Compounding tax liability under VAT Act upheld, while instalment relief and suspension of recovery were modified

A taxpayer who had opted for and been granted compounding under the VAT Act could not avoid the resulting tax liability by relying on a stop memo and alleged non-production, because the obligation arose from the elected compounding scheme itself; the challenge to the demand notices was therefore rejected. The court also modified the payment arrangement for the admitted liability, directing instalments from 1 July 2017 and keeping recovery in abeyance so long as payments were made regularly, with liberty to proceed on default. The merits challenge failed, but the instalment schedule was adjusted in favour of the assessee.

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Issues: (i) Whether the challenge to the notices demanding compounded tax under the VAT Act was sustainable when the assessee had opted for compounding and claimed no production due to a stop memo. (ii) Whether the assessee was entitled to pay the admitted liability in instalments and to have recovery kept in abeyance.

Issue (i): Whether the challenge to the notices demanding compounded tax under the VAT Act was sustainable when the assessee had opted for compounding and claimed no production due to a stop memo.

Analysis: The assessee had exercised the option under the compounding provision and had been sanctioned compounding accordingly. In such a case, the obligation to pay tax arose under the compounding scheme itself. The claimed absence of production because of the stop memo did not displace the liability created by the elected compounding mechanism.

Conclusion: The challenge to the demand notices was rejected and the interference on merits was declined.

Issue (ii): Whether the assessee was entitled to pay the admitted liability in instalments and to have recovery kept in abeyance.

Analysis: Considering the concession sought and the stated willingness to commence payment from 1 July 2017, the instalment schedule granted by the Single Judge required modification. The recovery process was directed to remain suspended while the instalments were regularly paid, with liberty to proceed in the event of default.

Conclusion: The instalment relief was modified by fixing the first payment date as 1 July 2017 and continuing monthly instalments thereafter, with recovery kept in abeyance subject to compliance.

Final Conclusion: The merits challenge failed, but the payment schedule was adjusted in favour of the assessee, and the appeals stood disposed of on that limited modification.

Ratio Decidendi: Where a taxpayer has opted for and been granted compounding, the tax liability is governed by the compounding election and is not avoided by absence of production; equitable instalment relief may nevertheless be granted or modified to facilitate recovery.

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