Retrospective curtailment of a composition scheme is impermissible, and additional tax liability needs prior notice and hearing.

A later notification curtailing the benefits of an existing composition scheme cannot be applied retrospectively to dealers who had already opted for the scheme and complied with its terms; the amended scheme operates only prospectively. Where an amended fiscal scheme creates an additional tax burden, the affected dealer must first receive notice and an opportunity of hearing before the liability is imposed. The absence of prior show-cause notice and hearing offends natural justice and renders the additional demand unsustainable. The legal effect is that accrued benefits under a beneficial tax scheme are protected from retrospective curtailment, and fresh tax liability cannot be fastened without procedural fairness.

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Issues: (i) Whether the subsequent notifications amending the composition scheme could be applied retrospectively to existing dealers who had already opted for the scheme and complied with it; (ii) Whether additional tax liability could be imposed under the amended scheme without prior show-cause notice and opportunity of hearing.

Issue (i): Whether the subsequent notifications amending the composition scheme could be applied retrospectively to existing dealers who had already opted for the scheme and complied with it.

Analysis: The composition scheme was a time-bound beneficial arrangement and the dealers had opted for it and discharged their obligations according to its terms. Later notifications reducing the benefit of the scheme could not be treated as retrospective so as to disturb benefits already accrued under the existing scheme. The amended notifications, which curtailed the position of the dealers, were held to operate only prospectively.

Conclusion: The amended composition notifications could not be given retrospective effect against the existing dealers.

Issue (ii): Whether additional tax liability could be imposed under the amended scheme without prior show-cause notice and opportunity of hearing.

Analysis: A fresh tax burden was imposed straightaway without issuing any notice to the assessees. In fiscal matters, where an additional liability is created, the person affected must be heard before the levy is imposed. The absence of notice offended the principles of natural justice, and the assessment order creating the extra demand was therefore unsustainable.

Conclusion: Additional tax liability could not be imposed without prior notice and hearing.

Final Conclusion: The revision petitions failed, and the orders of the appellate authorities deleting the additional demand were upheld.

Ratio Decidendi: A later notification curtailing the benefits of an existing beneficial composition scheme cannot be applied retrospectively to dealers already covered by the scheme, and any additional fiscal liability must be preceded by notice and opportunity of hearing.

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