The Court held that Section 7 (4a) of the Bengal Finance (Sales Tax) Act, 1941, was not ultra vires Article 19 (1) (g) of the Constitution, as the restrictions imposed by it were reasonable and necessary for the collection of tax. The Court also held that the security demanded by the Commercial Tax Officer was reasonable in the circumstances of the case and that Rule 6 of the Bengal Sales Tax Rules, 1941, did not violate the rules of natural justice.

Headnote:
DURGA PRASAD KHAITAN V. COMMERCIAL TAX OFFICER - BENGAL FINANCE (SALES TAX) ACT, 1941 - SECTION 7 (4A), 11 (4A), RULE 6 - REGISTRATION OF DEALERS - DEMAND FOR SECURITY - REASONABLENESS - RULES OF NATURAL JUSTICE - INTERPRETATION OF STATUTES.
Fact of the Case:

The petitioner, Durga Prosad Khaitan, applied for registration under the Bengal Finance (Sales Tax) Act, 1941. The Commercial Tax Officer demanded security of Rs. 5,000/- under Section 7 (4a) of the Act. The petitioner challenged the demand, contending that Section 7 (4a) was ultra vires Article 19 (1) (g) of the Constitution, that the security demanded was unreasonable, and that Rule 6 of the Bengal Sales Tax Rules, 1941, violated the rules of natural justice.
Finding of the Court:

The Court held that Section 7 (4a) of the Act was not ultra vires Article 19 (1) (g) of the Constitution, as the restrictions imposed by it were reasonable and necessary for the collection of tax. The Court also held that the security demanded was reasonable in the circumstances of the case. Finally, the Court held that Rule 6 of the Bengal Sales Tax Rules, 1941, did not violate the rules of natural justice, as the dealer was given an opportunity to explain any adverse information found during the enquiry.
Issues: 1. Whether Section 7 (4a) of the Bengal Finance (Sales Tax) Act, 1941, is ultra vires Article 19 (1) (g) of the Constitution? 2. Whether the security demanded by the Commercial Tax Officer was reasonable? 3. Whether Rule 6 of the Bengal Sales Tax Rules, 1941, violates the rules of natural justice?
Ratio Decidendi: 1. The Court held that Section 7 (4a) of the Act was not ultra vires Article 19 (1) (g) of the Constitution, as the restrictions imposed by it were reasonable and necessary for the collection of tax. The Court noted that the Commissioner could only demand security for good or sufficient reasons and that the security demanded must be reasonable. The Court also noted that the dealer had the right to challenge the demand for security in court. 2. The Court held that the security demanded by the Commercial Tax Officer was reasonable in the circumstances of the case. The Court noted that the dealer had a large turnover and that his books showed a capital of only Rs. 1,000/-. The Court also noted that the dealer's shop was elusive and that he had ultimately disappeared. 3. The Court held that Rule 6 of the Bengal Sales Tax Rules, 1941, did not violate the rules of natural justice, as the dealer was given an opportunity to explain any adverse information found during the enquiry. The Court noted that the dealer was present when the most important part of the enquiry was made and that he had the opportunity to challenge the findings of the enquiry.
Final Decision: The Court dismissed the petition and discharged the Rule.

( 1 ) THE facts in this case are shortly as follows: The petitioner is Durga Prosad Khaitan. On or about 28-8-1954 an application was made to the Commercial Tax Officer, Canning Street, District II, Charge, Calcutta, for registration of the firm of Durga Prosad Shyamsundar, of which the petitioner is stated to be the proprietor, under the Bengal Finance (Sales Tax) Act, 1941. In the said application it was declared that the said firm was importer of goods from places outside Bengal and that the sales effected exceeded the taxable quantum on 13-8-1954. This application was received by the said Commercial Tax Officer on 2-9-1954. It has been subsequently found that the petitioner had exceeded the taxable quantum not on the date mentioned above, but on 20-7-1954. On 20-10-1854, the petitionter sont a reminder to the Commercial Tax Officer complaining that the absence of registration was causing him great inconvenience. It was stated that the firm had made huge imports amounting to over Rs. 3 lakhs, of which Rs. 2 lakhs were already sold in the local market. It was further stated that not only were huge stocks in hand, but goods worth nearly one and half lakhs which were in transit, would arrive in Calcutta shortly. The first hearing was fixed on 21-10-1954, but for some reason or other, the case was not taken up on that date. A further reminder was given on 23-10-1954. It appears that the authorities upon receiving the application caused an Inspector of the Commercial Tax Department; by the name of Dilip Kumar Sarkar, to inspect the business place of Durga Prosad Shyamsundar, and to submit his report to the Commercial Tax Officer. He called at 188 Cross Street, the address furnished in the application, and fount that the firm was situate in a room on the second floor of premises No. 188 Cross Street There he met Durga Prosad Khaitan, who represented himself to be the sole proprietor of the said firm. The Inspector inspected the vouchers, cashmemos etc. and the results are incorporated in a report dated 4-11-1954 a copy whereof is annexed to the affidavit of Dilip Kumar Sarkar, affirmed on 8-3-1956. This report shows that the petitioner was a tenant of Birdhichand Jambar. He had come to Calcutta six months previously and had started business on 2-7-1954. The report further shows that several books of account were inspected. This report has been countersigned by Durga Prosad Khaitan himself. This fact will be found to be of some importance presently. Thereafter, dates were fixed for the hearing. But the notices fixing the dates could not be delivered as the shop room was found closed during business hours. The investigation of the books showed that while the purchases of the petitioner exceeded Rs. 3,92,000/- he had a capital of no more than Rs. l,000/ -. With regard to the shop room, what has subsequently transpired is that the petitioner took the room on rent on or about 29-6-1954 and paid rent up to 3-12-1954 after which he defaulted in paying the rent and the landlord filed a rent suit and obtained possession on or about 28-7-1955. All the belongings of the petitioner in the room were attached and subsequently sold in auction.

( 2 ) UPON receiving the report of the Inspector and the result of the inspection of the books, the Commercial Tax Officer recommended to the Commissioner Commercial Taxes, through the Assistant Commissioner of Commercial Taxes, Calcutta, Central, that security should be demanded from the petitioner of Rs. 10,000/- under Section 7 (4a), Bengal Finance (Sales Tax) Act, 1941. The Commissioner, however, reduced the sum to Rs. 5,000/- and on 28-12-1954 notice was given to the petitioner that the Commissioner had directed that he should pay a cash security of Rs. 5,000/- under Section 7 (4a) of the Act. The petitioner did not comply with it, and some time in January, 1955 he was informed that his application for registration, dated 28-8-1954, had been rejected. In the original petition as filed, the petitione

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1956 Supreme(Cal) 140

HIGH COURT OF CALCUTTASinhaDURGA PROSAD KHAITAN - AppellantVersusCOMMERCIAL TAX OFFICER - Respondent. Of .Decided On : JULY 26, 1956

Cases Referred (2)

HIGH COURT OF CALCUTTA
Sinha
DURGA PROSAD KHAITAN - Appellant
Versus
COMMERCIAL TAX OFFICER - Respondent
. Of .
Decided On : JULY 26, 1956