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Kanaiyalal Pragjibhai Khakhkhar Vs. Sales Tax Officer and ors. - Court Judgment

LegalCrystal Citation
SubjectSales Tax/VAT
CourtGujarat High Court
Decided On
Judge
Reported in(1985)1GLR566
AppellantKanaiyalal Pragjibhai Khakhkhar
RespondentSales Tax Officer and ors.
Cases ReferredP.M. Abdulla v. S.T.O.
Excerpt:
.....to be short because time is of the essence and if the assessee succeeds in protracting by correspondence for the period of the season or a good part of it he may stand to gain to that extent in the matter of evasion of payment of tax. time on the ground that he was not well so as to appear on 17th november, 1984 has to be adjudged in this background. we cannot find a better exercise than that in this case where in annexure a/a notice the sales tax officer has chosen to give all facts which are relevant for indicating how the discretion has been exercised. 6279 of 1984 to be disposed of together with this case so that the widespread practice of persons like the petitioner resorting to civil courts also by way of suits and obtaining injunction rendering any attempt at recovery later..........10.8.1984 the petitioner had furnished a security to the extent of rs. 20,000/- as directed by the sales tax officer. the petitioner is said to have carried on the same business individually after 25.10.84. the complaint is that while there was no reason to assume any evasion of tax on his part the sales tax officer. amreli called upon him to show cause on 17.11.1984 as to why additional security should not be demanded from the petitioner under section 3 ob of the general sales tax act so as to enhance the security to rs. 10,00,000/-. annex. a/1 is the copy of the notice issued to the petitioner. according to the petitioner he was not well and therefore was not in a position to comply with the notice to appear on 17th november, 1984 and therefore he prayed for 10 day's time. evidently.....
Judgment:

P.S. Poti, C.J.

1. The petitioner is the proprietor of Chetna Trading Company at Amreli. He is said to be carrying on business as a general merchant and commission agent dealing in groundnuts, grains etc. The business of Chetna Trading Company was commenced as a partnership with petitioner and another person as partners from 10.8.1984 and such business was registered under the Gujarat Sales Tax Act, 1969 (hereinafter referred lo as 'the Act'). It is the petitioner's case that the partnership firm ceased its business with effect from 25th October, 1984 and the petitioner-commenced sole business in the same name from that date. It is also his case that he obtained a lease of an oil mill situated at Udyognagar at Amreli from their owners and from 25th October, 1984 when he started business after dissolving the partnership he began manufacture of groundnut oil in the name of Chetna Oil Mill. For the registration of the firm which carried on business from 10.8.1984 the petitioner had furnished a security to the extent of Rs. 20,000/- as directed by the Sales Tax Officer. The petitioner is said to have carried on the same business individually after 25.10.84. The complaint is that while there was no reason to assume any evasion of tax on his part the Sales Tax Officer. Amreli called upon him to show cause on 17.11.1984 as to why additional security should not be demanded from the petitioner under Section 3 OB of the General Sales Tax Act so as to enhance the security to Rs. 10,00,000/-. Annex. A/1 is the copy of the notice issued to the petitioner. According to the petitioner he was not well and therefore was not in a position to comply with the notice to appear on 17th November, 1984 and therefore he prayed for 10 day's time. Evidently the Sales Tax Officer did not consider that the ground shown for adjournment was sufficient and therefore proceeded to pass an order carrying out the proposal demanding Rs. 10,00,000/ - as security from the petitioner. Annexure A/3 is the copy of the order. According to the petitioner he is a man of no means with no movable or immovable property and he will have to depend upon others to furnish security; for him and to find out a solvent person who could furnish a security of Rs. 10,00,000/- is not easy with the consequence that the insistence on such security and the sanction of cancellation of registration for non-compliance would amount to his being compelled to close business. On 3rd December, 1984 about two weeks after the petitioner was called upon to furnish the additional security the petitioner is said to have addressed the Sales Tax Officer a letter not to insist on any additional security. To this the Sales Tax Officer sent a reply dated 5.12.1984 reiterating the demand for security for Rs. 10,00,000/- and further calling upon the petitioner to remain present in the office on 7.12.1984 with the figures of production, purchase and sales. He also called Upon the petitioner to produce on 15.12.1984 a writing from the landlord of his residential house indicating that he was occupying the house, and also to produce his ration card and two passport size photographs. It is thereupon that the petitioner has come to this court.

