2000 (1) TMI 957 - HC - VAT and Sales Tax

Court quashes security order due to disproportionate amount, authorities' failure to apply proper reasoning.

The court quashed the orders requiring the petitioner to furnish security, finding the imposed amount disproportionate to the alleged default. It was ... - Issues Involved:1. Legality of the order requiring the petitioner to furnish security.2. Application of Section 18 of the Delhi Sales Tax Act, 1975.3. Proportionality and justification of the security amount imposed.4. Non-application of mind by the authorities in issuing the impugned order.5. Relevance of grounds stated in the show cause notice and impugned order.Issue-wise Detailed Analysis:1. Legality of the Order Requiring the Petitioner to Furnish Security:The petitioner challenged the order dated October 9, 1995, by the Assistant Commissioner, Sales Tax, Delhi, which directed the petitioner to provide a security of rupees two crores under the local Act and rupees twenty lakh under the Central Act. The petitioner argued that the order was issued without proper consideration of the facts and law, specifically Section 18 of the Delhi Sales Tax Act, 1975.2. Application of Section 18 of the Delhi Sales Tax Act, 1975:Section 18 allows the Commissioner to require a dealer to furnish security for the proper realization of tax or for the proper custody and use of statutory forms. The court noted that the only relevant grounds for requiring security under Section 18 are for the proper realization of taxes or proper custody and use of forms. The respondents conceded that the proper custody and use of forms was not relevant in this case, leaving only the ground of proper realization of taxes.3. Proportionality and Justification of the Security Amount Imposed:The court found that the security amount of rupees two crores and twenty lakh was wholly disproportionate to the alleged default of the petitioner. The petitioner had a long history of compliance, with only a single instance of delayed filing of returns in the first quarter of 1992-93, which was explained and penalized. The court observed that this solitary instance could not justify such a severe security requirement.4. Non-application of Mind by the Authorities in Issuing the Impugned Order:The court emphasized that the authorities did not properly apply their minds to the facts of the case. The show cause notice and the impugned order contained allegations that were not relevant to the requirements of Section 18. For example, the increase in turnover and the manner of charging sales tax were cited as grounds, but these were not pertinent to the issue of security under Section 18.5. Relevance of Grounds Stated in the Show Cause Notice and Impugned Order:The court noted that the show cause notice and the impugned order included grounds that were not germane to Section 18. The court pointed out that the requirement for security should be based on sound principles and judicious discretion. The authorities' actions were found to be arbitrary and not based on a proper assessment of the petitioner's compliance history.Conclusion:The court quashed the impugned orders requiring the petitioner to furnish security, stating that the authorities had not exercised their discretion judiciously and had shown a total non-application of mind. The petition was allowed, and the parties were left to bear their respective costs.