1993 (5) TMI 169 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Whether the notices demanding security/additional security without disclosing reasons and grounds are violative of the principles of natural justice.
2. Whether the orders passed based on such notices are invalid.

Issue-Wise Detailed Analysis:

1. Non-Disclosure of Reasons in Notices:
The central issue in this batch of petitions is whether the notices demanding security/additional security without disclosing the reasons and grounds for such demands are violative of the principles of natural justice and therefore invalid. The petitioners argued that the relevant Acts (Central Sales Tax Act, 1956; Assam Sales Tax Act, 1947; and Assam Finance (Sales Tax) Act, 1956) do not mandate every assessee to furnish security/additional security for tax realization. The competent authority must apply its mind to the specific case of each assessee before demanding security, and the notices must disclose the reasons and grounds for such demands. This disclosure is essential for the assessee to make an effective representation and show cause why the security should not be required. The failure to disclose these reasons in the notices was argued to be arbitrary and a denial of a reasonable opportunity to the assessee.

2. Competent Authority's Application of Mind:
The court examined whether the competent authority had applied its mind to the specific circumstances of each assessee before demanding security/additional security. The relevant statutory provisions (Section 7(3A) of the Central Sales Tax Act, Section 11A of the Assam Sales Tax Act, and Section 7 of the Assam Finance (Sales Tax) Act) were scrutinized. These provisions allow the competent authority to demand security for proper tax realization, but only for reasons recorded in writing. The court emphasized that the competent authority must have material facts before it to derive satisfaction that security is necessary for a particular assessee. This involves considering the assessee's conduct, financial condition, and assets. The court held that without disclosing the reasons and grounds in the notice, the assessee is deprived of a reasonable opportunity to meet the allegations effectively.

3. Precedents and Legal Principles:
The petitioners relied on several precedents, including Braja Lal Banik v. State of Tripura, Govinda Misra v. Shri Jyotish Chandra Roy, and C.B. Gautam v. Union of India. These cases established that notices must disclose all relevant facts and grounds to enable the affected party to make an effective representation. The court agreed with these precedents, emphasizing that non-disclosure of reasons in the notice is a violation of the principles of natural justice. The court rejected the respondents' argument that reasons could be disclosed at the hearing stage or in the final order, stating that this would not cure the deprivation of a reasonable opportunity to show cause.

4. Violation of Principles of Natural Justice:
The court concluded that the impugned notices and orders were invalid due to the non-disclosure of reasons and grounds. This non-disclosure deprived the petitioners of a reasonable opportunity to meet the allegations effectively, thereby violating the principles of natural justice. The court held that the notices must disclose the reasons and grounds with material facts on which the competent authority is prima facie satisfied that security/additional security is necessary. The failure to do so vitiates the proceedings.

Conclusion:
The court allowed the petitions, setting aside and quashing the impugned notices and orders. The court directed the respondent to issue fresh notices stating the reasons and grounds with material facts. If the respondent is not satisfied with the causes shown by the petitioner in response to the notice, they may pass an appropriate order after giving a reasonable opportunity of being heard to the petitioners. The court also directed the respondent not to realize the security money in pursuance of the impugned orders and to issue necessary declaration forms and tax clearance certificates to the petitioners if no assessed tax is outstanding.

Petitions allowed.