2013 (1) TMI 273 - HC - VAT and Sales Tax

KVAT Act - demand of additional security of ₹ 50,00,000/- - dealer obtained registration during the year 2011 furnishing security of ₹ 75,000/- - cancelling of registration on non submitting of security - Held that - Section 17 of the KVAT Act is concerned, sub section (1) enables the registering authority to demand security from the dealer for an amount not exceeding one half of the tax payable for the year on the turnover of the dealer as estimated by him. Sub section (2) deals with the case of dealers effecting first sale of goods within the State, in whose case also, security of an amount not exceeding one half of the tax payable on the turn over as estimated by the registering authority can be demanded. Proviso states that the registering authority shall have the power to demand at any time additional security only in a case where he is satisfied that the turn over estimated by him under sub section (1) or (2) for the purpose of fixing one half of the tax payable for the year is too low. Once registration is granted accepting security as above, when turnover estimated based on which one half tax payable is fixed, is found to be too low, for making up the shortage of the one half of the tax payable as security, additional security can be demanded. As far as the provisions of the CST Act are concerned, here also, Section 7(3A) provides not only for furnishing of security but also additional security. However, maximum amount for which additional security can be demanded is prescribed in sub section (3BB) related to the turnover estimated by the registering authority. Therefore, under the CST Act also, additional security can be demanded only to make up shortage of security which is subject to the maximum limit prescribed in the Act - thus orders demanding additional security and registration cancelled is to be set aside.

Summary

Issues:
1. Demand for additional security under KVAT Act and CST Act.
2. Legality of cancellation of registration under KVAT Act and CST Act.
3. Interpretation of statutory provisions under Section 17 of the KVAT Act and Section 7 of the CST Act.

Analysis:
1. The petitioner, a registered dealer under the KVAT Act, was asked to furnish additional security of Rs. 50,00,000 by the respondents through Ext.P3 notice, which the petitioner did not comply with, leading to the cancellation of his registration under the KVAT Act and CST Act through Ext.P6 order. The petitioner challenged this cancellation, arguing that it was done without following the provisions of Section 17 of the KVAT Act and Section 7 of the CST Act. The Government Pleader justified the demand for additional security under the provisos of the respective Acts to protect revenue interests.

2. The Court analyzed the relevant statutory provisions of Section 17 of the KVAT Act and Sections 7(2A), 7(3A), 7(3B), and 7(3BB) of the CST Act. It noted that the registering authority can demand security based on estimated turnover, with provisions for additional security if the estimated turnover is deemed too low. The Court emphasized that additional security can only be demanded to make up for the shortage of the tax payable, subject to maximum limits prescribed in the Acts. It found that the Ext.P3 notice and Ext.P6 order did not consider these aspects while demanding additional security and canceling registration.

3. The judgment set aside the Ext.P3 notice and Ext.P6 order, directing the 1st respondent to initiate fresh proceedings if advised. It mandated the 1st respondent to issue a notice promptly for fresh orders within six weeks based on statutory provisions. The petitioner was instructed to provide a copy of the judgment and the writ petition to the 1st respondent for compliance. The writ petition was disposed of with these directions, ensuring adherence to the statutory provisions in future proceedings.