Protective security under sales tax law justified where closely connected firms appear designed to evade tax dues.

Security may be demanded under the sales tax law as a protective measure where the facts show that a closely connected firm is being used to evade tax liabilities. The Court accepted that common management, shared business location, and the association with a defaulting concern justified the revenue's insistence on security. It also held that no procedural prejudice arose because the notice was treated by both sides as a show cause notice, the petitioner submitted an explanation, and the demand was confirmed after considering that response. The demand for security was therefore sustained, and the objection based on lack of opportunity was rejected.

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Issues: (i) Whether the sales tax authorities were justified in demanding security from the petitioner-firm under section 12(e) of the Andhra Pradesh General Sales Tax Act; (ii) Whether the petitioner-firm was denied a reasonable opportunity before the demand was confirmed.

Issue (i): Whether the sales tax authorities were justified in demanding security from the petitioner-firm under section 12(e) of the Andhra Pradesh General Sales Tax Act.

Analysis: The material accepted by the Court showed that the managing partner of the petitioner-firm was also the managing partner of another partnership concern which had defaulted in payment of sales tax. The two firms were closely connected in constitution and business location, and the Court found that the later firm was formed in a manner designed to evade tax liabilities. Section 12 was treated as a protective provision enabling the authorities to secure legitimate sales tax revenue from traders acting in such a manner. On those facts, the demand for security was held to be warranted.

Conclusion: The demand for security was upheld and was in favour of the revenue.

Issue (ii): Whether the petitioner-firm was denied a reasonable opportunity before the demand was confirmed.

Analysis: The Court found that the notice issued by the department was understood and treated by both sides as a show cause notice, and the petitioner-firm in fact submitted its explanation on that basis. The demand was confirmed only after considering that explanation. The Court therefore held that there was no real procedural prejudice and no infirmity in the course adopted by the authorities.

Conclusion: The objection based on want of opportunity was rejected.

Final Conclusion: The writ petition failed on merits, and the impugned demand for security was sustained.

Ratio Decidendi: Where the facts show that a closely connected firm is being used as an instrument to defeat tax dues, the authority may require security under the protective provisions of the sales tax law, and a notice treated and responded to as a show cause notice satisfies the requirement of opportunity.

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