Raymonds Limited vs Commissioner Of Sales-Tax & ...
2000 Latest Caselaw 9 Del

ORDER

Arun Kumar, J.

1. By this petition under Article 226 of the Constitution of India, the petitioner has challenged an order dated 9th October, 1995 passed by the Assistant Commissioner, Sales-tax, Delhi in the exercise of powers underSec. 18 of the Delhi Sales-tax Act, 1975. By the impugned order, the Assistant Commissioner directed the petitioner to provide a security of rupees two crores under the Local Act out of which rupees fifty lacs were to be in form of bank guarantee and rupees twenty lacs under the Central Act out of which rupees five lacs were to be in the form of bank guarantee for continuance of the registration certificate granted in favour of the petitioner under both the Acts.

2. Briefly the facts are that the petitioner was registered under the then Bengal Finance (Sales-tax) Act, 1941 as extended to the Union Territory of Delhi with effect from December 1963 and the Central Sales-tax Act with effect from 1974. With the coming into force of the Delhi Sales-tax Act, 1975, the registration of the petitioner continued under the said Act.

3. The business of the petitioner has been gradually increasing year after year. According to the petitioner it has been regularly filing its returns and maintaining complete records as per the law. It has also been paying the taxes regularly as required under the law. The petitioner is carrying on business of (a) sale of fabric; (b) sale of readymade garments and (c) sale of cement. Regarding fabrics, it is submitted that the sale is exempted from payment of sales-tax under the Local Act as well as the Central Act. In view of this exemption, no declaration forms are required nor any were taken from the Department.

4. About readymade garments, the case of the petitioner is that they are mostly purchased by the petitioner locally after payment of sales-tax. No further sales-tax is payable on sale of such garments. Therefore, no declaration forms are needed in this behalf. So far as readymade garments purchased from outside Delhi, the petitioner being a registered dealer under the Central Act, it is entitled to purchase the same at a concessional rate of 4% on the strength of its registration certificate by issuing a declaration in form 'C' . For this the petitioner has been obtaining form 'C' from the Sales-tax Officer as per the rules and has been giving complete account of its utilisation from time to time.

5. For sale of cement, the stand of the petitioner is that it is selling cement manufactured by the company itself. Cement is received on stock transfer from the factory at Bilaspur in Madhya Pradesh and from some other branches and depots. Under Sec. 6(2)(a) of the Central Sales Tax Act it is provided that for receiving goods on stock transfer, evidence to that effect has to be produced before the tax authorities by the factory or the unit which sends the goods. This can be done by producing a declaration in Form F which the receiving branch can procure from its tax authority and issue the same to the sending branch/factory. In the present case, against the goods received, the company has been procuring Form F from the respondent tax authorities and have been issuing the same to its factory/depots. As required by the rules, complete details of the utilisation of the Form F are furnished to the assessing authorities from time to time. That upon the entire sales of cement in and outside Delhi, appropriate tax is collected and deposited.

6. The petitioner was served with a notice dated 22nd August, 1995 by the Assistant Commissioner, Sales-tax, Delhi calling upon the petitioner why it be not required to furnish security of rupees two crores under the Local Act and rupees twenty lacs under the Central Act. The ground for requiring the petitioner to furnish security given in the show cause notice are - for safe custody for statutory forms and for safeguarding the Government reve-nue. The allegations levelled against the petitioner in the show cause notice were that the petitioner was not depositing the tax regularly; was not furnishing information about opening and closure of offices of the company; and that the revenue's stakes in respect to the petitioner were very high. The petitioner sent a reply dated 14th september, 1995 to the aid show cause notice explaining the entire position. This was followed by the impugned order dated 9th October, 1995 whereby the Assistant Commissioner, Sales-tax, Zone-V, directed the petitioner to furnish security in the sum of rupees two crores under the Local Act out of which rupees fifty lacs were to be in the form of bank guarantee. Further the petitioner was directed to furnish security of rupees twenty lacs under the Central Act out of which rupees five lacs in the form of bank guarantee. The Assistant Commissioner observed in the impugned order that the business of the dealer had increased to gigantic proportion and for that reason the sales-tax liability had also increased. The petitioner company was not charging tax separately in respect of items except cement. It was further observed that the petitioner was not paying monthly tax as per rules and it had not been depositing tax regularly. Further it was mentioned in the order that the petitioner had not been informing the department about opening and closure of some of its offices. The department also felt that the revenue's stake involved in the purchases made through various types of declaration forms was considerably high. The order dated 9th October, 1995 passed by the Assistant Commissioner was challenged by the petitioner in this Court by filing a writ petition. The High Court stayed the operation of the impugned order subject to furnishing surety to the extent of rupees fifty lacs under the Local Act and rupees five lacs under the Central Act. The writ petition was, however, ultimately dismissed on 12th February, 1996 on the ground that the petitioner should pursue the alternative remedy by way of statutory appeal.

