High Court · 2009

I have heard Mr. J. Bora, learned counsel for the petitioners, and Mr. D In a narrow compass, the petitioners’ case may be put as under: 3. (i) The petitioners are registered dealers not only under the Assam Value Ad ded Tax Act, 2003, (in short, ’the VAT Act’) but also under the Central Sales Ta x Act, 1956, (in short, ’the CST Act’). They carry on business of purchase, sale and supply of, amongst others, ’jute’ and, in course of their business, the pet itioners dispatch ’jute’ outside the State of Assam. The petitioners have been s ubmitting requisite returns of all their taxable liabilities under various statu tes. The petitioners had had been depositing, as ’additional security’, a sum of Rs.5,000/- only, in the past, and a sum of Rs.6,500/-, with effect from 13.02.2 009, against each truck load of ’jute’ to be dispatched outside Assam. In fact, the vehicles, carrying ’jute’, are not allowed to cross the check-post barriers , set up by the respondents, unless a ’movement certificate’, in respect of each truck load of ’jute’, is issued by the Superintendent of Taxes concerned, on re ceipt of the said ’additional security’ amount. The security amount, so collecte d, for each truck load of ’jute’, is wholly illegal inasmuch as the collection o f ’additional security’ and that too, without any notice having been given to th e petitioners directing them to show cause, if any, as to why they shall not be required to pay ’additional security’ in the manner as aforesaid and without let ting the petitioners have any opportunity of having their say in the matter, is in violation of the provisions of Section 7(3A) read with Section 7(3B) of the C ST Act. (ii) By way of ’additional security’, the petitioners have already paid huge sums of money and the amount of ’additional security’, so paid, is refundable to them. In such circumstances, the petitioners have prayed that the respondents b e directed to allow the petitioners to dispatch ’jute’ outside the State of Assa m without payment of ’additional security’ and without production of ’movement c ertificate’. (iii) Under the provisions of the VAT Act and the Rules framed thereunder, the re is no provision for making available ’movement certificate’ at the check post s. Hence, the condition precedent of production of movement certificate, before the vehicles are allowed to pass the check post barriers, is wholly illegal and without jurisdiction. The petitioners have accordingly sought for direction(s) to be issued to the respondents not to insist on production of ’movement certifi cate’. The petitioners also seek directions to be issued to the respondents comm anding them to ’adjust’ the amount(s), which are refundable to the petitioners, against ’additional security’, if any, which the petitioners may be found liable to pay. By way of ’additional security’, the respondents have realized from the (iv) petitioners as much as Rs.18,17,949/- and that this amount, in the light of the returns, which the petitioners have filed, is far in excess of the taxable liabi lity of the petitioners and that the said sum of Rs,18,17,949/- needs to be ’adj usted’ against all future dues of the petitioners including ’additional security ’, if any.

4. The case of the respondents, while resisting the writ petitions, may, in brief, be described thus: As fixed by Entry 23 of Second Schedule (Part A) to the VAT Act, 2003, t he rate of tax on sale of jute is 4%. Local sale of jute’ is taxable @4%; wherea s inter-state sale of jute, when made to a registered dealer, supported by valid C-form, is taxable @2%; but when the sale is made to an unregistered person or when a sale is not supported by C-form, the taxable rate is 4%. The past experie nce of the respondents is that due to peculiar nature of the business of jute’ a nd, particularly, because of the fact that ’jute’ is exempted, in some of the ne ighbouring States, such as, West Bengal, from payment of local sales tax, many ’ jute’ dealers could not produce statutory forms to claim concessional rate of ta x. In such a case, the liability remains @ 4%. However, in many cases, such deal ers could not be traced out after completion of such transactions. It is in orde r to ensure that the State’s fiscal interest are protected that the requirement of ’additional security’ was felt. According to what the respondents have calcul ated, the taxable liability of a six-wheeler truck, which carry 65 bales of jute , comes to Rs.6,630/-; whereas the ’additional security’ fixed, in such a case, is Rs.5,000/-. As the petitioners have failed to deposit the requisite ’addition al security’, the officials of the respondent-department could not allow the pet itioners’ trucks, carrying ’jute’, to pass the check posts. In terms of the prov isions of Section 9(2) of the Central Sales Tax Act read with Section 25(9) of t he VAT Act and also read with Rule 14(3) of the Assam Value Added Tax Rules, 200 5, until the time the ’refund’ of the amount is sanctioned by an appropriate aut hority, the amount, which the petitioners claim to be entitled to receive, in th e form of ’refund’, cannot be ’adjusted’. It is only when necessary direction fo r ’refund’ of the amount, paid by a dealer, is passed that the question of ’adju stment’ of such ’refundable amount’ against the dues of the dealer concerned wo uld arise.

