JUDGMENT M. Katju, J.
1. This writ petition and connected/similar writ petitions are being disposed of by a common judgment.
2. Heard Shri Bharatji Agarwal, learned Senior Advocate and Sri Rakesh Ranjan Agarwal, Advocate for the petitioner and learned Standing Counsel.
3. The petitioner has challenged the impugned circular dated June 26, 1999 issued by the Commissioner, Trade Tax, U.P., annexure-4 to the writ petition by which the cash security for issuing form XXXI under U.P. Trade Tax Rules, 1948 for import of stone ballast has been increased from Rs. 180 to Rs. 530 per form.
4. The petitioner supplies stone ballast to the Railways in accordance with the Railways specification. Copy of the relevant extract of the contract dated October 25, 1999 is annexure 1 to the writ petition. Under the contract, the rate of supply of ballast, transportation charges, loading and unloading charge, stacking charges, etc., are separately stipulated. Under the U.P. Trade Tax Act stone ballast is liable to pay trade tax at 7.5 per cent under notification dated November 23, 1998. The Railway is a Central Government Department and is hence authorised under the U.P. Trade Tax Act under Section 3-G to issue form III-D to its supplier on the purchase of material, and on the jssue of form III-D the rate of tax is 5 per cent.
5. The petitioner is purchasing stone ballast from the State of Haryana and Rajasthan. It is purchasing 300 cubic feet stone ballast for Rs. 1,500 approximately including central sales. For the import of stone ballast into U.P. the petitioner requires form XXXI as envisaged by Section 28-A of the U.P. Trade Tax Act.
Section 8-C(3-A) entitles the Commissioner, Trade Tax to issue directions for issue of form XXXI to the dealers after taking cash security. Section 8-C(3-A) states :
"Notwithstanding anything contained in Sub-section (2) or subsection (3), the Commissioner of sales tax may, in respect of any goods notified by the State Government in this behalf, by a general order in writing, direct that a cash security of such amount as may be specified in such order shall be required to be furnished by a dealer or person requiring any of the forms prescribed under this Act."
6. Under the aforesaid provision the Commissioner, Trade Tax had issued a circular dated March 27, 1991 for issue of form XXXI to the dealers of stone ballast after taking Rs. 180 as advance security per form applicable to 300 cubic feet. True copy of the circular is annexure 2 to the writ petition.
7. The petitioner is aggrieved by the subsequent circular dated June 26, 1999 by which the cash security for stone ballast has been increased from Rs. 180 to Rs. 530 per form vide annexure 4 to the writ petition for import of 300 cubic feet stone ballast from outside the State. It is alleged that the fixation of cash security at Rs. 530 per form is wholly arbitrary and has no reasonable nexus with the actual tax liability under the U.P. Trade Tax Act.
8. In paragraph 14 of the petition it is alleged that the rate of ballast is Rs. 215 per cubic metre. At this rate, the value of 300 cubic feet comes to Rs. 1,826.42 taking it to a round figure at Rs. 1,850. The tax at the rate of 7.5 per cent comes to Rs. 138.75. It is stated that one cubic metre is equal to 35.31 cubic feet. The petitioner is getting form III-D from the Railway and the rate of tax is 5 per cent. On that basis the tax on Rs. 1,850 comes to Rs. 95.50. If no form III-D is received the rate of tax would be 7.5 per cent and the tax would be Rs. 138.75.
9. It is alleged in paragraph 17 of the writ petition that the tax liability would not exceed Rs. 180. Hence, the fixation of cash security at Rs. 530 per form is wholly arbitrary.
10. Learned counsel for the petitioner has submitted that cash security is demanded to secure the interest of the revenue for convenient realisation of the tax, and hence the amount fixed as the cash security should have a reasonable nexus with the amount of tax payable. He has submitted that the fixation of Rs. 530 as cash security per form for the import of 300 cubic feet of stone ballast is wholly arbitrary and unreasonable and without any nexus to the tax liability. He has further stated that freight should not have been taken into consideration for fixation of the cash security. He has submitted that fixation of the cash security at such a high figure is wholly arbitrary since it blocks a huge amount of the money of the dealers unnecessarily, and deprives them of their capital.
11. A counter-affidavit has been filed and we have perused the same. In paragraph 4 of the same reference has been made to several decisions of this Court in which judicial notice has been taken of the fact that there is a large scale of evasion of trade tax (earlier known as sales tax) and extensive malpractice regarding import of certain commodities. The validity of the circulars of the Commissioner, Trade Tax has been upheld vide annexure CA-1 to annexure CA-12.
12. We have carefully perused the aforesaid decisions which have been annexed to the counter-affidavit. In paragraph 11 of the counter-affidavit it has been stated that while determining the tax payable after such import the sale value of better quality stone ballast has been taken into consideration. In paragraph 25 of the counter-affidavit it is stated that the value of cash security under Section 8-C(3-A) is determined on the basis of best quality of goods and also the average freight incurred thereon plus reasonable margin of profits. If in a given case the cash security is found excessive the same may be refunded or adjusted on making the final assessment.