2. The challenge in the petition is twofold. The petitioner seeks to declare Section 30B of the Gujarat Sales Tax Act, 1969 as ultra vires being violative of Article 14 of the Constitution of India and beyond the legislative competence of the State Legislature and also seeks to quash Annexure A/3 order passed by the 1st respondent demanding security of Rs. 10,00,000/- as mala fide, ultra vires and violative of Articles 14, 19(1)(g) and 300A of the Constitution of India. Though challenge in the petition is seen to be made on the ground that the order Annexure A/3 demanding additional security as violative of Articles 19(1)(g) and 300A no reference was made at the hearing to Article 300A nor did the petitioner have a case that it violates Article 19(1)(g) evidently because even according to the counsel for the petitioner that question is now covered by decision and there may not be a case on that aspect. In fact similar provisions have been attacked before the Calcutta High Court in Durga Prasad Khaitan v. C.T.O. 8 STC 105, the Madras High Court in Janakiram Mills Limited v. Deputy C.T.O. 29 STC 522 and the Kerala High Court in P.M. Abdulla v. S.T.O. 30 STC 436. Similar provisions have been held to be legislatively competent and not offending the fundamental right to carry on business. But what is argued is that in none of these cases was there a challenge to a provision like Section 30B on the ground of irrational classification of dealers and want of nexus of such classification with the object of grant of registration. The main contention before us therefore was that Section 30B was violative of Article 14 of the Constitution of India of reasons which we will presently indicate. No question of legislative competence arises though referred to in the petition as frankly conceded by the counsel for the petitioner.

3. Before we consider the case of constitutional validity of the impugned provision it is necessary to refer to certain facts which furnish the background of enactment of Section 30B of the Act. We had the benefit of hearing government counsel taking notice of the case and appearing in the first instance and later when the case was adjourned at the petitioner's request hearing the learned Advocate General who appeared to oppose the admission of the petition. In fact we happened to hear the Advocate General, for another reason too. Special civil application No. 6279 of 1984 was moved on behalf of the State of Gujarat by the Advocate General in which a question somewhat allied to the question before us arises for decision and we heard the Advocate General in that petition. It was then that reference happened to be made to this petition whereupon the Advocate General presented the case of the State in this petition even before admission.

4. As we understand the case of the State the background of the enactment of Section 30B of the General Sales Tax Act is that some of the major dealers in groundnut in the Saurashtra Region of the Gujarat State carry on, according to the Advocate General, business of a huge volume seasonally, consequent on which they would be liable to pay a huge amount of sales tax, but their obligations are easily defeated by adopting a, method which, it is said, is illustrated by the case before us. Normally the carrying on of business of an oil mill would require considerable experience as well as working capital. Since normally the turnover in regard to a mill for a season, which consists normally of three months in an year, would exceed about one crore of rupees it is only those who have sound financial background that can normally afford to carry on this business. But the tax on the turnover of rupees one crore or thereabouts would be in the region of Rs. 10,00,000/- and there is said to be an easy method to evade payment of this tax. The business of purchase of groundnuts, crushing and sale of groundnut oil will be carried on by the real dealer in the name of a bogus person or a person with no means whatsoever. During the season of about three months the turnover of a mill would normally attract a tax of about Rs. 10,00,000/-. Since the season would be over long before the expiry of the year, by the time any assessment of the dealer is thought of there would be no means to recover tax from the registered dealer as he would be either a. bogus person or one who has no assets to answer the tax liability. In order to run the business such person would be shown as a lessee for the season of an oil mill so much so that no proceedings can be taken against the oil mill asset also. This, it is said, became an accepted mode of evading huge amounts of Sales tax causing considerable loss of revenue to the State. It was thereupon that the incorporation of Section 30B was thought of. The Advocate General made available to us the speech of the Finance Minister on Budget Estimate for the year 1983-84 in the Gujarat Legislative Assembly made on 24th February, 1983. The absence of a provision to take security deposit in any form from a dealer applying for registration is noticed by the Finance Minister and the fact that there are provisions with regard to this in other sales tax laws has also been noticed by him in the speech. With a view to 'plugging the possible evasion in the payment of tax by bogus dealers or billing agents, or by so-called lessees of oil mills and similar processing units who may lake units on temporary basis' it was proposed by him to make provision for taking a security deposit from the dealers applying for registration. The objects and reasons of the amendment of the Act by introduction of Section 30B shows that the said amendment of the Act was with a view to giving effect to the proposals contained in the budget speech of the Finance Minister.