5. From the respective cases, which the parties have set up, what clearly e merges is that the respondents have sought to realize ’additional security’ on t he ground that their past experience reveal that since ’jute’ is not a taxable item, in some States, such as, State of West Bengal, some of the dealers have ev aded payment of local sales tax (presently, value added tax) and it is to protec t the fiscal interest of the State that the demand for ’additional security’ has been raised.

6. Without entering into the question as to whether the reason, which the r espondents have assigned, for the purpose of raising the demand of ’additional s ecurity’, is or is not tenable in law, let me, first, assume, for a moment, that the reasons, as assigned by the respondents, can be a valid reason for the resp ondents to demand ’additional security’ and, based on this assumption, let me, f irst, determine as to when can a prescribed authority, while granting certificat e of registration, demand and realize security. The question, so posed, brings me to Section 7(2A), which reads: (cid:28)7. (2A) where it appears necessary to the authority to whom an application is m ade under sub-section (1) or sub-section (2) so to do for the proper realization of the tax payable under this Act or for the proper custody and use of the form s referred to in clause (a) of the first proviso to sub›section (2) of section 6 or sub-section (1) of section 6A or clause (a) of sub›section (4) of Section 8, he clay, by an order in writing and for reasons to be recorded therein, impose as a condition for the issue of a certificate of registration a requirement that the dealer shall furnish in the prescribed manner and within such time as may b e specified in the order such security, as may be so specified, for all or any o f the aforesaid purpose. (cid:29)

7. From a plain reading of section 7(2A) of the Central Sales Tax Act, it i s clear that these provisions are applicable only at the time of granting of cer tificates of registration. Since the petitioners are already registered dealers under the Central Sales Tax Act, the provisions of Section 7(2A) are not applica ble to the case of the petitioner. This position is not disputed by the responde nts.

8. Coming to Section 7(3A) of the Central Sales Tax Act, I notice that Sect ion 7(3A) deals with the powers of the authorities to demand ’additional securit y’ after the grant of the certificate of registration. Section 7(3A) reads as un der - (cid:28)7. (3A) Where it appears necessary to the authority granting a certificate of r egistration under section so to do for the proper realization of tax payable und er this Act or for the proper custody and use of the forms referred to in sub-se ction (2A) he may, at any time, while such certificate is in force, by an order in writing and for reasons to be recorded therein, require the dealer, t6 whom t he certificate has been granted to furnish within such time as may be specified in the order and in the prescribed manner such security, or if the dealer has al ready furnished any security in pursuance of an order under this sub-section or sub-section (2A), such additional security, as may be specified in the order, fo r all or any of the aforesaid purposes. (cid:29)

9. Section 7(3B) of the Central Sales Tax Act, however, makes it clear that no dealer shall be required to furnish any ’security’ under sub-section (2A) or ’additional security’ under sub-section (3A) unless he has been given opportuni ty of being heard.

