Dealers and their advisors who start the reconciliation exercise early — well before the 120-day clock starts running down — stand to extract the maximum benefit from what is, on the numbers, a genuinely generous settlement window.

Disclaimer: This article is for general informational purposes based on the Haryana Government Gazette notification No. 07/ST-1 dated 29th May 2026 and does not constitute legal or tax advice. Dealers should consult the full text of the notification and their tax advisor before making any application under the Scheme.

📄 View / Download the full PDF notification

CA Ankit Gulgulia (Jain)

FCA, CWM (AAFM-US), CBV, CIFRS, R-ID, B.COM (H), RV* (IBBI)

Practising Chartered Accountant in Netaji Subhash Place, New Delhi. He is well connected business oriented professional with specialisation in Taxation (Direct & Indirect) and Corporate Laws and an enriching experience of more than 15 years. He can be contacted ankitgulgulia@gmail.com.