2011 (4) TMI 1270 - HC - VAT and Sales Tax

Whether there is justification for demanding additional security from the petitioner? Held that - The authority in the present case has demanded additional security without recording any reasons for such demand and therefore such show-cause notice can hardly satisfy the requirement of giving a reasonable opportunity to the dealer, as prescribed under section 15(1) of the AGST Act. When reasons for the proposed action is not disclosed, what reply can be expected to be given by dealer. Opportunity to show cause cannot be an empty formality and in my view, the non-disclosure of reasons vitiates the impugned order and the subsequent recovery proceeding, since they neither satisfy the statutory requirement of the AGST Act and the Rules nor the principles of natural justice. In favour of assessee.

Issues:
1. Challenge to the order of assessing additional security against the petitioner.
2. Interpretation of Section 15 of the Assam General Sales Tax Act.
3. Validity of the demand for additional security without proper reasons.
4. Compliance with the Assam General Sales Tax Rules regarding the amount of additional security.
5. Discretionary power of the assessing officer in demanding additional security.
6. Requirement of reasons and principles of natural justice in demanding additional security.

Analysis:

1. The petitioner, a liquor dealer registered under the Assam General Sales Tax Act and the Central Sales Tax Act, challenged the order assessing additional security against them. The petitioner contended that since they have always paid taxes on time, there was no justification for demanding additional security.

2. The court examined Section 15 of the Assam General Sales Tax Act, which allows the assessing officer to demand additional security for timely tax payment and safe custody of forms. However, it was noted that the show-cause notice and assessment order did not provide reasons for demanding additional security, as required by the law.

3. The court found that the assessing officer did not consider the petitioner's regular tax payments and lack of defaults before demanding additional security. The demand for additional security was deemed unlawful as the pre-conditions under Section 15 were not satisfied in this case.

4. Additionally, the court observed that the stipulated amount of additional security was arbitrarily fixed at Rs. 3 lakh, far exceeding the tax liability of the petitioner in previous years. The Assam General Sales Tax Rules specify that additional security cannot exceed anticipated tax or tax paid in previous years.

5. The court emphasized that the discretionary power to demand additional security must be exercised reasonably to meet the objectives of the Act. Demanding additional security without valid reasons and in the absence of default by the dealer was considered an abuse of discretionary power.

6. Finally, the court held that the non-disclosure of reasons for demanding additional security violated the principles of natural justice. The impugned demand for additional security and the recovery proceeding were quashed, emphasizing the importance of satisfying statutory requirements and principles of natural justice in such cases.

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