Retrospective change to compounding tax option cannot bind assessees without a chance to reconsider the election.

An assessee who opted to pay tax at the compounded rate under the Kerala Value Added Tax Act on the statutory basis then reflected in the proviso could not be automatically bound by an enhanced rate introduced retrospectively by amendment before permission was granted. The court noted that the option was exercised on a particular statutory footing, and once that footing changed before final orders, the assessee had to be allowed to reconsider whether to continue under the compounding scheme. The revised compounding liability could not be imposed by default, and the impugned orders were unsustainable.

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Issues: Whether assessees who had applied to pay tax at the compounded rate under Section 8(b) of the Kerala Value Added Tax Act on the basis of the rate then reflected in the proviso could be compelled, after the retrospective amendment by the Kerala Finance Act, 2009, to accept the enhanced compounded rate, or be treated as bound by the revised rate without an opportunity to reconsider their option.

Analysis: The option to pay tax at compounded rates under Section 8(b) depends on the statutory basis existing when the assessee exercises that option. Where the assessee applied on the footing that a single crushing machine attracted a payment of Rs. 25,000 per annum, and the statutory basis was later altered retrospectively before the permission orders were passed, the original understanding on which the option was exercised stood changed. In such a situation, the delay in acting on the application cannot be used to force upon the assessee a revised compounding liability that was not the basis of the original choice. The assessee must be given an opportunity to reconsider whether to continue with the compounding scheme under the amended terms.

Conclusion: The revised compounding rate could not be thrust upon the petitioners without affording them the chance to withdraw from the compounding option, and the impugned orders were unsustainable.

Ratio Decidendi: If an assessee's election to compound tax is made on a statutory basis that is retrospectively altered before final permission is granted, the assessee must be allowed to reconsider the option and cannot be bound to the revised compounding liability by default.

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