1972 (5) TMI 54 - HC - VAT and Sales Tax

Issues Involved:
1. Demand for cash security as a condition for granting a registration certificate under the Punjab General Sales Tax Act, 1948.
2. Proportionality and reasonableness of the security amount demanded.
3. Impact of past conduct of related individuals on the decision to demand security.
4. Legal validity and interpretation of Section 9 of the Punjab General Sales Tax Act, 1948.

Issue-Wise Detailed Analysis:

1. Demand for Cash Security as a Condition for Granting a Registration Certificate:
The petitioner, a partnership firm, applied for a registration certificate under the Punjab General Sales Tax Act, 1948, and the Central Sales Tax Act. The Assessing Authority initially directed the petitioner to deposit a cash security of Rs. 2,50,000.00 as a condition precedent to granting the licence. This order was contested, leading to a series of appeals. Ultimately, the Sales Tax Tribunal reduced the security amount to Rs. 50,000.00, which was also challenged by the petitioner.

2. Proportionality and Reasonableness of the Security Amount Demanded:
The principal argument by the petitioner was that under Section 9 of the Act, a reasonable security should be demanded. The petitioner argued that with a capital of Rs. 16,000.00 and a gross turnover of Rs. 29,595.23, the tax assessed was only Rs. 2,173.00. Therefore, demanding a cash security of Rs. 50,000.00 was disproportionate and amounted to a denial of the right to carry on business under Article 19 of the Constitution of India. The court found that the demand for Rs. 50,000.00 was excessive and out of proportion to the business volume, making it prohibitory and disabling rather than regulatory and enabling.

3. Impact of Past Conduct of Related Individuals on the Decision to Demand Security:
The respondents justified the high security demand by highlighting the past conduct of Shri J. K. Jain, a director of M/s. New India Motors Pvt. Ltd., which defaulted on a significant amount of sales tax. They argued that the firm in question was likely to follow a similar pattern of default. The court acknowledged the respondents' concerns but emphasized that past conduct should not be the sole ground for imposing harsh restrictions on the petitioner's family members, making it nearly impossible for them to conduct business.

4. Legal Validity and Interpretation of Section 9 of the Punjab General Sales Tax Act, 1948:
Section 9 of the Act allows the Commissioner to demand security from dealers for the proper realization of tax. The court referred to the Supreme Court's interpretation in Nand Lal Raj Kishan v. Commissioner of Sales Tax, Delhi, which upheld the constitutional validity of a similar provision. The court concluded that while the respondents' concerns were valid, the security amount must have a reasonable relation to the business volume. The court suggested a more balanced approach, allowing part of the security to be deposited in cash and the remaining amount through personal bonds and sureties of solvent dealers.

Conclusion:
The court accepted the writ petition and quashed the impugned orders. It directed the Sales Tax Tribunal to reconsider the matter, ensuring the security amount is split appropriately between cash and other forms of security as per Rule 4-A of the Punjab General Sales Tax Rules, 1949. The court emphasized the need for vigilance by the Assessing Authority to adjust the security amount as the business volume changes. No order as to costs was made.

← Previous Next →