2003 (2) TMI 439 - HC - VAT and Sales Tax

Summary

Issues:
Challenge to circular increasing cash security for stone ballast import under U.P. Trade Tax Rules, 1948.

Analysis:
The petitioner contested a circular raising cash security for form XXXI under U.P. Trade Tax Rules, 1948 for stone ballast import from Rs. 180 to Rs. 530 per form. The petitioner argued that the increased security amount lacked a reasonable nexus to the actual tax liability under the U.P. Trade Tax Act. The petitioner purchased stone ballast from Haryana and Rajasthan, requiring form XXXI for import into U.P. under section 28-A of the U.P. Trade Tax Act. The Commissioner, Trade Tax, issued a circular in 1991 for Rs. 180 as security per form for stone ballast dealers. However, the subsequent circular in 1999 raised the security to Rs. 530 per form, deemed arbitrary and unreasonable by the petitioner.

The Court examined the validity of the circular in light of previous decisions and legal provisions. The Court noted that the cash security should have a reasonable nexus with the tax liability, as per judicial precedents. The Commissioner's power to demand cash security under section 8-C(3-A) was acknowledged, but it was emphasized that the amount fixed should not be arbitrary. The Court cited the need for a rational basis for determining cash security, considering the tax payable on the sale of stone ballast.

The Court highlighted the importance of balancing the interests of the State and the dealers, emphasizing that the cash security amount should be reasonable and have a nexus to the tax liability. It was deemed inappropriate to base the security solely on the highest grade of stone ballast. The Court suggested grading stone ballast varieties and setting cash security accordingly, promoting a rational and reasonable approach in circular issuance under section 8-C(3-A).

Furthermore, the Court directed the Commissioner to exclude separately charged freight when fixing cash security, as per the definition of turnover in the U.P. Trade Tax Act. The impugned circular was quashed, and the Commissioner was instructed to re-fix the cash security rate for form XXXI issuance on stone ballast in line with the Court's observations. The writ petition was allowed, providing a comprehensive resolution to the challenge against the circular's increased cash security requirement.