1. Demand for security under Section 8A of the Bengal Finance (Sales Tax) Act — Challenge to the constitutional validity of the provision. (Para 1 , 2 , 3 , 4 )
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1961 Supreme(SC) 105
SUPREME COURT OF INDIA
J.C.Shah : J.L.Kapur : M.Hidayatullah : S.K.Das : T.L.Venkatarama Ayyar
Nand Lal Raj Kishan
Versus
Commissioner Of Sales Tax, Delhi
Case No. : 77 of 1958
Date of Decision : 3/14/61
Advocates Appeared: Agarwala P.C. : Daphtary C.K. : Dapthary C.K. : Iyer R.Ganapathy : Lal Bhavani : Sen T.M.
Advocates:
BHAVANI LAL, C.K.DAFTARY, P.C.AGRAWAL, R.Ganapathy Iyer, T.M.SEN
BHAVANI LAL, C.K.DAFTARY, P.C.AGRAWAL, R.Ganapathy Iyer, T.M.SEN
A statutory power to demand security for tax realization is valid and not arbitrary if conditioned by the necessity of tax collection. Natural justice is satisfied if the affected party is given a fair opportunity to present their case, even if a formal oral hearing is not mandated.
Headnote:(A) Bengal Finance (Sales Tax) Act, 1941 - Section 8A - Security for realization of tax - Validity of provision - Power of the Commissioner to demand security as a condition for registration - Not an unlimited or unrestricted power as it is conditioned by the necessity for proper realisation of tax (Para 5).
(B) Power to levy tax includes the power to impose reasonable safeguards in collecting it; demanding security for the proper payment of tax is neither an arbitrary nor an unreasonable restriction (Para 6).
(C) Amount of security demanded must have relation to the payment of tax, nature of business, and turnover, and is subject to revision by higher authority (Para 7).
(D) Principles of natural justice apply to orders demanding security; an opportunity to submit written explanations and objections satisfies the requirement of a fair hearing, and a second oral hearing is not obligatory (Paras 8, 9).
Facts of the case:
Commission agents were required to furnish security for the payment of sales tax after investigations revealed frequent changes in business locations and non-genuine sales to untraceable dealers. The order was challenged on the ground that the enabling provision was constitutionally invalid for granting unrestricted power and lacking a limit on the amount of security.
Findings of Court:
The provision is valid as it provides necessary guidance for the exercise of discretion and does not impose an unreasonable restriction on the right to carry on business. The principles of natural justice were followed as the petitioners were given an opportunity to submit their objections.
Issues: Whether the provision empowering the authority to demand security is constitutionally invalid for granting unrestricted power and lacking a limit on the amount, and whether the absence of a mandatory enquiry or hearing in the statute violates the principles of natural justice.
Ratio Decidendi: A statutory power is not arbitrary if it is conditioned by the statute itself, such as being necessary for the proper realisation of tax. The amount of security is implicitly limited by the potential tax liability and supervisory review. Natural justice is satisfied if the party is given a reasonable opportunity to be heard, regardless of whether a specific oral hearing is mandated by the statute.
Result: Petition dismissed with costs.
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Table of Contents
2. Section 8A confers unlimited power, lacks a cap on security amounts, and violates natural justice by not mandating a prior hearing. (Para 4 )
3. The power to demand security is conditioned by the necessity for tax realization, relates to tax liability, and is subject to revision and natural justice. (Para 5 , 6 , 7 , 8 , 9 )
4. A statutory power to demand security for tax realization is valid if conditioned by necessity, linked to tax liability, and compliant with natural justice. (Para 5 , 6 , 7 , 8 )
5. Writ petition dismissed with costs. (Para 10 )
6. Is the power to demand security under Section 8A of the Bengal Finance (Sales Tax) Act unlimited or arbitrary?
No. The power is not unlimited because it is conditioned by the requirement that the Commissioner must consider it necessary for the proper realization of the tax, and reasons for the demand must be recorded in writing. (Para 5 )
