2001 (9) TMI 1100 - HC - VAT and Sales Tax

Summary

Issues:
1. Justification of passing an order directing a company to furnish additional security deposit.
2. Interpretation of relevant provisions of the Act and Rules regarding registration of dealers and imposition of security requirements.
3. Consideration of circular instructions issued by the Commissioner of Commercial Taxes in relation to security deposits for registered companies.

Detailed Analysis:
Issue 1: The petitioner, a public limited company, challenged an order requiring it to furnish additional security deposit of Rs. 7 lakhs by the respondent-registering authority. The petitioner argued that as long as there is no immediate tax liability, demanding additional security is illegal. The respondent justified the order based on the increased turnover of the petitioner, necessitating additional security under section 12 of the Act. The court considered whether the respondent's action was justified in light of the circumstances.

Issue 2: The court examined the relevant provisions of the Act and Rules, particularly Section 12, which mandates registration of dealers and allows authorities to impose security requirements for tax realization and form custody. Sub-section (10) empowers the authority to demand additional security during the registration period. The court analyzed these provisions to determine the legality of the respondent's order for additional security.

Issue 3: The petitioner relied on circular instructions from the Commissioner of Commercial Taxes, which exempted certain companies, including those registered under the Companies Act, from security deposit requirements. The petitioner argued that the respondent's order contravened these circulars, which were binding. The court evaluated the impact of these circular instructions on the legality of demanding additional security from the petitioner, given the absence of immediate tax liability.

The court ultimately held in favor of the petitioner, quashing the impugned proceedings and allowing the writ petition. The decision was based on the absence of immediate tax liability for the petitioner, the discretionary powers of the registering authority in demanding additional security, and the binding nature of circular instructions exempting certain companies from security deposit requirements.