10. From a careful reading of Section 7(2A) and Section 7(3A) of the Central Sales Tax Act, it is clear that ’additional security’ can be demanded only when , according to Section 7(3A), \it appears necessary\. In other words, ’additiona l security’ can be demanded only for good and sufficient reasons. It is, therefo re, imperative, on the part of the authority concerned, to consider and weigh, i n each case, the pros and cons and raise demand for ’security’ or ’additional se curity’ only when the authority concerned is subjectively satisfied, on objectiv e consideration of the materials, that such ’additional security’ is required to be obtained.

11. The language, employed in Section 7(3A), is of great constructional valu e. From the words, ’where it appears necessary to the authority, granting a cert ificate of registration,’ which form the opening part of Section 7(3A), it becom e clear that the demand for ’additional security’ cannot be raised as a matter o f routine. There must be reasons, for the prescribed authority, to opine that su ch a demand for security is necessary in order to protect realization of tax pay able under the Act and this opinion can be turned into a valid direction only af ter giving opportunity of hearing to the dealer. Additional security cannot, the refore, be obtained as a matter of policy, though, in terms of the policy and fo r the reasons assigned, notice may be served to a dealer directing him to show c ause, if any, as to why ’additional security’, as deemed necessary by the prescr ibed authority, be not obtained from the dealer. If the dealer satisfies that su ch demand shall not be raised against him, for, there is no reason to apprehend evasion of payment of tax by him, the demand for ’additional security’ may be dr opped. Realisation of ’additional security’, against each truck load of jute, wo uld virtually amount to collection of advance tax. Such is certainly not the sch eme of the provisions of the Acts under consideration. Without, however, enterin g into the merit of the respondents’ case as to why they have raised the demand for additional security, suffice it to point out that since the demands for addi tional security have been raised, in the present cases, without giving any oppor tunity to the respondents to have their say, such demands cannot be sustained.

12. There is no dispute that the authority, competent to grant certificate o f registration, under the Central Sales Tax Act, is the Senior Superintendent of Taxes or the Superintendent of Taxes. It follows, as a corollary, that it is th e Senior Superintendent of Taxes or the Superintendent of Taxes, as the case may be, who can demand ’additional security’ and they are empowered to raise such d emands only when they are so satisfied after affording opportunity of hearing to the dealer concerned. It, therefore, further follows that the Commissioner of T axes cannot direct the Senior Superintendent of Taxes or Superintendent of Taxes to demand, in general, ’additional security’ in respect of inter-State trade or commerce except as permitted by Section 7(3A) read with Section 7(3B) .

13. Demand of tax and/or security is a quasi-judicial act and has to be exer cised, in a quasi-judicial manner, in strict compliance of the provisions of the relevant statute. Tax and/or security cannot be demanded and/or collected by an authority without complying with the provisions of the relevant statute. No aut hority, superior to an assessing authority, can interfere with the quasi-judicia l functions of an assessing authority by issuing administrative directions. The Apex Court, in Orient Paper Mills Ltd. v. Union of India, reported in (1969) SC 48, made the position of law, in this regard, clear in the following words: \If the power exercised by the Collector was a quasi Judicial power as we hold i t to be that power cannot be controlled by the directions issued by the Board. N o authority however, high placed can control the decision of a Judicial or a qua si Judicial authority. That is the essence of our judicial system. There is no p rovision in the Act empowering the Board to issue directions to the assessing au thorities or the appellate authorities in the matter of deciding disputes betwee n the persons who are called upon to pay duty and the department. It is true tha t the assessing authorities as well as the appellate authorities are Judge in th eir own cause; yet when they are called upon to decide disputes arising under Ad they must act independently and impartially. They cannot be said to act indepen dently if their judgment is controlled by the directions given by others\.

14. It is not necessary to point out that the contention of the writ petitio ners, in both these writ petitions, is that the petitioners are registered deale rs, carrying on business of, amongst others, sale and supply of jute. The grieva nce of the petitioners is, in brief, that their vehicles, carrying jute, are not allowed to go beyond the territorial limits of check-post barriers by the respo ndents without payment of ’additional security’ inasmuch as the departmental per sonnel demand ’additional security’ for each and every truck crossing the check- post barrier. The fact that such demands, for ’additional security’ deposits, ha ve been insisted upon, at various check post barriers, as contented by the petit ioners, is not in dispute nor is it in dispute that the security, so demanded, i s in addition to the security, which the petitioners have already deposited at t he time of their registration, as dealers, under the Central Sales Act,1956.