13. The validity of Section 8-C(3-A) has been upheld by this Court in Saurabh and Brothers, Sidharthnagar v. State of U.P. 1993 UPTC 833 and it has not been challenged before us. What learned counsel for the petitioner has contended before us is that the cash security should be determined on the average quality of the goods and not the best quality of goods.
14. In our opinion "average quality of goods" is a vague expression and will only lead to all kinds of confusion and unnecessary litigation. Hence, we are not inclined to direct that the cash security should be fixed on the basis of average quality of stone ballast.
15. However, we are certainly of the opinion that the fixation of the cash security on the basis of the price of the highest quality of goods is arbitrary and hence violative of Article 14 of the Constitution. In Maneka Gandhi v. Union of India AIR 1978 SC 597 the Supreme Court held that arbitrariness violates Article 14 of the Constitution. After that landmark decision of the seven Judge-Bench of the Supreme Court it is settled that the test of reasonability pervades the entire Constitution, and no authority can act arbitrarily. Hence although the Commissioner has power under Section 8-C(3-A) to direct that cash security should be given for issuing form XXXI, yet the Commissioner cannot fix the cash security at an arbitrary amount. Learned counsel for the petitioner is correct when he says that the cash security must have reasonable nexus to the tax which may be payable on the sale of the stone ballast. In J.P. Stone Company v. State of U.P. 1993 UPTC 1371 a division Bench of this Court observed : "The power conferred on the Commissioner under Section 8-C(3-A) must be exercised in a reasonable manner and the security amount which is fixed in exercise of that power must have a nexus with the object for which security is demanded". The court also observed : "The amount of security which may be required to be paid by a dealer should be reasonable and commensurate with the tax that may be realised from him and should not be excessive."
16. It may be mentioned that Section 8-C(3) mentions ".......the amount of such security or additional security shall also in no case exceed the tax payable, in accordance with the estimate of the assessing authority..........".
17. In our opinion, Section 8-C(3) and Section 8-C(3-A) should be read together, and not in isolation. Hence it follows that though it is not expressly mentioned in the latter provision, as it is in the former, that the cash security which the Commissioner can fix should not exceed the tax payable, it should have a reasonable nexus with the same, as held in the case of J.P. Stone Co. 1993 UPTC 1371. In the present case we find no such nexus.
18. No doubt if a higher amount of cash security is demanded, which is higher than the trade tax, the same is liable to be refunded after the final assessment, but we cannot be impervious to the fact that once the trade tax department gets some money from the dealers which it is not entitled to it takes a long time to get a refund, and this blocks the capital of a businessman. In business it is essential that money should not be blocked for a long time and it must be kept in circulation.
19. To take a hypothetical case, suppose the trade tax payable on a low quality product is Rs. 100 per unit, "while" that payable on the similar product of very high quality is Rs. 500 per unit (the difference will be due to the difference in price), then surely it is unreasonable and arbitrary to ask a dealer who is selling low quality product to pay Rs. 500 for form XXXI when the tax payable by him would only be Rs. 100.
20. In our opinion the appropriate course of action therefore, would be for the Commissioner to issue circulars under Section 8-C(3-A) of the U.P. Trade Tax Act, 1948 on rational and reasonable principles. For example, the Commissioner can in his circular grade the various varieties of stone ballast which are known in the market in various grades, e.g., Grade I for the best quality, Grade II for the next best, Grade III for the next, etc., according to the price of these various grades in the market, and the cash security for form XXXI should be demanded accordingly. It is inappropriate and arbitrary to demand cash security only on the basis of the highest grade or quality of stone ballast, as has been done in the present case.
21. We make it clear that we are not directing the Commissioner to issue his circular in a particular manner. This Court is not an expert in such matters and hence such matters should be left to the Commissioner to decide after consulting experts. The Commissioner while issuing the circular under Section 8-C(3-A) can adopt any reasonable and rational method so that the cash security is demanded of an amount which is reasonable having nexus to the amount of tax which would be payable. In this way the interest of the State and that of the dealers would be balanced.
22. In paragraph 13 of the counter-affidavit the price of the best quality stone ballast is mentioned as Rs. 660 per cubic metre, but no material has been stated in the counter-affidavit as to on what basis this figure has been reached. The Railway purchases the stone ballast at Rs. 247 per cubic metre. It may also be mentioned that the prices of commodities keep on changing from time to time arid hence this factor should also be taken into consideration by the Commissioner when issuing the circular (or circulars) as suggested by us.
23. Moreover, in Vinod Coal Syndicate v. Commissioner of Sales Tax, UP., Lucknow [1989] 73 STC 317 ; 1988 UPTC 218 it was held by the Supreme Court that freight charged separately is not part of the turnover. The definition of turnover in Section 2(i), explanation II, Clause (i) excludes the cost of freight if separately charged. Annexure 1 to the writ petition clearly shows that freight has been separately charged. Hence we direct the Commissioner that when he issues the circular under Section 8-C(3-A) he should fix the cash security on a basis which excludes the freight wherever separately charged.
24. In the circumstances the writ petition is allowed. The impugned circular dated June 26, 1999 is quashed. The Commissioner, Trade Tax, U.P., is directed to re-fix the rate of cash security for issuance of form XXXI on stone ballast in the light of the observations made above.