1977 (2) TMI 116 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Legality of the notice demanding security under section 7(4a)(i) of the Bengal Finance (Sales Tax) Act, 1941.
2. Reasonableness and arbitrariness of the demanded security amount.
3. Compliance with the procedural requirements of recording reasons in writing.
4. Maintainability of the petition in light of the 42nd amendment of the Constitution of India.

Detailed Analysis:

1. Legality of the Notice Demanding Security:
The petitioners, partners of Messrs. Southern Electric Company, challenged a notice dated 22nd August 1972, issued by the Assistant Commissioner, Commercial Taxes, demanding Rs. 1,00,000 as security under section 7(4a)(i) of the Bengal Finance (Sales Tax) Act, 1941. The petitioners argued that they had a good reputation, were duly registered, and had filed all returns and paid taxes up to June 1972. They contended that the notice was baseless and showed non-application of mind, as there was no prior allegation of non-payment or irregular payment of tax against them.

The respondents, in their affidavits, justified the notice, stating it was based on acts of evasion of sales tax by improper use of declaration forms, and that sales involving about twenty lacs of rupees were covered by declaration forms from dealers whose registrations were canceled. The court noted that the Commissioner could demand security for proper payment of tax or proper use and custody of forms, and such power was not arbitrary but included reasonable safeguards for tax collection.

2. Reasonableness and Arbitrariness of the Demanded Security Amount:
The petitioners argued that the security amount of Rs. 1,00,000 was excessive, arbitrary, and unreasonable. The respondents countered that the security was justified based on an investigation revealing substantial evasion of tax. The court observed that the Act did not set specific limits for security amounts but required them to be reasonable. The court found that the demand for security was not unreasonable given the evidence of tax evasion.

3. Compliance with Procedural Requirements:
The petitioners argued that the notice did not comply with the requirement of recording reasons in writing as mandated by section 7(4a)(i) of the Act. The court examined the records and found that the Assistant Commissioner had perused the report and recorded satisfaction before issuing the notice. However, the court held that the reasons recorded were insufficient to meet the statutory requirement, as they did not clearly show the basis for the demand. The court emphasized that reasons must be explicit to enable the dealer to understand the grounds for the security demand and make a proper representation.

4. Maintainability of the Petition:
The respondents argued that the petition was not maintainable under the amended provisions of article 226(3) of the Constitution, which barred petitions if an alternative remedy was available. The petitioners contended that the notice was not an order and thus not revisable under section 20(3) and (4) of the Act. The court agreed with the petitioners, holding that the notice was not a final order and thus the petition was maintainable.

Conclusion:
The court made the rule absolute on the limited ground that the reasons recorded in the notice were insufficient to comply with section 7(4a)(i) of the Act. The court directed the respondents to quash the impugned notice and not act on its basis, but allowed them to proceed afresh in accordance with the law after duly recording reasons. All interim orders were vacated, and the security deposited was released. There was no order for costs.