IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE K.M.JOSEPH TUESDAY, THE 22ND JULY 2008 / 31ST ASHADHA 1930 WP(C).No. 18659 of 2008(I) --------------------------------- PETITIONER ----------------- T.H.ABDUL KAREEM, PROPRIETOR,JASMINE TIMBER COMPANY, PALAKKATTUTHAZHAM,MUDICAL P.O., PERUMBAVOOR. BY ADV. SRI.M.K.SUBHAKARAN SRI.P.P.VARUGHESE SRI.M.T.MURALEEDHARAN RESPONDENTS: ------------------------ 1. COMMERCIAL TAX OFFICER, IST CIRCLE,PERUMBAVOOR, ERNAKULAM DISTRICT. 2. INSPECTING ASSISTANT COMMISSIONER, COMMERCIAL TAXES,MUVATTUPUZHA. 3. COMMISSIONER OF COMMERCIAL TAXES, PUBLIC OFFICE BUILDINGS, THIRUVANANTHAPURAM. BY GOVERNMENT PLEADER SHRI C. K. GOVINDAN. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 22/07/2008, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX IN W.P.(C). NO.18659 OF 2008 U PETITIONER'S EXHIBITS: EXT.P1TRUE COPY OF THE CERTIFICATE OF REGISTRATION OF PETITIONER'S FIRM. EXT.P2TRUE COPY OF THE LEDGER ACCOUNT MAINTAINED BY THE PETITIONER WITH GOVERNMENT TIMBER DEPOT. EXT.P3TRUE COPY OF THE CIRCULAR NO.10/2006 ISSUED BY THE THIRD RESPONDENT. EXT.P4TRUE COPY OF THE NOTICE NO.321512 96226/08-09 DATED 7.6.2008 ISSUED BY THE FIRST RESPONDENT. RESPONDENTS' EXHIBITS: NIL // TRUE COPY// PS TO JUDGE K. M. JOSEPH, J. -------------------------------------- W.P.C. NO. 18659 OF 2008 -------------------------------------- Dated this the 22nd July, 2008 JUDGMENT Petitioner has approached this Court challenging Ext.P4. He seeks a direction to grant CST Registration. Briefly put, the case of the petitioner is as follows: Petitioner is a dealer who is registered under the Kerala Value Added Tax Act. Ext.P1 is the Certificate of Registration. There is a Ledger Account maintained by the petitioner with the Government Timber Depots. Ext.P3 is a Circular relied on by the petitioner. According to petitioner, petitioner is engaged in purchase and sale of timber from Government Timber Depots in Kerala. According to petitioner, he came to know that it is not profitable to effect local sale of the timber purchased from Government Timber Depots due to low market price. Therefore, the petitioner decided to make inter-State sale of logs, beams, rafters, sizes etc. purchased from Government Timber Depots and for this purpose he made an application in Form A WPC. 18659/08 U 2 prescribed under Rule 3 of the Central Sales Tax (Registration and Turnover) Rules, 1957. It is stated that under sub-section 3 of Section 16 of the KVAT Act, 2003 read with Section 9(2) of the CST Act, the application should have been disposed of within thirty days. According to petitioner, he has already deposited Rs.15,000/= as per Circular No.10/06 and he has already furnished security deposit of Rs.15,000/= as NSC and notarized bond for Rs.10 Lakhs which is sufficient enough for getting CST Registration. But, as per Ext.P4, he is called upon to furnish registered security bond for Rs.20 Lakhs with two solvent sureties for the purpose of CST Registration. It is stated that the petitioner has to incur Rs.2.5 Lakhs as stamp duty and the capital of business is blocked. It is the case of the petitioner that Circular No.10/06 says that the registering authority shall not insist on particular type of security and it is the discretion of the applicant. WPC. 18659/08 U 3 2. A Counter Affidavit is filed on behalf of respondents 1 and 2 wherein, it is, inter alia, stated that the first respondent conducted a local enquiry and found that the petitioner's business is housed at Door No.VP II/264, Mudickal and the building is owned by two persons by name Smt. M.M. Rehmath and Smt. V.K. Saffiya. The business place is situated in the second floor of the multi-storyed building. It is stated that there is no facility. It is also stated that on further enquiry it is found that the petitioner was a coolie in various Saw Mills and he has no immovable property of his own. It is further stated that after enquiry the second respondent recommended to the registration under KVAT Act only for purchasing timber logs from Government Timber Depot and local sales only. It is stated that after few months, the petitioner filed another application for registration under the Central Sales Tax Act along with security deposit of Rs.10,000/= for effecting purchase, sales and manufacturing of logs, sizes, planks, packing cases, slab sizes, WPC. 18659/08 U 4 reepers, battons, teak poles, etc. The said application was forwarded to the second respondent and after enquiry, the second respondent gave certain directions to be followed on issuing CST registration as stipulated in Circular No.10/06. It is stated that in the instant case, the enquiry was completed and notice was issued to the petitioner to produce security bond for Rs.20 Lakhs with two solvent sureties which was not complied with by the petitioner. It is also stated that the only investment of the petitioner in Rs.1,50,000/= which is insufficient for the declared dealings of the petitioner. It is also stated that the petitioner has not proved the additional source of income and he is not competent to do the manufacturing and production shown in the application. The second respondent, therefore, reached at the conclusion that the petitioner after obtaining registration under the KVAT Act, turned a benami of manufacturer of packing cases, veneers, timber logs and sizes in and around Perumbavoor and that if registration is granted, it will lead to massive evasion of CST, Excise Duty and KVAT Act taxes. WPC. 18659/08 U 5 3. Learned counsel for petitioner submits that the petitioner is prepared to give security bond with two solvent sureties for the amount in question and that he may not be called upon to produce registered bond as demanded in Ext.P4 and he reiterates the argument that in the light of Ext.P3 Circular, it is not open to the authority to insist upon any particular form of security. Form of security is provided under Rule 19(2) of the KVAT Rules. Clauses (d) and (e) being relevant are extracted hereunder: "19. Security to be furnished by certain dealers:- (2) The security or additional security may be furnished by the dealer in any of the following ways, namely:- (d) executing a security bond for such amount in Form No.6 with two sureties, solvent enough for the amount assured and acceptable to the said authority; or (e) by a bond prescribed under rule 85 for the amount fixed by the said authority in Form No.6A, duly registered, along with title, WPC. 18659/08 U 6 possession and valuation certificates obtained from the Tahsildar concerned and the value of property shall not be lower than the amount, shown in the bond." 4. Going by the Circular, it is open to the applicant to choose the form of security. Apparently, Ext.P4 is relatable to Clause (e). Clause (e) refers to a duly registered bond. But, Clause (d) speaks about executing a security bond in Form VI with two solvent sureties sufficient enough for the amount assured and acceptable to the said authority. I would think that in the light of the Circular and the submission of the petitioner that he will produce a security bond for such amount in Form VI with two solvent sureties within the meaning of Clause (d) as aforesaid, Ext.P4 should be quashed and the petitioner should be afforded an opportunity to furnish such a bond and a decision should be taken on the same within a stipulated time. Accordingly, Ext.P4 is quashed. If the petitioner provides security for the amount of Rs.20 Lakhs within the meaning of WPC. 18659/08 U 7 Clause (d), the first respondent will consider the same and take a decision in the matter in accordance with law within a period of three weeks from the date on which such bond is furnished. The Writ Petition is disposed of as above. Sd/= K. M. JOSEPH, JUDGE kbk.