Exercise of Discretion in stay applications must be objective and consider security and ability to pay; rehearing directed.

Appellate discretion under the Madras General Sales Tax Act to stay tax and penalty collection must be exercised as a duty and not arbitrarily; penalty is treated as tax for collection purposes and an authority must consider sufficiency of security, inability to pay, and other relevant circumstances before rejecting a stay application. Rejection without evaluating a proper security bond or relevant facts amounts to failure to exercise statutory discretion. Judicial review is available to compel honest, objective decision making. Outcome: the earlier refusal was improper and a mandamus directing the Appellate Assistant Commissioner to hear and determine the stay application afresh was ordered.

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Issues: Whether the appellate authority under section 31 of the Madras General Sales Tax Act, 1959, properly exercised its discretion in summarily rejecting the application for stay of collection of tax and penalty pending appeal.

Analysis: Section 31(5) of the Madras General Sales Tax Act, 1959 confers a discretionary power on the Appellate Assistant Commissioner to give directions regarding payment of tax pending disposal of an appeal if sufficient security is furnished. Section 25 of the Act treats penalty as tax for collection purposes. By parity with the proviso to section 45 of the Indian Income-tax Act, the discretion must be exercised as a duty and not arbitrarily; rejection of an application for stay without consideration of the sufficiency of security, the appellant's inability to pay, or other relevant circumstances amounts to failure to exercise statutory discretion. The appellate authority may validly refuse stay where security is inadequate, where instalments are appropriate, or where the tax is trifling and the appellant has means; however, where a proper security bond in the prescribed form is tendered covering the disputed liability and no recorded dissatisfaction with the security appears, the authority must hear and determine the stay application on its merits rather than reject it in limine. Judicial review under Article 226 is available to compel the authority to exercise the discretion honestly and objectively and to prevent perfunctory or arbitrary refusals.

Conclusion: The application for stay was rejected without proper exercise of discretion. A writ of mandamus will issue directing the Appellate Assistant Commissioner to hear and determine afresh the application for stay of collection of tax and penalty in accordance with law.

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