5. The rate of tax on groundnut oil being high, and the turnover of an oil mill being for a season which consist normally of only three months in an year being quite considerable, there would be sufficient incentive for evasion of tax and one of the possible modes of evasion would be to present as a registered dealer one who has no assets. If so the provision to enable security to be taken cannot be said to be an infringement of the right to carry on business. Though at first sight it may appear that the security demanded is quite high it is directly related to the anticipated turnover and it is only men with sufficient means to have the working capital to cause such turnover that could carry on the business. It is from such persons that security is demanded. Anyhow we need not to go into the question whether the section offends Article 19(1)(g) as counsel himself stated that his case is not that the impugned provision violates Article 19(1)(g).

6. We may first refer to the plea that the action of the 1st respondent violates principles of natural justice before we go into the question whether Section 30B is unconstitutional. At first sight, it appeared to us that the Sales Tax Officer could have granted time to the petitioner and. there was no need for the haste with which he passed Annexure A/3 order. But on closer scrutiny and on considering the facts and circumstances of the case we are not inclined to hold that there is violation of principles of natural justice. The petitioner and another person whose solvency is not in question originally constituted a firm and started the business by registering it on 10.8.1984. At that time the firm was not known to have any business in groundnut oil and the firm considering the business estimated by it, was asked to furnish a security of Rs. 20,000/-. It was submitted at the Bar by Shri. Chhatrapati learned Government counsel that the termination of the business of the firm of 25.10.1984 and the commencement of an independent business by the petitioner from that day is a development resulting from seizure of groundnut oil in a number of lorries in the check posts during the first week of November, 1984. It is thereupon that the office of the Sales Tax Officer, Amreli received a letter from the petitioner stating that from 25.10.1984 he alone ran the business, that he had taken an oil mill on lease and that he. was intimating the fact that such oil mill had been so taken on lease. This communication said to have been received on 12.11.1984 by the Sales Tax Officer seems to have alerted the Sales Tax Department to look into the affairs of the business claimed to be that of the petitioner. That such communication was sent so as to be received only on 12.11.1984 is admitted at the hearing by the petitioner's counsel, but according to him, that was within time because he had started the oil mill business only on 25.10.1984. The State's case as presented to us was that the oil mill business was run earlier and it was only on detection that admission was made that oil was also being dealt with. Whatever that be, the provocation for demand of additional security was the letter written by the petitioner intimating these things: (1) that the firm of which he was one of partners has dissolved on 25.10.84 and he had started independent business in the same name; (2) that on 25.10.84 he had taken on lease an oil mill consequently he would be dealing in groundnut oil also though originally the firm was shown only as dealing in groundnuts; and (3) though the petitioners' partner who left the business on 25.10.1984 was a man of means the petitioner had no movable or immovable property. The capacity of the mill showed that the turnover of the business for the season of three months would exceed a crore of rupees and therefore the Sales Tax Officer felt that appropriate security had to be demanded. It is not as if this was a wild estimate. The notice Annexure A/1 worked out the figures of production, the turnover based thereon and the tax that was to be payable and the petitioner was given an opportunity to show cause against it. 