2019 (5) TMI 445 - HC - VAT and Sales Tax

Demand of Bank Guarantee from dealers - HELD THAT - This petition is taken out by urgent circulation. The respondents have appeared on advance notice. They would require time for filing reply. Without gathering full facts and response from the respondents, we do not find this fit case for grant of reliefs as prayed for. Prima facie it would appear that the action taken by the Indian Oil flows from historical background, mentioned in the impugned communication and noted above. Further, essentially, the relationship between the dealers and Indian Oil Corporation is one of contractual nature. It may be that Indian Oil being a State within the meaning of Article 12 of the Constitution of India would have to act reasonably, even in course of such contractual relation.

Summary

Issues:
1. Challenge to communications by Indian Oil Corporation Ltd. demanding bank guarantee from petroleum dealers.
2. Legality and permissibility of demanding bank guarantee.
3. Arbitrariness and violation of rights of dealers.
4. Reliance on Gujarat High Court decision and Madras High Court interim orders.
5. Urgent petition for relief.

Analysis:

1. The petitioner, an association of petroleum dealers, challenged communications from Indian Oil Corporation Ltd. asking for bank guarantees based on historical sales data to cover potential tax liabilities due to past dealer defaults. The communication highlighted instances where dealers failed to remit tax collections, resulting in significant liabilities for Indian Oil Corporation. The petitioner contested the demand for bank guarantees as illegal and impermissible, citing a Gujarat High Court decision and interim orders from the Madras High Court as supporting arguments.

2. The petitioner argued that the policy of demanding bank guarantees was arbitrary and infringed upon the rights of dealers to conduct business freely. They relied on legal precedents to assert that even in cases of tax payment defaults, withholding "C" forms was impermissible. The urgency of the petition led to an expedited hearing, with the respondents requesting time to prepare a response.

3. The High Court acknowledged the need for a comprehensive response from the respondents before granting any relief to the petitioner. The court noted that the actions of Indian Oil Corporation were rooted in historical circumstances and contractual relationships with the dealers. While recognizing the need for reasonableness in dealings with a state entity like Indian Oil, the court emphasized the latitude allowed to state players in private contracts. Consequently, no interim relief was granted at that stage, and the respondents were directed to file a reply by a specified date.