Compounding fee and pre-assessment tax recovery invalid where no meaningful opportunity was given to explain alleged discrepancy.

Compounding of a statutory offence cannot be enforced before giving the affected person a reasonable opportunity to explain the alleged discrepancy, and immediate collection despite time being given in the notice was invalid. The court held that the authority acted arbitrarily by collecting compounding fee and tax on the basis of alleged suppressed turnover before completing assessment, without waiting for any explanation or meaningfully considering whether the offence would be compounded. The levy and recovery were therefore set aside as unsustainable, while the assessing authority was left free to proceed afresh in accordance with law.

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Issues: Whether the levy and collection of compounding fee and tax before completion of assessment, without giving a reasonable opportunity to explain the discrepancy, were valid.

Analysis: Composition of offences under the statutory provision could be resorted to only after affording a reasonable opportunity to the person concerned to explain the alleged discrepancy. The notice itself indicated time to reply, but the amount was collected immediately, without waiting for the explanation or any meaningful consideration of whether the offence would be compounded. The collection of tax on the basis of alleged suppressed turnover before assessment was also unwarranted and arbitrary.

Conclusion: The levy and collection were invalid and liable to be set aside, and the recovery was unsustainable.

Final Conclusion: The assessee succeeded in challenging the impugned recovery, while the assessing authority was left free to proceed afresh in accordance with law.

Ratio Decidendi: Composition of a statutory offence cannot be enforced without giving the affected person a reasonable opportunity to explain the alleged discrepancy, and tax cannot be recovered on an ad hoc basis before assessment.

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