Security demand under sales tax law must rest on objective reasons, proportionality, and a prior hearing before enforcement.

Security under section 9(3a) of the Orissa Sales Tax Act, read with rule 7-A, is valid only when supported by objectively demonstrable good and sufficient reasons and when the amount demanded is reasonable and proportionate to the estimated annual tax liability. The enquiry is quasi-judicial, so the dealer must receive a pre-decisional opportunity of hearing before security is demanded. A demand based on irrelevant considerations, a mistaken assumption that every registered dealer must furnish security, or an excessive amount is arbitrary and bad. The impugned security demand was quashed, while the authority was left free to proceed afresh in accordance with law and natural justice.

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Issues: Whether the demand of security under section 9(3a) of the Orissa Sales Tax Act, 1947 read with rule 7-A of the Orissa Sales Tax Rules, 1947 was valid when it was not founded on objectively established good and sufficient reasons and when the amount demanded exceeded the estimated annual tax liability; and whether the dealer was entitled to a reasonable opportunity of being heard before the demand was made.

Analysis: The statutory scheme permits security to be demanded only for good and sufficient reasons and only in a reasonable amount. The reasons must be objectively justified, not merely a matter of the authority's subjective opinion, and the amount demanded must bear a rational relation to the estimated tax liability for the year. A demand which proceeds on the erroneous assumption that every registered dealer must furnish security, or which is disproportionate to the estimated liability, is arbitrary and bad. The enquiry leading to the demand is quasi-judicial in character, so the dealer must be given an opportunity to participate and be heard before the security is demanded. In the present case, irrelevant considerations were relied upon, the demand was not shown to be reasonable, and the dealer had not been given the required opportunity.

Conclusion: The demand for security was illegal and liable to be struck down; the petitioner succeeded on this issue. The authority was, however, left free to make a fresh demand in accordance with law after giving a reasonable opportunity of hearing.

Final Conclusion: The writ petition was allowed with costs, and the impugned security demand was quashed, while preserving the authority's power to proceed afresh in conformity with the statute and principles of natural justice.

Ratio Decidendi: A demand for security under the sales tax law is valid only if founded on objectively demonstrable good and sufficient reasons, the amount is reasonable and proportionate to the estimated tax liability, and the dealer is afforded a pre-decisional opportunity of hearing in the enquiry leading to the demand.

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