'I he business would come to an end by the end of the season. That would mean that if steps were not taken earlier to secure the tax it would not be possible to recover the tax from the petitioner since he was a man of no means though evidently he was dealing in a high turnover In the circumstances the Sales Tax Officer felt that time was of the essence. Perhaps the Sales Tax Officer felt that the disclosure about the oil business was not voluntary as it was acknowledged only when there were materials which could connect the petitioner with such business. Whatever that be we consider that there was sufficient change of circumstances to warrant demand of additional security. There is evidently the fact that the petitioner has started a new business of groundnut oil, taking a lease of an oil mill normally resulting in considerable turnover. Secondly there was the fact that the petitioner has himself admitted that he was a man of no means with, no movable or immovable property. If the purpose of Section 30B is that security may he demanded to avoid evasion of tax we could see no impropriety in. the Sales Tax Officer demanding such additional security in the circumstances and the amount demanded, though may appear to be huge, it is seen that it is based oil estimate of the lax payable during the period of three months by the assessee taking into account the capacity of his mill. The time given cannot be said to be short because time is of the essence and if the assessee succeeds in protracting by correspondence for the period of the season or a good part of it he may stand to gain to that extent in the matter of evasion of payment of tax. The application by the assessee for the. time on the ground that he was not well so as to appear on 17th November, 1984 has to be adjudged in this background. It is not as if personal presence of the assessee was required for the purpose of replying to the notice Annexure A/1. The trouble taken to ask for time and to produce the medical certificate could have been taken to say what the petitioner had to say in answer to the notice. He was only called upon to show cause why he should not be asked to furnish additional security. The answer would be simple. There is no case that he was solvent. There is no case that he was not running the oil mill. There is no case therefore that there was no turnover in addition to the turnover originally indicated by the firm of which the petitioner was a partner from 12.8.1984. The only question was, what would be the estimate of turnover. That had been worked out on the basis of available data by the Sales Tax Officer in Annexure A/I notice. The petitioner had only either to agree to it or refute it or state his own case as to what the capacity of the mill was. In view of the importance of time and the possible loss of revenue to the State Government by reason of delay the Sales Tax Officer had to act promptly and we do not find fault with that officer for having duly performed his duties. In fact it is significant that the petitioner did not come to this Court soon after 17.11.1984 when, the order Annexure A/I challenged here was passed. He moved an application on 3.12.1984 and the Sales Tax Officer perhaps would have considered any case that the turnover was lesser if that had been put to him. The Sales Tax Officer wanted figures as to the production. No doubt it is true that he could not have demanded as legally the production of passport size photographs of the petitioner or any writing from his landlord as to his occupation of the house shown in his address. We are not concerned with the propriety of that notice because that notice is not under challenge, but evidently that notice shows that the Sales Tax Officer was anxious to see that the petitioner proves at least his identity. A photograph of a person who is a registered dealer may at least be evidence on record to identify a person. A letter from the landlord will show that there is such a person living at the address given. These were what the Sales Tax Officer wanted from the petitioner. It was then that the petitioner thought of coming to this Court and not soon after the order of 17-11-1984 Annexure A/3 challenged in this petition. If somehow the proceedings are carried on for a period of three months the season would be over and the petitioner would have succeeded in his attempt. Though we had not passed any interim orders on the day this petition came up before us for the first time we had asked the counsel for the State Government to stay their hands till we passed order on this as that would be sufficient protection for the petitioner. We do not think that there is any case for complaint on the basis that principles of natural justice have been violated.

