The council has been directed by the Environment Protection Authority to "show cause" why it should not be penalised for breaching a multitude of environmental laws.

A grass fire ignited almost 200 tyres in what the EPA says was an illegal dump behind the Katherine Showgrounds on July 1 sending clouds of toxic smoke into the sky over Katherine South.

The clean up has already cost the council almost $500,000 and could cost much more.

After an investigation into the location of a tyre dump within the town's boundaries, the EPA asked the council to "show cause" why it should not be found in breach of a multitude of environmental laws.

If all the possible offences the EPA have listed are found to be proven the council could be liable for fines totalling $5.8 million although that is not considered likely.

The EPA's "show cause" notice was presented to council at the end of November.

Council requested an extension of time to seek legal advice so it could respond.

It will be this advice to be confidentially discussed at the January meeting on Tuesday evening, with the public asked to leave the meeting.

EPA environmental operations director Peter Vasel told council the EPA's investigators have found "on examination of the information and evidence collected to date both about the circumstances leading up to the fire and of the fire itself, officers have formed the view that that KTC may have contravened the following sections of the Act:

"These offences can carry significant penalties for both individuals and body corporates if prosecuted."

The council has already spent close to $500,000 cleaning up the mess left behind from the fire near the showgrounds.

Council has previously said it created the second tyre dump because it considered the fire risks were greater at the rubbish tip, where a further 450 tonnes of tyres had been left.

Tyres must be managed in accordance with the Waste Management and Pollution Control Act 1998 and its Regulations, an EPA spokesman has said.

Despite many residents condemning the council's decision to dump the old tyres Alderman Elizabeth Clark has previously said the tyres were deposited "with the best intentions".

"We were not storing them, we were trialing them for a fence," she said.

"At the time we thought it was a good idea, hindsight is a wonderful thing."

The council had launched its own investigation under the former acting chief executive officer Alan McGill into why the tyres had been stored in an unlicenced location.

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