M/S. Nand Lal Raj Kishan Vs.
Commissioner of Sales Tax, Delhi & ANR  INSC 97 (14 March 1961)
AIYYAR, T.L. VENKATARAMA DAS, S.K.
CITATION: 1962 AIR 562 1961 SCR Supl. (3) 707
CITATOR INFO :
D 1966 SC1686 (9) RF 1981 SC 991 (10) RF 1987
Sales Tax Act--Security demanded for payment
of tax--Validity of--Bengal Finance (Sales Tax) (Delhi Amendment) Act, 1956
(Act 17 of 1956), s. 8A.
The validity of s. 8A of the Bengal Finance
(Sales Tax (Delhi Amendment) Act, 956, enabling the Commissioner of Sales Tax
to demand security from dealers for payment of tax was challenged by the
petitioners on the grounds that (i) the section gave undefined, unlimited and
unrestricted power to the commissioner, (ii) no limit was fixed for the amount
of security, and (iii) the section did not provide for any enquiry before the
demand of security, nor did it provide for an opportunity of being heard being
given to the person against whom the order was proposed to be passed.
Held, that s. 8A did not give any unlimited
or unrestricted power to the Commissioner of Sales Tax. The power of the
Commissioner of Sales Tax was subject to the condition that it (1) 9
284 must appear lo him to be necessary to
demand security for the proper realisation of the tax. The power to levy a tax
includes the power to impose reasonable safeguards for collecting it and
demanding security for the proper payment of tax is neither in arbitrary nor an
Durga prasad Khaita v. Commercial Tax
Officer,  8 S.T.C. 105, approved.
Dwarka Prasad Laxmi Narain v. The State of Uttar Pradesh,  S.C.R. 803, distinguished.
Virendra v. The State of Punjab,  S.C.R.
308 and Kishan Chand Arora v. The Commissioner of police, Calcutta,  3
S.C.R. 135, referred to.
The power of the Commissioner as regards the
amount of security was not unlimited because the order of the Commissioner was
subject to revision and scrutiny by the Chief Commissioner.
In the instant case an opportunity having
been give to the petitioners for submitting their defence and an explanation
having been actually submitted by the petitioners there was no violation of the
principles of natural justice. A second opportunity for oral hearing was not
ORIGINAL JURISDICTION: Petition No. 77 of
Petition Under Art. 32 of the Constitution of
India for enforcement of Fundamental Rights.
Bhavani Lal and P. C. Agarwala, for the petitioners.
C.K. Daphtary, Solicitor-General of India, B. Ganapathy Iyer and T. M. Sen, for the respondents.
1961. March 14. The Judgment of the Court was
delivered by S.K. DAS, J.-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 195455 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 285 registered dealers whose activities had gone underground."
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
ail 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." 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 been
made by them to some 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 286 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 busines s 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 Tax) Act, 1941 as in force in Delhi." Accordingly, on November 27,
1957, he made an order directing the petitioners to furnish security either in
cash or by two personal sureties for a Bum of Rs. 5,000 by December 15, 1957.
Against the aforesaid order of the Commissioner the petitioners went in
revision to the Chief Commissioner of Delhi. The Chief Commissioner heard
Counsel for the petitioners and by his order dated April 15, 1958, dismissed
the application in revision. The petitioners then filed a writ petition in the
Punjab High Court which was summarily dismissed.
On the present writ petition the petitioners
have impugned the order of the Commissioner dated November 27, 1957 on the
ground that s. 8A of the Act under which the order was passed is
constitutionally invalid. They have challenged the validity of s. 8A on three
grounds: firstly, it is contended that s. 8A 287 gives an undefined, unlimited
and unrestricted power to the Commissioner of Sales Tax; secondly, it is
contended that no limit is fixed with regard to the amount of security which
may be demanded under the section; and thirdly, it is contended that the
section imposes an unreasonable restriction on the right of the petitioners to
carry on their business inasmuch as it does not provide for any enquiry before
the demand for security is made, nor does it provide for an opportunity being
given to the person against whom the order is proposed to be passed of being
heard before such order is passed.
