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2001 DIGILAW 1110 (AP)

Kumars Mettalurgical Corpn. Limited v. Asst. Commercial Tax Officer, secunderabad Division

2001-09-26

S.ANANDA REDDY, S.R.NAYAK

body2001
S. ANANDA REDDY, J. ( 1 ) THIS writ petition is filed by the petitioner-Company praying for the issue of writ of Mandamus declaring the proceedings dated 6-7-1995 passed by the respondent as without jurisdiction and contrary to G. O. Ms. No. 117, dated 17-3-1993 as well as the judgment of this Court in srinivasulu Chetty and Sons Co. v. State of a. P. and consequently quash the same. ( 2 ) THE petitioner, which is a Public limited Company incorporated under the companies Act, 1956 established its large scale industry in Nalgonda District to manufacture Sponge Iron. It is a registered dealer on the files of the Assistant commercial Tax Officer, General Bazaar circle, Secunderabad. Under the Incentive scheme formulated by the Government, which was amended by G. O. Ms. No. 117 of industries and Commerce Department, dated 17-3-1993, the assessee-Company, which was situated in Area No. II is entitled not only for capital subsidy up to 50% of the capital cost not exceeding Rs. 15 lakhs but also entitled to the benefit of deferment of sales-tax to the extent of 75% of the fixed cost in a period of ten years. Accordingly, on the application made by the petitioner, the industries Department issued the final eligibility certificate dated 23-2-1985 declaring that the petitioner is eligible for the sales-tax deferment of Rs. 25,00,27,500. 00 commencing from 26-02-1993, the date on which it went on commercial production till 25-02-2003. At the time of registration under the provisions of the A. P. General Sales Tax act, 1957 (hereinafter referred to as the act ), the registering authority required the petitioner to furnish security for a sum of rs. 3,000/-, which was deposited. But subsequently, the registering authority invoked the provisions of sub-section (10) of section 12 of the Act, read with sub-rule (15) of Rule 28 of the A. P. General Sales Tax rules (hereinafter referred to as the Rules ) and issued a notice dated 02-06-1995 calling upon the petitioner why it should not be asked to furnish additional security deposit of Rs. 7 lakhs for proper payment of the tax as well as for proper utilization of the forms that are being issued from time to time to the petitioner. 7 lakhs for proper payment of the tax as well as for proper utilization of the forms that are being issued from time to time to the petitioner. In response to that the petitioner filed its objections bringing to the notice of the registering authority that it has the benefit of deferment of sales-tax to the extent of more than Rs. 25 crores for a period of ten years. As there was no immediate liability to pay the tax, the invocation of powers under the above referred provisions is unwarranted and sought for dropping the proceedings. The respondent registering authority, however, passed orders directing the petitioner to furnish security to an extent of Rs. 7 lakhs, though according to the registering authority the petitioner s tax liability extends to about Rs. 54 lakhs for a year. The said action of the respondent is assailed in this writ petition. ( 3 ) THE learned Counsel for the petitioner contended that as long as there is no liability to pay the tax, the invocation of the provisions of Section 12 driving the petitioner-Company to pay additional security is illegal and unwarranted. According to the learned Counsel the companies, which are registered under the provisions of the Companies Act, are exempted from making any deposit even at the time of registration under the provisions of the Act, as per the circular instructions of the Commissioner of Commercial Taxes. In the light of the said instructions the action of the respondent in not only collecting the deposit at the time of registration but also seeking additional security deposit under section 12 of the Act is illegal and contrary to the circular instructions. Therefore, the impugned action is liable to be struck down. ( 4 ) A counter has been filed on behalf of the respondent denying the contentions of the petitioner. It was stated in the counter that basing on the estimated turnover mentioned in the application for registration, a sum of Rs. 3,000. 00 was collected as security deposit at the time of registration in the year 1990. As there was increase in turnover of the petitioner- company, thereby increase in the tax liability, the registering authority is empowered under Section 12 to direct the dealer to furnish additional security. 3,000. 