Compounded tax option and fair notice in reassessment: amended procedure not retrospective, and undisclosed grounds vitiated the assessment.

The amended procedure for opting to pay compounded tax on works contract under Section 7-C, introduced through Section 7-C(2-A), Rule 15(4-CC) and the prescribed form, applied only from 1 July 2002 and not to assessment year 2000-01; payment at the compounded rate and disclosure in the monthly and self-assessment returns were treated as sufficient compliance on the facts. Reassessment was also held unsustainable because the ground ultimately relied on by the Assessing Authority was not disclosed in the pre-revision notice, causing prejudice and violating natural justice. The revision petition therefore failed, and the concurrent findings in favour of the assessee were left undisturbed.

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Issues: (i) Whether the amended procedure for exercising the option to pay compounded tax on works contract under Section 7-C applied to assessment year 2000-01, and whether filing the first monthly return with payment at the compounded rate constituted valid compliance. (ii) Whether the reassessment was vitiated for want of notice of the ground ultimately relied on by the Assessing Authority, thereby offending natural justice.

Issue (i): Whether the amended procedure for exercising the option to pay compounded tax on works contract under Section 7-C applied to assessment year 2000-01, and whether filing the first monthly return with payment at the compounded rate constituted valid compliance.

Analysis: The amendment introducing Section 7-C(2-A), together with the corresponding amendment to Rule 15(4-CC) and the prescribed form, was effective only from 1.7.2002. The assessment year in question was 2000-01. The authorities below found that, before the amendment became operative, there was no prescribed manner for exercising the option in the circumstances of the case, and the dealer's payment and disclosure in the monthly return and self-assessment return amounted to sufficient compliance.

Conclusion: The issue was decided in favour of the assessee; the amended procedure did not apply to assessment year 2000-01, and the option was validly complied with on the facts.

Issue (ii): Whether the reassessment was vitiated for want of notice of the ground ultimately relied on by the Assessing Authority, thereby offending natural justice.

Analysis: The reassessment proceeded on a ground different from the one indicated in the pre-revision notice. The later basis adopted by the Assessing Authority was not put to the assessee in the notice, and the finding below treated this shift in stand as a serious procedural defect causing prejudice. The appellate authorities accepted that the reassessment was passed in violation of fair notice requirements.

Conclusion: The issue was decided in favour of the assessee; the reassessment was vitiated for breach of natural justice.

Final Conclusion: The revision petition failed. The concurrent findings upholding the assessee's entitlement to the compounded-rate treatment for the relevant year and rejecting the reassessment were left undisturbed, and the revenue's substantial questions of law were answered against it.

Ratio Decidendi: An amendment introducing a new mode of exercising an option for compounded tax cannot be applied retrospectively to an earlier assessment year, and an assessment cannot be sustained when it is founded on a ground not disclosed in the pre-revision notice.

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