We do not think that these grounds have any
Section 8A does not give unlimited or
unrestricted power. to the Commissioner of Sales Tax. It states inter alia that
the Commissioner may impose for reasons to be recorded in writing as a
condition of the issue of registration Certificate to a dealer, or of the
continuance of such a certificate, 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 the Act: this
power of the Commissioner is, however, subject to the condition that it must
"appear to him to be necessary so to do for the proper realisation of the
tax levied under the Act". In other words, the Commissioner may exercise
his power of demanding security only when he considers it necessary to do so
for the proper realisation of the tax levied under the Act. By no stretch of
argument can it be suggested that the power is an unlimited or an unrestricted
power. Learned Counsel for the petitioners has referred us to the decision of
this Court in Messrs. Duarka Prasad Laxmi Narain v. The State of Uttar Pradesh
(1). That was a case in which under cl. 4(3) of the Uttar Pradesh Coal Control
Order, 1953, the licensing authority was, given absolute power to grant or
refuse to grant, renew or refuse to renew suspend, revoke, cancel or modify any
licence under the Order. It was pointed out by this Court that there was
nothing to regulate or guide the discretion (1) S.C.R. 803.
288 of the licensing officer and the
provision impugned therein committed to the unrestrained will of a single
individual the power to grant, withhold or cancel licences in any way he chose.
That is not the position here. Section 8A itself gives the necessary guidance
when it says that the Commissioner may exercise his power only when it is
necessary to do so for the proper realisation of the tax levied under the Act.
In a later decision of this Court in Virendra v. The State of Punjab (1) it was
pointed out that in Dwarka Prasad's case (1) the impugned provision prescribed
no principles and gave no guidance in the matter of the exercise of the power,
but in a case where the exercise of the power is conditioned by the statute
itself, the ratio in Dwarka Prasad case (2) does not apply. The same view was
reiterated in Kishan Chand Arora v. The Commissioner of Police, Calcutta (3).
Section 7(4a)(i) of the Bengal Finance (Sales
Tax) Act, 1941, gives the power to the Commissioner to demand reasonable
security for the proper payment of tax payable under the Act. This section came
in for consideration of the Calcutta High Court in Durga Prasad Khaitan v.
Commercial Tax Officer (4) and it was held
that the section did not confer unfettered or arbitrary power to the
Commissioner. We approve of the view expressed therein that the power to levy a
tax includes the power to impose reasonable safeguards in collecting it, and
demanding security for the proper payment of the tax payable under the Act is
neither an arbitrary nor an unreasonable restriction.
As to the contention that there is no limit
to the amount which can be demanded as security, it is only necessary to point
out that the amount that can be demanded as security must have relation to the
payment of the tax for which the person concerned may be or become liable under
the Act. The amount must depend on the nature of the business, its turnover and
the amount of tax payable thereon by the person concerned. Furthermore, the
order of the Commissioner under s. 8A is subject to revision by the Chief (1)
 S.C.R. 308, 321 (3)  3 S.C.R. 135.
(2) S.C.R. 803.
(4) 8 S.T.C. 105.
289 Commissioner and if an arbitrary or
unreasonable amount is demanded, the order of the Commissioner will be subject to
scrutiny by the Chief Commissioner. We do not think that even in the matter of
the amount of security, the power of the Commissioner is unlimited or
As to the last contention that the section
does not provide for any enquiry or any opportunity being given to the person
against whom the order is proposed to be passed of being heard, this point was
taken before the Chief Commissioner and the Chief Commissioner rightly pointed
out that the principles of natural justice would apply and the person to whose
prejudice the order is to be made must be given an opportunity to say whatever
he has to say in his defence.
In the present case such an opportunity was
given to the petitioners. A notice was issued to the petitioners by the Sales
Tax Officer. The petitioners appeared before the Sales Tax Officer, submitted a
written explanation and also made oral submissions. The Commissioner had before
him the report of the Sales Tax Officer, the explanation submitted by the
petitioners in reply to the notice issued, and also the statements made by
It has been contended on behalf of the
petitioners that no oral hearing was given to the petitioners by the
Commissioner of Sales Tax and learned Counsel for the petitioners has made a
grievance that the order of the Commissioner was passed without hearing the
petitioners. It may be pointed out here that when the petitioners were heard by
the Chief Commissioner in support of their application in revision, they made
no grievance on the score that the Commissioner of Sales Tax had not given them
a second opportunity of a fresh oral hearing. We do not think that a second
opportunity like the one suggested on behalf of the petitioners was either
necessary or obligatory. The petitioners had an opportunity of saying what they
had to say against the demand of security. They raised their objections which
were considered by the Commissioner who, in spite of those objections, came to
the conclusion that it was necessary to ask the petitioners 37 290 to furnish
security for the proper realisation of the tax levied or leviable under the
Act. We agree with the Chief Commissioner that there was no violation of the
principles of natural justice in the present case.
For the reasons given above we hold that
there is no merit in the petition which is accordingly dismissed with costs.