15. The power of the respondents/authorities concerned to demand ’additional security’ is, as already pointed out above, traceable to Section 7 (3A) of the Central Tax Act, 1956. Without entering into the merit of the question, as to wh ether the grievances of the petitioners, in the facts of the present cases, that ’additional security’ could not have been demanded from them, what may be point ed out, as already indicated above, is that Section 7 (3 B) of the Central Tax A ct, 1956, makes it mandatory that order and/or direction, warranting deposit of additional security, shall precede issuance of notice to the dealer asking him t o have his say, if any, as to why ’additional security’, for the reasons, which may be mentioned in the notice of show cause, shall not directed to be paid by t he dealer. In the two cases, at hand, no such notice(s), as contemplated in Sec tion 7(3B) of the Central Sales Tax Act, 1956, was, admittedly, issued to the pe titioners. In such circumstances, the demand for ’additional security’, at the c heck-posts, in the manner, as have been done in these cases, is not sustainable in law. On this ground too, these writ petitions have to be allowed.

16. From a careful perusal of the provisions of the Act and the Rules, what becomes clear is that when a dealer becomes entitled to get refund of tax, inter est or penalty or other sum paid by him in excess of the amount due from him, th e Act and the Rules postulate the scheme of such ’refund’. One cannot bypass the scheme of refund, which the Act and the Rules embody. In such circumstances, th e prayer made by the petitioners for adjustment of their ’self-assessed refundab le amount’, against demand for payment of ’additional security’, if any, cannot be acceded to. In other words, while considering the submission, made on behalf of the petitioners, that the amounts, which the petitioners claim to be entitle d to receive, shall be adjusted against the demands, if any, for additional secu rity, suffice it to point out that the question of adjustment, in a given case, will arise only when a decision for refund of amount, in terms of the provisions of the relevant statutes and the Rules, framed thereunder, is taken. In the p resent cases, there has been no determination of the quantum of amount, if any, returnable to the petitioners. In such circumstances, the question of issuing d irections to the respondents to adjust the amount, which the petitioners claim t o be refundable, does not arise at all. This prayer cannot, therefore, be allow ed.

17. In view of the fact that this Court has found insistence of ’additional security’, in the manner, as has been done, in the present cases, is not tenable in law, this Court need not go into the other grievances, such as, the question as to when production of movement certificate can or cannot be insisted upon by the respondents. Considering, therefore, the matter in its entirety and in the interest o 18. f justice, while the respondents are hereby directed not to demand ’additional s ecurity’ from the petitioners without service of notices, as required, the petit ioners’ prayer for direction to the respondents to ’adjust’ the amounts, which a re claimed to have been lying deposited with the respondents, is not allowed.

19. Before parting with these writ petitions, it may be pointed out that sin ce the demand for ’additional security’ has been made without giving any notice, as required by Sub-Section (3B) of Section 7 of the Central Sales Tax Act, 1956 , this Court has expressed no view, on merit, with regard to the question as to whether in the facts and circumstances of the present case, such a demand for ’a dditional security’, as have been made in the present cases, could or could not have been made. It is also made clear that this Court expresses no opinion on th e sustainability of the allegations made by the petitioners in support of their cases, and/or the counter-allegations made by the respondents in support of thei r demand for additional security. The parties shall, therefore, remain at libert y to take recourse to such provisions of law, as may be permissible, and they sh all also have the liberty to raise their grievances, as have been raised in thes e cases, and/or to receive the relief(s), as they may be entitled to.

20. tand disposed of. With the above observations and directions, these writ petitions shall s

21. There shall, however, be no order as to costs.