Cash security for tax forms must reflect likely liability and cannot be fixed arbitrarily without rational nexus.

Cash security required for issuance of form XXXI must bear a reasonable nexus with the tax likely to be payable and cannot be fixed arbitrarily. The Court noted that section 8-C(3) caps security at the tax payable, reinforcing that security under section 8-C(3-A) must be based on a rational estimate of liability. A demand fixed only by reference to the highest quality of stone ballast, without grading the commodity or assessing the actual tax likely to arise, was unreasonable. Freight separately charged should also be excluded from the basis for cash security. The circular was quashed as violative of Article 14, and the security was directed to be re-fixed on a rational basis.

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Issues: Whether the circular enhancing cash security for issuance of form XXXI for import of stone ballast was arbitrary and liable to be quashed for want of reasonable nexus with the tax liability.

Analysis: The power to require cash security under section 8-C(3-A) of the U.P. Trade Tax Act, 1948 must be exercised reasonably and in a manner having nexus with the object of securing the tax likely to be payable. The provision in section 8-C(3) that security should not exceed the tax payable reinforces that the security under section 8-C(3-A) cannot be fixed on an arbitrary basis. Fixing security only with reference to the highest quality of stone ballast, without grading the commodity or considering the actual tax likely to arise, was held to be unreasonable. The Court also held that where freight is separately charged, it should not be included while determining the basis for cash security.

Conclusion: The circular enhancing cash security was held to be arbitrary and violative of Article 14 of the Constitution of India, and was quashed with a direction to re-fix the security on a rational basis.

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