Security under U.P. VAT must correlate with probable tax liability, not be fixed mechanically at the statutory maximum.

Under section 48(7) of the U.P. VAT Act, 2008, security demanded at the seizure stage must be linked to the probable tax liability and not imposed mechanically at the statutory maximum. The Allahabad HC noted that although the provision allows security up to a like amount, the authority must apply mind to the facts and circumstances of the alleged evasion. On the facts, the demand based on 40% of the consignment value was not sustained in full and was reduced to four times the tax that may ultimately be found evaded.

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Issues: Whether the security demanded under section 48(7) of the U.P. VAT Act, 2008, at 40% of the value of the consignment, was justified or required reduction having regard to the probable tax liability.

Analysis: The demand of security was made at the seizure stage on the basis of alleged evasion of tax in relation to a consignment of iron and steel. The statutory scheme under section 48 of the U.P. VAT Act, 2008 permits penalty at 40% and a like amount by way of security, but the amount is not to be applied mechanically. The security must bear a reasonable correlation to the tax that may ultimately be found evaded, and the outer limit prescribed by the statute does not dispense with application of mind to the facts and circumstances. On the facts, the Court found it to confine the security to a multiple of the probable tax liability rather than the full 40% demanded on the consignment value.

Conclusion: The demand of security at 40% was not upheld in full and was reduced to four times the amount of tax that may ultimately be found to have been evaded.

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