7. Does the absence of a statutory limit on the amount of security demanded render the provision invalid?
No. The amount demanded must relate to the tax liability, the nature of the business, and its turnover. Furthermore, such orders are subject to scrutiny and revision by the Chief Commissioner. (Para 7 )
8. Does a provision demanding security violate natural justice if it does not explicitly mandate a prior hearing?
No. Principles of natural justice apply regardless of explicit statutory wording. Providing a notice and an opportunity for the affected party to submit explanations satisfies the requirement of a fair hearing. (Para 8 , 9 )
9. Does the power to levy a tax inherently include the power to demand security for its payment?
Yes. The power to levy a tax includes the power to impose reasonable safeguards to ensure its collection; demanding security for the proper payment of tax is neither arbitrary nor an unreasonable restriction. (Para 6 )
S.K.DAS, J.
(1) THIS is a writ petition under Art. 32 of the Constitution. The petitioners, Messrs. Nand Lal Raj Kishan, carry on a business of commission agents at Delhi and are liable to pay sales tax in respect of their business under the provisions of the Bengal Finance (Sales Tax) Act, 1941, as in force in Delhi. They filed returns for four quarters of 1954-55 and claimed exemption in respect of sales of certain goods to the registered dealers under the provisions of s. 5(2)(a)(ii) of the said Act. By his order dated April 11, 1956, the Sales Tax Officer disallowed the exemption claimed by the petitioners mainly on the ground that the alleged sales were made to "those registered dealers whose activities had gone under-ground." The Sales Tax Officer issued a demand notice for a sum of Rs. 1,11,890-11-0 on account of sales tax. The petitioners then carried an appeal to the Assistant Commissioner of Sales Tax, Delhi. The Assistant Commissioner set aside the order of the Sales Tax Officer and remanded the case for a fresh decision in the light of certain judgments given by the Chief Commissioner, Delhi, in a number of similar cases. In the meantime, the Bengal Finance (Sales Tax) Act, 1941, was amended by the Bengal Finance (Sales Tax) (Delhi Amendment) Act, 1956, being Act No. 17 of 1956. This amending Act which came into force on October 27, 1956, inserted a new section, which is s. 8A of the Act. This section reads as follows:
"S. 8A. Security from certain class of dealers. The Commissioner, if it appears to him to be necessary so to do for the proper realisation of the tax levied under this Act, may impose for reasons to be recorded in writing as a condition of the issue of a registration certificate to a dealer or of the continuance, in effect, of such a certificate issued to any dealer, a requirement that the dealer shall give security up to an amount and in the manner approved by the Commissioner for the payment of the tax for which he may be or become liable under this Act."
(2) ON May 17, 1957, the petitioners asked for a fresh registration certificate on the ground that their original certificate had been lost in transit. They further asked for the addition of some more items of goods in the registration certificate, .such as cigarettes, bidis and glass of all kinds. Thereupon the Sales Tax Officer made certain enquiries and found that the petitioners had been frequently shifting their places of business and the sales alleged to have bean made by them to gome registered dealers were not genuine, because those persons could not be traced at the addresses given. On a report being submitted to the Commissioner of Sales Tax, Delhi, the Commissioner asked the Sales Tax Officer to issue a notice to the petitioners. On July 13,1957, such a notice was issued to the petitioners to show cause why they should not be asked to furnish a security of Rs. 10,000 in accordance with the provisions of s. 8A. The petitioners then appeared before the Sales Tax Officer and made a statement that they were not prepared to deposit any amount as security. They also filed a written explanation objecting to the demand of security. The matter was then referred to the Commissioner of Sales Tax who considered the explanation of the petitioners and the report of the Sales Tax Officer. The Commissioner expressed his finding in the following words:
"IN view of the reputation that the dealer enjoys in the market, namely, that he being a commission agent has been engaged in the business of selling goods to other commission agents, all sales being effected to unscrupulous registered dealers, frequent changes in the name and place of business without giving specific details, late submission of information regarding the changes in the name and place of business, non-submission of returns for the year 1956-57 within the prescribed time, it appears necessary to demand security under section 8A of the Bengal Finance (Sales T
