2007 (12) TMI 526 - HC - VAT and Sales Tax

Court emphasizes logical basis for security demands, prefers bank guarantees for reliable entities.

The court held that the Assessing Authority must exercise discretion in demanding security based on logical grounds and not arbitrarily. It emphasized ... - Issues involved: Interpretation of Section 10(8) of the U.P. Trade Tax Act, 1948 regarding the Assessing Authority's right to demand security.Judgment Summary:Issue 1: Adequacy of security and discretion of Assessing AuthorityThe court emphasized that the Assessing Authority's discretion in demanding security must be based on logical considerations and not arbitrary or whimsical. It was noted that the authority should provide reasons, even briefly, in the order when requiring cash or bank guarantee as security. The judgment highlighted that the nature of security demanded should align with the reliability of the assessee, with bank guarantee being preferred for more reliable cases and cash security for untrustworthy individuals. However, for established commercial concerns with a history of tax compliance, demanding a bank guarantee may not be necessary unless there are specific reasons warranting it.Issue 2: Justification of demanding bank guaranteeIn the case at hand, the court found that the Assessing Authority was not justified in demanding a bank guarantee as security. Consequently, the writ petition was disposed of with the direction that the security to be provided by the petitioner, as required under Section 10(8), should be to the satisfaction of the Assessing Authority but in a form other than cash or bank guarantee. The order concluded by instructing the issuance of a certified copy to the concerned parties within 48 hours upon payment of requisite charges.