Compounding scheme applications remain valid despite delayed orders; filing regular returns does not amount to withdrawal, and pre-demand interest is barred.

A compounding application under the sales tax scheme may validly be acted on during the relevant year even if the order is passed after the first monthly return date, because no absolute time-limit is implied from the scheme. Filing regular monthly returns and paying tax in the interim does not by itself withdraw the pending application, which continues unless expressly withdrawn. Interest could not be levied for the period of official delay before service of the compounding demand, though interest remained possible for belated payment after the demand notice and for subsequent default; the penalty orders were directed to be recalled subject to compliance.

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Issues: (i) Whether an order passed on an application for payment of tax at compounded rate under the compounding scheme is invalid merely because it is issued after the due date for the first monthly return. (ii) Whether an assessee's filing of regular monthly returns and payment of tax on taxable turnover amounts to withdrawal of the compounding application. (iii) Whether interest and penalty can be levied for the period during which the application remained pending and the demand notice under the compounding scheme had not been served.

Issue (i): Whether an order passed on an application for payment of tax at compounded rate under the compounding scheme is invalid merely because it is issued after the due date for the first monthly return.

Analysis: The statutory scheme permits belated filing of the compounding application, and the form governing demand under the scheme contemplates payment after the order is issued and demand notice is served. On that framework, no absolute time-limit can be implied for passing the order before the first monthly return becomes due. The pendency of the application does not by itself defeat the officer's power to act on it during the relevant year.

Conclusion: The belated order under the compounding scheme was valid, and the challenge to its jurisdiction failed.

Issue (ii): Whether an assessee's filing of regular monthly returns and payment of tax on taxable turnover amounts to withdrawal of the compounding application.

Analysis: Even an assessee who opts for compounded payment remains bound to file monthly returns. Filing returns and paying tax in the interregnum does not, by itself, amount to withdrawal of the pending application. The application continues unless it is expressly withdrawn, and the officer remains bound to dispose of it. Once the compounding order is served, the tax payable thereafter must conform to the compounding demand.

Conclusion: Filing regular returns did not amount to withdrawal of the compounding application.

Issue (iii): Whether interest and penalty can be levied for the period during which the application remained pending and the demand notice under the compounding scheme had not been served.

Analysis: The delay in passing the order and serving the demand notice was attributable to the authority, and the assessee could not be visited with interest for the arrears period up to the time allowed under the demand notice. Interest could arise only for belated payment after the due date fixed in the demand notice and for delay in subsequent monthly payments after service of the compounding order. In the circumstances, the penalty orders were directed to be recalled on payment of arrears and compliance within the time granted.

Conclusion: Interest was not leviable for the pre-demand period, and the penalty was directed to be recalled subject to compliance.

Final Conclusion: The compounding order was sustained, but the assessee obtained relief against interest for the period of official delay and against penalty, with liberty for correction of the demand and consequential compliance.

Ratio Decidendi: A compounding application under the sales tax scheme may be acted upon during the relevant year even if the order is passed after the first return date, and filing regular returns does not amount to withdrawal unless expressly withdrawn; however, the assessee cannot be burdened with interest for delay attributable to the authority before service of the compounding demand.

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