Statutory limits on additional security and registration cancellation under VAT and CST laws must be strictly applied.

Security under the KVAT Act may be demanded only within the statutory ceiling of one-half of the tax payable on the estimated turnover, and additional security is permissible only if the earlier estimate is shown to be inadequate. The CST Act contains a similar framework, with the aggregate security demand controlled by the statutory ceiling in Section 7(3BB). The High Court found that the notice and cancellation order did not demonstrate proper application of these limits or the required statutory conditions before demanding additional security and cancelling registration. The demand and cancellation were therefore held invalid and set aside.

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Issues: Whether the demand for additional security and the consequential cancellation of registration under the KVAT Act and the CST Act were valid without proper application of the statutory limits governing security and additional security.

Analysis: Section 17(1) and Section 17(2) of the KVAT Act permit security to be demanded only up to one-half of the tax payable on the turnover estimated by the registering authority, and the proviso permits additional security only when the earlier estimate is found to be too low. Under the CST Act, Section 7(2A) and Section 7(3A) similarly permit security and additional security, but the aggregate demand is controlled by the ceiling in Section 7(3BB). The impugned notice and cancellation order did not show that these statutory conditions and limits were properly applied before demanding the additional security and cancelling the registrations.

Conclusion: The demand for additional security and the cancellation of registration were invalid and were set aside in favour of the petitioner.

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