Unlawful tax demand on lost way bills cannot justify withholding further forms without statutory authority or proved misuse.

A demand for tax and penalty on lost way bills was held to have no statutory basis and was illegal, because tax or equivalent exaction can be imposed only by authority of law under article 265. Rule 45(4)(v) allowed only reasonable security by indemnity bond where a way bill was lost; it did not authorise assessment or recovery of tax and penalty. As no contemporaneous indemnity bond demand was made and no misuse of the lost way bills was proved, withholding further way bills on the basis of the impugned demand was unjustified. The order also noted the separate penal consequence for an incorrect declaration under Rule 45(4)(vi).

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Issues: (i) Whether the respondents had authority in law to demand payment of tax and penalty on lost way bills and to withhold further way bills until such amount was paid. (ii) Whether, after intimation of loss of way bills, the authorities could insist upon security by way of indemnity bond under the Rules and thereafter refuse issuance of way bills.

Issue (i): Whether the respondents had authority in law to demand payment of tax and penalty on lost way bills and to withhold further way bills until such amount was paid.

Analysis: The demand was not traceable to any provision of the Act or the Rules. The constitutional mandate under article 265 prohibits levy or collection of tax except by authority of law. Revenue protection and prevention of evasion must be pursued only through lawful measures, not by arbitrary or unauthorised exactions. The respondents were unable to identify any statutory basis for the demand of Rs. 64,000 described as tax and penalty on the lost way bills.

Conclusion: The demand for tax and penalty on the lost way bills had no authority of law and was illegal and arbitrary, and the petitioner could not be compelled to pay it as a condition for issuance of way bills.

Issue (ii): Whether, after intimation of loss of way bills, the authorities could insist upon security by way of indemnity bond under the Rules and thereafter refuse issuance of way bills.

Analysis: Rule 45(4)(v) permits the issuing authority, where a way bill is lost, to require reasonable security by way of indemnity bond. The Rule does not authorise a demand of tax and penalty. The record showed that the loss was intimated promptly, yet no contemporaneous demand for indemnity bond was made, and there was no finding of misuse or abuse of the lost way bills. In the absence of any proved misuse, an oral demand made much later could not justify withholding way bills on the basis asserted by the respondents. The separate penal consequence contemplated for an incorrect or untrue declaration under Rule 45(4)(vi) was also noted.

Conclusion: The authorities could only seek reasonable security by indemnity bond under the Rule, and their refusal to issue way bills on the ground of non-payment of the impugned demand was unjustified.

Final Conclusion: The writ petition succeeded in substance on the legality of the impugned demand, while the prayer for issuance of way bills had become unnecessary by subsequent events. The Court imposed costs and directed circulation of the order to prevent repetition of such unlawful demands.

Ratio Decidendi: Tax or equivalent monetary exaction cannot be demanded or collected by executive instruction unless sanctioned by law, and a rule permitting security for lost statutory forms does not authorise assessment or recovery of tax and penalty in the absence of statutory authority or proved misuse.

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