Security deposit demand under sales tax law set aside where authority used an impermissible basis and excessive quantum.

Security for tax registration under Section 21(2-B) of the Tamil Nadu General Sales Tax Act, 1959 can be demanded only when necessary for proper realisation of tax, and Section 21(2-C) requires a hearing and limits the quantum. A demand based on proving the genuineness of business transactions was outside that statutory basis, and the authority had failed to apply the governing provisions. The imposed security requirement, including the cash deposit demand in a nationalised bank, was arbitrary and excessive. The demand for security deposit was therefore held not legally sustainable and was set aside in favour of the assessee.

---

---

Issues: Whether the demand for security deposit and the threatened cancellation of registration were valid under Section 21(2-B) and Section 21(2-C) of the Tamil Nadu General Sales Tax Act, 1959.

Analysis: Section 21(2-B) permits security or additional security only where it is necessary for the proper realisation of tax payable under the Act, and sub-section (2-C) requires observance of the opportunity of being heard and limits the quantum of security. The demand in the impugned notice was made on the stated ground of proving the genuineness of the business transactions, which is not the statutory basis for requiring security. The authority did not apply its mind to the governing provisions and imposed an arbitrary and excessive demand of Rs. 1,50,000 in cash to be deposited in a nationalised bank.

Conclusion: The demand for security deposit was not legally sustainable and was set aside in favour of the assessee.

---