Proportional security deposit conditions under VAT registration can be reduced when excessive and unsupported by risk factors.

A security deposit condition for continuation of registration under section 28(2) of the Gujarat VAT Act must be imposed reasonably and in proportion to the assessee's turnover and likely tax exposure. Where the record shows no bogus billing activity and no default in filing returns or paying tax, an excessive security requirement may be modified. On the facts, the security demand was reduced from Rs. 10 lakh to Rs. 2 lakh, and time was granted for compliance. No view was expressed on the separate cancellation-ab-initio proceedings.

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Issues: Whether the security deposit condition imposed for continuation of registration under section 28(2) of the Gujarat Value Added Tax Act was excessive and liable to be reduced.

Analysis: The power to impose a security condition was available under section 28(2), but the condition had to bear a reasonable relation to the assessee's turnover and probable tax liability. On the facts, the record did not indicate bogus billing activity, and the assessee had not defaulted in filing returns or paying tax. The requirement of Rs. 10 lakh was found to be unduly harsh in the circumstances, warranting modification.

Conclusion: The security condition was reduced from Rs. 10 lakh to Rs. 2 lakh, with the assessee granted time to comply.

Final Conclusion: The appeals succeeded to the limited extent of reducing the security requirement, while no opinion was expressed on the separate cancellation-ab-initio proceedings.

Ratio Decidendi: A security condition imposed under section 28(2) must be exercised reasonably and proportionately to the assessee's circumstances and likely tax exposure.

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