00 was collected as security deposit at the time of registration in the year 1990. As there was increase in turnover of the petitioner- company, thereby increase in the tax liability, the registering authority is empowered under Section 12 to direct the dealer to furnish additional security. In accordance with the said provisions, a show- cause notice was issued as to why the petitioner should not be asked to furnish additional security. After giving an opportunity, the registering authority passed an order directing the petitioner to furnish security for a sum of Rs. 7 lakhs, though the tax liability was to the extent of rs. 54 lakhs. In the counter it was also stated that the sister concerns of the petitioner- company are in default and therefore on that ground also the petitioner is required to furnish the additional security. ( 5 ) THE learned Counsel for the respondent contended that though in terms of G. O. Ms. No. 117, the petitioner had the benefit of deferment of sales-tax, the effect of it is only postponing the liability for a period of ten years and there is no cessation of liability. In that view of the matter, the registering authority is perfectly within his powers in passing the impugned order. The learned Counsel also contended that the petitioner is being issued from time to time number of forms, such as C-Forms etc. , and even for the safe custody and proper utilization of those forms, it is required that the petitioner-dealer has to furnish the security as required. ( 6 ) FROM the above rival contentions, the issue to be considered is whether the respondent-registering authority is justified in passing the impugned order directing the petitioner to furnish additional security to the tune of Rs. 7 lakhs? ( 7 ) THE facts are not in dispute that the petitioner is a Public Limited Company incorporated under the provisions of the companies Act and it was registered as a dealer in the year 1990 with the respondent, registering authority. At the time of registration, the petitioner-Company estimated its turnover at Rs. 25 crores and accordingly the petitioner was asked to furnish security for a sum of Rs. 3,000. 00 which was furnished. Subsequently according to the respondent-registering authority, the petitioner s turnover increased from year to year. At the time of registration, the petitioner-Company estimated its turnover at Rs. 25 crores and accordingly the petitioner was asked to furnish security for a sum of Rs. 3,000. 00 which was furnished. Subsequently according to the respondent-registering authority, the petitioner s turnover increased from year to year. As there was increase in the tax liability for every year, the additional security was required under the provisions of Section 12 of the Act. Therefore, the respondent issued show- cause notice dated 02-06-1995. Though the petitioner filed objections, the said objections were overruled and the respondent passed the impugned order directing the petitioner to deposit security of rs. 7 lakhs. ( 8 ) IN order to appreciate the rival contentions, it is proper to refer to the relevant provisions of the Act and the Rules. "section 12 Registration of Dealers; (1) Every dealer (other than casual trader) whose total turnover in any year is not less than Rs. 50,000. 00 shall and any other dealer may get himself registered under this Act. (7) Where it appears necessary to the authority to whom an application is made under sub-section (6) so to do for the proper realisation of the tax and other dues payable under this Act, or for the proper custody and use of the forms referred to in this Act, the rules made and the notifications issued thereunder, he may 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 be specified in the order such security as may be specified for all or any of the aforesaid purposes. (8 ). . . (9 ). . . (8 ). . . (9 ). . . (10) Where it appears necessary to the authority granting a certificate of registration under this section so to do for the proper realisation of tax and other dues payable under this Act or for the proper custody and use of the forms referred to in sub-section (7) 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, to whom the certificate of registration 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 already furnished any security in pursuance of an order under this sub-section or sub-sec. (7) such additional security, as may be specified in the order for all or any of the aforesaid purposes. (11) No dealer shall be required to furnish any security under sub-sec. (7) or any security or additional security under sub-section (10) unless he has been given an opportunity of being heard and the amount of such security or additional security that may be required to be furnished shall not exceed the amount equal to tax payable under this Act, in accordance with the estimate of such authority, on the turnover of such dealer for the year in which such security or as the case may be, additional security is required to be furnished. Sub-Rule (15) of Rule 28. Where the registering authority is of the opinion that a dealer who has been registered should furnish security or additional security for the proper payment of any tax and other dues