Compounded tax finality bars retrospective differential demand where valid option was accepted before amendment.

Dealers who had validly opted for compounding under the Kerala Value Added Tax Act before the Kerala Finance Act, 2011 came into force could not be reopened to a higher tax burden. Once the compounding option was accepted, either expressly or by conduct such as filing returns and paying tax under the existing regime, the liability for that year attained finality. The validation clause in Section 12 of the Kerala Finance Act, 2011 protected acts done and tax collected during the relevant period, but did not authorise fresh demands for differential tax on completed transactions. The resulting differential tax and consequential penalty were therefore unsustainable, and excess tax was to be refunded or adjusted in accordance with law.

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Issues: Whether dealers who had opted for compounding under Section 8(f) of the Kerala Value Added Tax Act, 2003 before the Kerala Finance Act, 2011 came into force could be subjected to differential tax and penalty on the basis of the amended compounded rate, in the light of the validation clause in the Kerala Finance Act, 2011.

Analysis: The petitioners exercised the statutory option for payment of tax at compounded rates within time, and in several cases the applications were accepted by the authorities before the Finance Act, 2011 was enacted. In the remaining cases, the petitioners had already acted on their applications by filing returns and paying tax under the pre-amended regime. The acceptance of the compounding option, whether by express order or by conduct, brought the tax arrangement for the year into finality, and the authorities could not resile from that position to levy a higher liability later. The validation clause in Section 12 of the Kerala Finance Act, 2011 protected acts done and tax collected during the period when the Finance Bill, 2011 was in force, and barred reopening those completed transactions to demand short levy or differential tax. The decisions relied on by the respondents were distinguished because they did not involve the same validation clause or the same factual finality of the compounding arrangement.

Conclusion: The demand for differential tax and the consequential penalty were unsustainable and liable to be quashed; the issue is decided in favour of the assessee.

Final Conclusion: The writ petitions succeed, and the impugned demands and penalty orders are set aside, with any excess tax to be refunded or adjusted in accordance with law.

Ratio Decidendi: Once an assessee's option to pay tax at compounded rates is accepted under the statute, the arrangement attains finality, and a subsequent retrospective amendment cannot be used to reopen completed liability where a validating provision protects actions taken under the earlier operative law.

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