Compounding option under luxury tax law bars regular assessment while the scheme continues; recovery is limited to defaulted instalments.

Once an assessee's compounding option under Section 5A of the Kerala Tax on Luxuries Act, 1976 is accepted, the scheme operates as a self-contained arrangement unless lawfully withdrawn. Default in paying compounded instalments permits recovery of the arrears, with penalty and revenue recovery where authorised, but it does not permit the revenue to switch to a regular best judgment assessment under Section 6 while the compounding option continues. The court therefore held that regular assessment was not permissible on these facts, limited the authorities to recovery of the defaulted amounts under the compounding scheme, and quashed the assessment and consequential recovery notices.

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Issues: Whether, after an assessee opts for compounding under Section 5A of the Kerala Tax on Luxuries Act, 1976 and defaults in payment of instalments, the revenue authorities can complete a regular best judgment assessment under Section 6 of the Act, or are confined to recovery of the defaulted instalments under the compounding scheme.

Analysis: Section 5A creates a self-contained compounding scheme under which the assessee's option, once accepted, continues so long as it is not lawfully withdrawn. A default in payment of the compounded instalments authorises recovery of the arrears along with penalty in accordance with the Act, including revenue recovery. It does not, however, authorise the authorities to proceed simultaneously with a regular assessment under Section 6 while the compounding option subsists. The reasoning is supported by the principle that a duly accepted compounding option cannot be unilaterally withdrawn by either side merely because of default in instalments.

Conclusion: Regular assessment under Section 6 was not permissible in the facts of the case, and the revenue authorities were limited to recovery of the defaulted amounts under Section 5A. The assessment and consequential recovery notices were therefore quashed, and the petitioners were held entitled to be assessed in accordance with the compounding option exercised by them.

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