payable under this act and/or for the proper custody and use of the forms referred to in the Act, the rules made and the notifications issued thereunder, the said authority may direct him in writing to furnish, within such time as may be specified by such authority, security or additional security not exceeding an amount equal to tax payable under the act for a year as estimated by him after giving the dealer an opportunity of being heard. " ( 9 ) A perusal of the above Rules clearly shows that under the Scheme of the Act a dealer is under an obligation to make a deposit of the probable tax payable as a security at the time of registration. " ( 9 ) A perusal of the above Rules clearly shows that under the Scheme of the Act a dealer is under an obligation to make a deposit of the probable tax payable as a security at the time of registration. Thereafter under sub-section (10) the registering authority is given the discretion to call upon the registered dealer wherever it is necessary for registering authority to direct the dealer to furnish additional security to be furnished in pursuance of the orders passed by him and such order has to be passed after giving an opportunity as contemplated under sub-section (11) of the said Section 12 of the Act. Sub-rule 15 of the rule 28 is also to the same effect. As far as the powers of the registering authority seeking additional security is concerned, it is very clear from the above referred provisions that the registering authority is well within his powers in directing any registered dealer to furnish security at the time of registration as well as additional security thereafter. In the present case in exercise of the above powers, the respondent passed the impugned order. The question then is whether the discretion was exercised by the Respondent properly? The grievance of the petitioner is that the registering authority has not exercised his discretion properly. According to the petitioner, there is no liability at present, as the Petitioner had the benefit of deferment of the tax payable for a period of ten years to the extent of more than Rs. 25 crores. When there is no immediate liability, there was no need to call upon the petitioner to furnish any additional security. The learned counsel also relied upon two circular instructions issued by the Commissioner of commercial Taxes. The Circular Ref. No. A-1 (3)/1761/93, dated 4-2-1994 was issued by the Commissioner of Commercial taxes in pursuance of the representation made by the Federation of A. P. Chambers of commerce and Industry. As per this circular, the registering authorities were directed not to insist on the security deposit required under sub-section (7) of Section 12 of the APGST Act, read with Rule 28 (8) of the APGST Rules in respect of the companies registered under the Companies act, 1956 and also the dealers dealing in non-sensitive commodities. There was another Circular issued by the commissioner in CCT s Ref. A 1 (3)/1101/ 97-1, dated 21-07-1997. There was another Circular issued by the commissioner in CCT s Ref. A 1 (3)/1101/ 97-1, dated 21-07-1997. In this Circular, the commissioner had referred to his earlier circular dated 04-02-1994 and reiterated that the registration of all limited companies shall be completed without requiring of any security deposit. In the light of the above circular instructions, the learned Counsel contended that the registering authority has exceeded his jurisdiction in acting in contravention of the circulars, which are binding on him. Therefore, the impugned order is liable to be quashed. Apart from the above Circulars , in fact, there is no present liability as far as the tax payment is concerned. Under the scheme of incentives, the petitioner was given the eligibility for deferment of sales-tax payment for a period ten years in an extent of more than Rs. 25 crores. When once there is no tax liability during the year and immediately thereafter, there is absolutely no justification in directing the petitioner to furnish security, which is intended for the purpose of prompt payment of taxes. The learned Special government Pleader contended that the liability did not cease but the same was only postponed. Even accepting that, there is no immediate liability as far as the petitioner is concerned to pay the taxes during the year in which the impugned order was passed. When there is no immediate liability to pay the sales-tax, there is absolutely no justification for the registering authority in passing the impugned order seeking the petitioner to furnish additional sequrity deposit. In any case the said direction of the registering authority is contrary to the circulars issued by the Commissioner of commercial Taxes, which are binding on him. Even on that ground also the impugned order is liable to be quashed. ( 10 ) UNDER the above circumstances, the impugned proceedings are quashed and the writ petition is allowed. No costs.