1986 (8) TMI 434 - HC - VAT and Sales Tax

Summary

Issues:
1. Justification of demand of security under section 8-C(3) of the U.P. Sales Tax Act.
2. Consideration of past history of an old firm in imposing security on a new firm.
3. Interpretation of section 8-C(3) regarding the basis for demanding security.
4. Assessment of security based on turnover and tax liability of the dealer.
5. Applicability of declaration of dealing in goods within U.P. in determining security requirement.

Detailed Analysis:
1. The primary issue in this case is the justification of the demand of security under section 8-C(3) of the U.P. Sales Tax Act from the applicant-firm. The applicant argued that since they were dealing in goods within U.P. and did not require form C or form 31, the demand for security was unjustified. The assessing authority had demanded security based on the past history of an old firm, leading to a dispute over the validity of the security demand.

2. The consideration of the past history of an old firm in imposing security on a new firm was a crucial point of contention. The Tribunal upheld the order of demand of security, taking into account the past history of the partners who were also part of the old firm. The applicant contended that the two firms were separate legal entities, and the past history of the old firm should not influence the security requirement for the new firm.

3. The interpretation of section 8-C(3) regarding the basis for demanding security was extensively discussed. The section mandates that security should not exceed the tax payable on the turnover of the dealer for the relevant assessment year. The applicant argued that the security demand should be based on the turnover and tax liability of the dealer, not the past history of a separate entity.

4. The assessment of security based on turnover and tax liability of the dealer was a critical aspect of the case. The appellate authority found no tax liability for the applicant based on their return, but the department argued that security could be demanded based on turnover to secure the interests of the Revenue. The court analyzed the provisions of section 8-C(3) and the factors to be considered while determining the security amount.

5. The applicability of the declaration of dealing in goods within U.P. in determining the security requirement was another point of contention. The applicant-firm had declared their business activities limited to U.P., but the department highlighted that such declarations did not absolve the firm from security demands, especially considering the evasion by the old firm despite similar declarations.

In conclusion, the High Court set aside the order of the Sales Tax Tribunal and remanded the case for reconsideration, emphasizing the need to assess the security requirement against the applicant-firm in compliance with all the provisions of section 8-C(3) of the U.P. Sales Tax Act. The judgment highlighted the importance of considering relevant factors such as turnover, tax liability, and legal separateness of entities while determining security demands under the Act.