Security demands for liquor dealers upheld in principle, but authorities cannot restrict statutory modes of furnishing security.

The proviso to section 10-A(4)(a) of the Karnataka Sales Tax Act, 1957, validly created a special security regime for liquor and beer dealers and did not require prior hearing, conflict with section 10-A(8), or offend Articles 14 and 265. The classification was treated as reasonable in the tax context, and fixation of security by notification was upheld. However, while demanding security, the authority could not confine the dealer to cash, bank guarantee, or National Savings Certificate alone, because rule 12-A(2) preserved multiple statutory modes of furnishing security. The dealer's option under the rule remained available, subject to a reasoned order if the chosen mode was not accepted.

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Issues: (i) Whether the proviso to section 10-A(4)(a) of the Karnataka Sales Tax Act, 1957, empowering the State Government to fix security for dealers in liquor and/or beer by notification, was invalid for want of prior hearing, for being inconsistent with section 10-A(8), or for offending articles 14 and 265 of the Constitution of India; (ii) Whether, while demanding security from such dealers, the authority could insist only on cash, bank guarantee, or National Savings Certificate, or whether the dealer retained the option under rule 12-A(2) of the Karnataka Sales Tax Rules, 1957.

Issue (i): Whether the proviso to section 10-A(4)(a) of the Karnataka Sales Tax Act, 1957, empowering the State Government to fix security for dealers in liquor and/or beer by notification, was invalid for want of prior hearing, for being inconsistent with section 10-A(8), or for offending articles 14 and 265 of the Constitution of India.

Analysis: The proviso was treated as carving out a special class from the general power to demand security and as an independent legislative exception for liquor and beer dealers. Legislative action, including subordinate legislation, is not ordinarily subject to natural justice unless the statute provides for it; here, the statute itself did not require a prior hearing before fixation of the quantum. The classification was held to be reasonable in the tax context, and fixation of security at a percentage of anticipated tax was not shown to be arbitrary or unconstitutional. The proviso was also held not to be repugnant to section 10-A(8), because that sub-section governs refusal of registration or renewal and does not control the State Government's power to fix security under the proviso.

Conclusion: The proviso to section 10-A(4)(a) was upheld as valid, and the challenge based on natural justice, section 10-A(8), and articles 14 and 265 failed.

Issue (ii): Whether, while demanding security from such dealers, the authority could insist only on cash, bank guarantee, or National Savings Certificate, or whether the dealer retained the option under rule 12-A(2) of the Karnataka Sales Tax Rules, 1957.

Analysis: Rule 12-A(2) prescribed multiple modes of furnishing security, and there was nothing in the proviso to section 10-A(4)(a) excluding those modes for liquor and beer dealers. The authority could not override the dealer's statutory option by mandating only one mode of security. If the assessing authority was dissatisfied with the option chosen, it was required to give an opportunity and pass a reasoned order.

Conclusion: The demand was invalid to the extent it restricted the nature of security, and the dealer's option under rule 12-A(2) was preserved.

Final Conclusion: The statutory provision fixing security for liquor and beer dealers was sustained, but the impugned notices were interfered with to the limited extent that they unlawfully confined the mode of furnishing security.

Ratio Decidendi: A statutory proviso creating a special fiscal mechanism for a defined class may validly exclude prior hearing where the enactment so indicates, but an authority cannot, by administrative demand, curtail the statutory options expressly available for furnishing security.

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