Compounding cannot replace reassessment when tax escapement is alleged after a concluded assessment.

Penal and compounding provisions could not be used to bypass the statutory mechanism for reopening a concluded assessment. The assessment years in question had already been completed on the basis of the books produced before the regular assessing authority, so any alleged escapement of tax had to be addressed through reassessment rather than through a proposition notice and criminal prosecution. The notice was also defective because it sought compounding without a legally supportable quantified liability. The proposition notice, rejection order, and prosecution were therefore quashed as unsustainable and an abuse of power, while liberty was reserved to pursue lawful proceedings for any escaped tax liability.

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Issues: Whether the proposition notice issued under the compounding provision and the ensuing criminal prosecution were sustainable when the assessment had already been concluded and the alleged escapement of tax had not been dealt with by reopening the assessment.

Analysis: The notice invoking the penal and compounding provisions proceeded on the premise that the dealer had shown petroleum products as chemicals and thereby suppressed turnover. The Court held that, on the facts, the assessment for the relevant years had already been completed on the basis of the books produced before the regular assessing authority, and any alleged escapement of tax, if at all, had to be dealt with by reopening the concluded assessment under the appropriate assessment-reopening provision. The intelligence authority could not use the penal and compounding machinery as a substitute for reassessment, nor could it demand compounding without a quantified liability in the notice. Such use of the provisions was treated as an attempt to exert pressure before lawful quantification of tax liability.

Conclusion: The proposition notice, the rejection order, and the criminal prosecution were held unsustainable and were quashed; the action was found to be an abuse and colourable exercise of power, though liberty was reserved to proceed in accordance with law for any escaped tax liability.

Final Conclusion: The writ petition succeeded, the coercive proceedings based on the impugned notice could not stand, and the revenue was left free to adopt lawful proceedings for reassessment or other permissible action.

Ratio Decidendi: Penal and compounding provisions cannot be used to bypass the statutory mechanism for reopening a concluded assessment, and a notice offering composition must disclose a legally supportable quantified liability before coercive prosecution can be justified.

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