1978 (8) TMI 189 - HC - VAT and Sales Tax

Summary

Issues: Challenge to order demanding security deposit under Bengal Finance (Sales Tax) Act, 1941.

In this case, the petitioners challenged an order by the Additional Commissioner of Commercial Taxes directing a dealer to deposit a security of Rs. 50,000 under section 7(4a)(ii) of the Bengal Finance (Sales Tax) Act, 1941. The Additional Commissioner found a prima facie case that the dealer had mala fide used declaration forms and failed to explain how these forms were in the possession of third parties. The petitioners contended that there were no good or sufficient reasons for demanding security, but the court held that the sufficiency of reasons cannot be scrutinized in an application under article 226 of the Constitution as long as the reasons are relevant and have a nexus to the order made. The court found the reasons given in the impugned order to be relevant and not insufficient. Thus, the condition precedent for exercising the power to demand security was deemed fulfilled in this case.

Secondly, the petitioners argued that the Commissioner had not delegated the function of imposing penalties to the Commercial Tax Officer under rule 71 of the relevant Rules. However, the court noted that the Additional Commissioner, acting under section 3A, had the power to exercise the functions of the Commissioner. The court found no impropriety in the Additional Commissioner's actions as long as the party concerned was given a reasonable opportunity to show cause.

Lastly, the petitioners contended that the security deposit of Rs. 50,000 was unreasonable as the declaration forms in question were obsolete and the alleged tax evasion was minimal. The court held that the reasonableness of the security demanded should be judged based on the taxable turnover of the dealer's business, not solely on the tax evaded. Citing precedent, the court emphasized that the total business turnover was a relevant factor in determining the reasonableness of the security demanded. Ultimately, the court dismissed the application challenging the order, stating that the security deposit was not unreasonable given the circumstances. The application was dismissed, the rule nisi discharged, and there was no order as to costs.