7. Thereafter the petitioner filed appeal against the order dated 9th October, 1995 which was disposed of by the Additional Commissioner-I, Sales-tax, Delhi Vide order dated 14th May, 1996. The Additional Commissioner disposed of the appeal mainly on the basis of the interim order of the High Court. The condition imposed by the High Court for stay was maintained under the appellate order. The petitioner further challenged these orders by way of appeal to the Appellate Tribunal, Sales-tax. The Appellate Tribunal disposed of the same vide order dated 7th November, 1996. The only relief granted to the petitioner was that regarding the bank guarantee in the sum of rupees fifty lacs under the Local Act. It was directed that a bank guarantee for rupees twenty five lacs be furnished and for the balance amount a surety be furnished.

8. The learned counsel for the petitioner submitted that both the appellate authorities were carried away by the interim order passed by the High Court without appreciating that the interim order was passed only as a condition for granting stay of the order under challenge and it was not passed on consideration of merits of the case. The appellate authorities were required to consider the merits of the case and only thereafter they could have issued the final directions.

9. The challenge to the impugned orders requiring the petitioner to furnish surety in the sum of rupees fifty lacs and five lacs under the Local Act and Central Act respectively is mainly on the ground that there has been total non-application of mind to the facts of the case and the law on the part of the authorities concerned. Further, the learne counsel for the petitioner argued that the quantum of surety which the petitioner was required to furnish is wholly disproportionate to the alleged default on the part of the petitioner and, therefore, it had no nexus to the object sought to be achieved and for this reason also, the impugned order was liable to be set aside. In order to appreciate the contentions raised on behalf of the petitioner, a reference to Section 18 of the Delhi Sales Tax Act, 1975 under which the impugned order purports to have been passed is essential. The relevant portion of Sec. 18 is reproduced as under:

"The Commissioner may, if it appears to him to be necessary so to do for the proper realisation of the tax, composition money or other dues payable under this Act or for the proper custody and use of the forms referred to in the second proviso to clause (a) of sub-section (2) of Section 4, or the first proviso to Section 5, as the case may be, impose, for reasons to be recorded in writing as a condition of the grant of the certificate of registration under Section 14, Section 15 or Section 17 to a dealer or of the continuance in effect of such certificate granted to any dealer, a requirement that the dealer shall furnish in the prescribed manner and within such times as may be specified in the other such security or, as the case may be, such additional security as may be specified, for all of any of the aforesaid purposes."

10. It will be seen from the above provision that the only conditions for ssing an order requiring a dealer to furnish security are:-(a) for proper realisation of the taxes or dues payable under the Act; (b) for proper custody and use of the forms. The present is a case in which the dealer was initially not required to furnish any security. The initial registration was in the year 1963 which was continued under the new Act in 1975. First time the question of furnishing of security arose vide impugned roder dated 9th October, 1995. The learned counsel for the respondents tried to make out a case that there was a third ground also for requiring a party to furnish security under section 18. According to him the third ground relates to continuance of registration for which the Commissioner could consider factors like non-compliance of provisions of the Act by the dealer. We are, however, unable to agree with the learned counsel for the respondents that this could be an additional ground for requiring a dealer to furnish security. A simple answer to this is that if there is a viola-

tion of any of the provisions of the Act on the part of a dealer, his registration certificate can be cancelled under Sec. 20. Therefore, for violation of provisions of the Act by a dealer, recourse to Sec. 18 is not necessary. Other provisions are there in the Act to take care of such situations.

