Installed capacity governs compounding tax liability; unilateral assessment was impermissible and the orders were set aside.

Under the compounding scheme for trade tax, liability was to be computed with reference to installed capacity, and any dispute on that capacity had to be referred to the statutory mechanism designated for resolution. The assessing authority could not bypass that process by adopting a different capacity basis or deciding the dispute itself. As the assessment and appellate orders rested on that unauthorised determination, they were unsustainable and were set aside, with the matter remitted for enquiry and final decision under the prescribed scheme.

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Issues: (i) Whether, under the compounding scheme framed under section 7D of the U.P. Trade Tax Act, 1948, the assessing authority could determine the compounding liability on a basis different from the installed capacity and decide the dispute itself instead of referring the matter to the designated authorities; (ii) whether the assessment and appellate orders based on such determination could be sustained.

Issue (i): Whether, under the compounding scheme framed under section 7D of the U.P. Trade Tax Act, 1948, the assessing authority could determine the compounding liability on a basis different from the installed capacity and decide the dispute itself instead of referring the matter to the designated authorities.

Analysis: The scheme contemplated payment of compounding tax with reference to installed capacity, while disputes regarding capacity were assigned to the Joint Commissioner (Executive), whose report was to be considered by the Commissioner. The assessing authority was not competent to unilaterally substitute its own assessment of capacity or compute tax on a different footing. Where a dispute arose about installed capacity, the matter had to be referred to the statutory authorities designated by the scheme.

Conclusion: The assessing authority lacked jurisdiction to decide the capacity dispute and compute tax independently; the matter had to be referred to the Joint Commissioner (Executive) and then to the Commissioner.

Issue (ii): Whether the assessment and appellate orders based on such determination could be sustained.

Analysis: Since the assessment proceeded on an incompetent determination of capacity and ignored the mechanism prescribed by the compounding scheme, the orders suffered from a legal infirmity. The proper course was remand for enquiry by the Joint Commissioner (Executive) and final decision by the Commissioner after hearing the parties.

Conclusion: The assessment and appellate orders could not be sustained and were set aside.

Final Conclusion: The petitions succeeded, the impugned orders were annulled, and the matter was remitted to the statutory authorities for decision under the compounding scheme.

Ratio Decidendi: Where a compounding scheme assigns dispute resolution on installed capacity to specified statutory authorities, the assessing authority cannot bypass that mechanism and make an independent assessment on a different capacity basis.

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