7. Now we come to the question of vires. What is said is, to put in simple worlds, that while Section 30B provided for insistence upon security on a registered dealer Section 29(5) contemplates action against an unregistered dealer and that after finalisation of penal action under other provisions by either penalty being imposed or the matter being compounded. Such action contemplated the grant of registration to a dealer. This, it is said, is anomalous and that is the basis of the plea of infringement of Article 14. According to the petitioner a person who is honest enough to seek and obtain registration loses his registration if he does not furnish security. On the other hand a person who is dishonest and does not apply for registration is, when it is discovered that he has not taken such registration, compulsorily favoured with registration without any security being asked. This, it is said, is a discriminatory treatment. We do not think so. A, person who takes registration obtains several benefits such as the right to collect tax from the customers. To secure that the tax collected by him or the tax ultimately payable by him is not evaded provision is made in Section 30B to demand security. Section 29 deals with action against those who deal without getting registered. Such persons are liable under the penal provisions of the statute. They have to suffer the penalties contemplated.

8. Once that is done they are given the right to get a registration and it is not open to the Sales Tax Officer to say that registration will not be given to them. It is not as if registration is thrust upon them even though they do not want it. If they say that they do not propose to do any business thereafter there is no question of any registration being given to them. Registration shall be given to them in case they are doing the business. By such registration they become only registered dealers. But once they become registered dealers they also are subject to the provisions of Section 30B and if they don't comply with section SOB such registration would be cancelled and if they carry on business after such cancellation again they will be liable to the penalties under the Act. Therefore there is no question of two different treatments to similarly situated persons and hence there is no question of discrimination arising for consideration at all.

9. It is further said that there are no rules or guidelines for imposing the requirement as to security, that the Officer is guided by the Department in this matter and further that there is mala fides. The requirement of security must necessarily be in the discretion of the Sales Tax Officer concerned and should be exercised with reference to the relevant factors and circumstances. We cannot find a better exercise than that in this case where in Annexure A/a notice the Sales Tax Officer has chosen to give all facts which are relevant for indicating how the discretion has been exercised. It is not as if it is guided by any direction from any one. We also see no place at all for any plea of mala fides.

10. Though the learned Advocate General urged that this case may be disposed of with Special Civil Application No. 6279 of 1984 wherein the State of Gujarat is the petitioner we think it would be appropriate to dispose of that case independently. Perhaps the learned Advocate General wants Special Civil Application No. 6279 of 1984 to be disposed of together with this case so that the widespread practice of persons like the petitioner resorting to civil courts also by way of suits and obtaining injunction rendering any attempt at recovery later infructuous may be brought on record in this case so that this case may be viewed from the proper perspective. We do not think that for any such reason we should dispose of that petition along with this. We are independently considering that case. There the question is one of the propriety of the order of a civil court and perhaps it would be more appropriate to deal with it separately on the facts disclosed therein.

11. Though the petitioner had been called upon to furnish a security of Rs. 10,00,000/- we suggested that the security could be limited to Rs. 3,00,000/- provided the petitioner is prepared to pay forthwith, without prejudice, every month what is assessed by way of interim arrangement the tax for that month so that the security to cover a month's turnover will continue to be alive.

12. In other words, if the petitioner pays the tax due as determined tentatively b; officer from month to month for the three months the security for one month would be sufficient and we will be able to make such an order even while dismissing the petition. Though this was put to the petitioner's counsel he was not agreeable to the payment part of this bargain. Hence we are unable to make any alteration in the matter of security. The petition is dismissed summarily.

13. Counsel for the petitioner makes an oral application for certificate for leave to appeal to the Supreme Court. We see no substantial question of law of general importance which needs to be decided by the Supreme Court arising in this case. Hence leave declined. A request is made to stay the operation of Annexure A/3 order for one inoath to enable the petitioner to file appeal to the Supreme Court. Apart from the fact that according to us there in no case for appeal to the Supreme Court there is a more important reason why we must reject this request. We have pointed out in this judgment, while discussing why the Sales Tax Officer was justified in not granting adjourning that time of the essence in this matter and any passage of time would achieve the object of evasion. That is what is sought to be plugged by demanding the security. What we have said in the judgment on this aspect holds good in rejecting the prayer for stay of operation of Annexure A/3 order. Hence prayer rejected.


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