11. Coming to the grounds under sec. 18 for requiring a dealer to furnish security, the learned counsel for the respondents fairly conceded that in the present case, ground (b), i.e., proper custody and use of the forms is not relevant. According to the learned counsel, the present case is only on the ground of delay in realisation of the tax. This ground the learned counsel tried to make good by reference to the observations contained in the impugned order dated 9th October, 1995 as also in the order dated 7th November, 1996 of the Appellate Tribunal. It has been observed by the Appellate Tribunal that the appellant admitted that the tax was not regularly paid during 1992-93. Similarly it has been observed in the impugned order of the Assistant Commissioner dated 9th October, 1995 that the petiioner had not deposited the monthly tax in time. In the first quarter of 1992-93, the return was filed late for which a penalty of Rs. 30,000/- had been imposed which was reduced to Rs. 7,000/- in appeal. The said amount had been deposited by the petitioner in the meanwhile. The petitioner explained that the delay in filing returns during the first quarter of 1992-93 occurred on account of the system adopted by the petitioner. According to the system, all the payments used to be made by the Head Office at Bombay. At times the cheques issued from Bombay got delayed on account of the postal delays or on account of clearance from the bank. The receipted challans are received only after the cheques are cleared. The challans are to be enclosed with the returns which are filed. Besides this it was pointed out that the banks also take their own time in giving the challans which causes delay in filing the returns. As per the requirement the challans have to accompany the returns.

12. From the material on record it appears that delay in filing return for the first quarter of the year 1992-93 is the only basis for entire action. Rest of the things are near add-ons for which no basis is available on record. The petitioner has been a registered dealer for more than 35 years. This solitary instance relied upon by the respondents for basing their impugned action also has a positive side so far as the petitioner is concerned. it shows that there has been no other default in filing returns or meeting the tax liability. This solitary instance cannot be taken as a ground for a belief or apprehensin that the petitioner would not meet its liability of paying tax regularly. As against the solitary instance, the entire record of the petitioner regarding filing of returns and payment of taxes was available to the respondents which showed that there had never been any default on the part of the petitioner. It appears that this solitary instance has been picked up by the respondents for requiring the petitioner to furnish security. There is hardly any justification available on the record for this.

13. So far as other points mentioned in the show cause notice are concerned, the same need not detain us in view of the fact that the learned counsel for the respondents conceded at the time of hearing that there was no other ground except timely payment of tax dues against the petitioner. Further the explanation of the petitioner regarding the other points though not now material in view of the concession of the learned counsel, at least shows that the respondents were trying to make out a case for security against the petitioner even though nothing also was available on the record.

14. The imposition of the condition of security in the sum of rupees two crores and twenty lacs under the Local and Central Act respectively by the Assistant Commissioner under the impugned order itself shows how the mind of the authorities concerned was working in the present case. For the delay in filing return for a brief period in the year 1992-93, respondents have taken such a stern action inasmuch as a security of rupees two crores and twenty lacs was ordered. The security appears to be wholly disproportionate to the alleged default. In our view the entire action of the respondents shows total non-application of mind. This view is further strengthened by the fact that there is nothing available on record about any non-compliance under Central Act on the part of the petitioner and still a security re-uirement of rupees twenty lacs was imposed on the petitioner. There is no material on record to justify the allegation about failure of the petitioner to file returns in time and to meet its tax liabilities regularly. The allegation could not be sustained for a solitary instance.

15. Another glaring example of non-application of mind is the impugned show cause notice itself. The show cause notice dated 22nd August, 1995 contains allegations which have nothing to do or which are not germane for an order under sec. 18 of the Act. The relevant considerations for action under Sec. 18 have to be found in Section 18 .A reference to the show cause notice shows that several things which have no nexus to the requirements for security contained in Sec. 18 have been enumerated in the show cause notice. For instance, the ground regarding increase in turnover of the petitioner company does not have any relevance. It rather shows that the petitioner company is doing well and seen in the background of regular timely filing of returns and payment of tax should be taken as a positive sign. The impugned order dated 9th October, 1995 contains more grounds than were stated in the show cause notice. One of the additional grounds contained in the impugned order is that the company is not charging tax separately in respect of items except cement. For this ground again there is no basis. There is no requirement in law or the rules that sales-tax should be charged separately. The dealer has to pay the tax on the sales whether the dealer realises the same from its customers is none of the concerns of the department. Thus not charging sales-tax separately can have no relevance so far as the considerations mentioned in Sec. 18 of the Act are concerned. From this it will be seen that both the show cause notice as well as the impugned order are result of non-application of mind to the facts of the case on the part of the authorities.

16. It was argued by the learned counsel for the respondent that the order under sec. 18 is discretionary and should not be interfered with by the Court. Here we have to only observe that discretionary does not mean that it can be arbitrary. The discretion has to be exercised on sound principles and in a judicious manner. In the facts of the present case, discretion by the authorities does not appear to have been exercised on sound principles and judiciously. The impugned order shows total non-application of mind on the part of the authorities. It cannot stand judicial scrutiny.

17. For the aforesaid reasons, the impugned orders requiring the petitioner to furnish security are quashed. Parties are left to bear their respective costs.