Compounding disqualification and limitation: coercion claim failed, but time-bar under assessment law rendered the action without jurisdiction.

A taxpayer who had applied for compounding and paid the demanded fee could not later resile on a plea of coercion; that challenge failed. Commencement of a beer and wine parlour triggered the statutory disqualification automatically, so entitlement to continue under the compounding scheme ended by operation of law and no prior departmental cancellation was required before regular assessment. Proceedings under section 25(1) were found to have been initiated beyond the five-year limit, and the expiry of that period was treated as jurisdictional, rendering the assessment time-barred and without authority.

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Issues: (i) Whether the assessee could avoid the compounding consequence and contend coercion in payment of the compounding fee; (ii) whether, on commencement of a beer and wine parlour, the entitlement to continue under the compounding scheme under section 8(c) survived until formal cancellation by the Department; (iii) whether proceedings under section 25(1) were barred by limitation and, if so, whether the assessment was without jurisdiction.

Issue (i): Whether the assessee could avoid the compounding consequence and contend coercion in payment of the compounding fee.

Analysis: The assessee had applied for compounding and had remitted the amount demanded by the Department. In those circumstances, a later plea of coercion could not be sustained. The challenge to the compounding payment therefore failed.

Conclusion: The plea of coercion was rejected and the compounding payment was not set aside on that ground.

Issue (ii): Whether, on commencement of a beer and wine parlour, the entitlement to continue under the compounding scheme under section 8(c) survived until formal cancellation by the Department.

Analysis: Once the assessee obtained a licence for and commenced a beer and wine parlour, the statutory disqualification operated by force of the Act itself. The continuation of compounding under section 8(c) was automatically extinguished and no prior cancellation by the Department was necessary before regular assessment could be initiated.

Conclusion: The challenge based on want of prior cancellation failed and the regular assessment was not invalid on that ground.

Issue (iii): Whether proceedings under section 25(1) were barred by limitation and, if so, whether the assessment was without jurisdiction.

Analysis: Limitation under section 25(1) governed the initiation of proceedings. On the undisputed dates, the proceedings were initiated beyond the permissible period of five years. Expiry of that period divested the assessing authority of jurisdiction to proceed under section 25(1), and the objection could be considered in writ jurisdiction.

Conclusion: The assessment under section 25(1) was held to be time-barred and without jurisdiction.

Final Conclusion: The challenge to coercion was rejected, the enhanced compounding demand was confined to the amount already accepted, and the regular assessment was set aside on limitation grounds.

Ratio Decidendi: A disqualification from continuing under a compounding scheme takes effect automatically on the occurrence of the statutory event, and limitation prescribed for initiating assessment proceedings is a jurisdictional condition whose expiry renders the action invalid.

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