Compounding cancellation proceedings barred by reasonable limitation and protective amendment for suppressed gold turnover

The writ petition was maintainable despite an alternate statutory remedy because the dispute turned on pure questions of law arising from admitted facts. In the absence of an express limitation period for cancellation of compounding permission, a reasonable period was read into the statute, and proceedings initiated after five years were treated as time-barred. The later amendment dealing with suppressed turnover of gold applied to pending proceedings and prevented cancellation of the compounding option, requiring only assessment of the suppressed turnover at the scheduled rate. Cancellation based on suppression alleged in the same assessment year was also held impermissible.

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Issues: (i) Whether the writ petition was maintainable despite the availability of an alternate statutory remedy; (ii) whether the proceedings initiated to cancel compounding permission were barred by limitation; (iii) whether initiation of the proceedings at the instance of the Deputy Commissioner vitiated the action for want of proper application of mind under the relevant provision; (iv) whether the proceedings were unsustainable in view of the protective regime under the later amendment dealing with suppressed turnover of gold; and (v) whether cancellation could be based on suppression alleged in the very same assessment year.

Issue (i): Whether the writ petition was maintainable despite the availability of an alternate statutory remedy

Analysis: The rule of alternate remedy is a rule of self-imposed restraint and not an absolute bar. Writ jurisdiction may still be exercised where the dispute is purely legal, does not require resolution of disputed facts, or where the impugned action is alleged to be contrary to the statute itself. The controversy in the present case turned largely on questions of law arising from admitted facts, and the proceedings had been pending for a substantial period.

Conclusion: The writ petition was held maintainable and the assessee was not relegated to the statutory authority.

Issue (ii): Whether the proceedings initiated to cancel compounding permission were barred by limitation

Analysis: Although the notices referred to the general reassessment provision, the real source of power was the provision governing cancellation of compounding permission. That provision did not expressly prescribe a limitation period. In such a situation, a reasonable period has to be read into the statute. Applying the five-year benchmark drawn from the scheme of the Act and the rules, proceedings begun after expiry of that period were treated as time-barred.

Conclusion: The proceedings were held barred by limitation and this issue was decided in favour of the assessee.

Issue (iii): Whether initiation of the proceedings at the instance of the Deputy Commissioner vitiated the action for want of proper application of mind under the relevant provision

Analysis: The notices were founded on information from the intelligence side regarding suppression of purchases, and the prior orders of the Deputy Commissioner did not by themselves establish absence of jurisdiction or predetermined action. The notices were only show-cause notices, and the assessee retained the opportunity to raise all objections before the assessing authority. The prior approval requirement was treated as procedural rather than fatal.

Conclusion: The challenge on this ground failed and the issue was decided against the assessee.

Issue (iv): Whether the proceedings were unsustainable in view of the protective regime under the later amendment dealing with suppressed turnover of gold

Analysis: The later amendment provided that where suppression of turnover of gold is detected in respect of a dealer paying compounded tax, only the suppressed turnover is to be assessed at the scheduled rate and the compounding option for that year is not to be cancelled. As the proceedings were still pending and no completed best judgment assessment stood in place, the beneficial amended provision was held applicable to the pending proceedings.

Conclusion: The notices proposing cancellation of the compounding permission were held unsustainable and this issue was decided in favour of the assessee.

Issue (v): Whether cancellation could be based on suppression alleged in the very same assessment year

Analysis: The compounding tax liability was linked to prior years and not to the alleged suppression in the same year for which compounding had been opted. The earlier binding reasoning accepted in favour of the assessee was treated as continuing to govern the issue.

Conclusion: Cancellation on that basis was held impermissible and this issue was decided in favour of the assessee.

Final Conclusion: The impugned notices and all consequential proceedings were quashed, and the assessee succeeded on the substantial legal challenges concerning limitation and the scope of cancellation of compounding permission.

Ratio Decidendi: Where a taxing statute authorises cancellation of a benefit but prescribes no express initiation period, the court may read in a reasonable limitation consistent with the statutory scheme; and a pending proceeding must be tested against a beneficial amendment that governs the manner of dealing with suppressed turnover without cancelling the compounding option.

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