(1) Where a dealer who is not required under section 23 to be registered but desires to be registered voluntarily under clause (b) of sub-section (1) of section 24 makes an application for registration under rule 5 or makes an application for registration electronically under rule 5A, the appropriate registering authority shall demand, before assigning a registration number under rule 6 or under rule 6B, as the case may be, a sum not less than rupees ten thousand and not exceeding rupees twenty-five thousand as security for securing proper and timely payment of tax or any other sum payable by the dealer under the Act, or for securing proper and timely furnishing of returns by such dealer:

Provided that the security paid by a dealer under the sub-rule (1) shall be kept held for a period of two years from the date of issue of certificate of registration in favour of the dealer.

(2) The security required to be furnished under sub-rule (1), shall be in the form of cash.

(3) Where a certificate of registration is issued under rule 6 or under rule 6B to a dealer, referred to in sub-rule (1), such dealer may adjust the amount of security paid by him under sub-rule (1) that remains after forfeiture, if any, of any amount under rule 196, against the amount of tax, interest and late fee payable by such dealer according to return or successive returns which is or are due immediately after the expiry of two years from the date of issue of the certificate of registration to that dealer.

(4) Where a dealer referred to in sub-rule (2), makes an application after two years from the date of issue of certificate of registration to him for refund of the amount, either in full or in part, of security paid by him under sub-rule (1) on the ground that there shall be no such amount of tax, interest or late fee payable by him according to the return or successive returns which are due immediately from which the amount of such security can be adjusted and if the appropriate assessing authority is satisfied that the claim of refund is admissible, he shall refund, by Refund Payment Order (Cash) or by cheque, the amount of security paid by the dealer as remains after forfeiture, if any, of an amount under rule 196.