Allahabad High Court Imposes Cost of Rs. 50000 For Arbitrary Cancellation of GST Registration
Judgment of Allahabad High Court:- The arbitrary exercise of power canceling the registration in the manner in which it has been done has not only adversely affected the petitioner, but has also adversely affected the revenues that could have flown to the coffers of GST in case the petitioner was permitted to carry out the commercial activities. The actions are clearly not in consonance with the ease of doing business, which is being promoted at all levels. For the manner in which the petitioner has been harassed since 20.05.2020, the State Government is liable to pay a cost of Rs.50,000/- to the petitioner. The said cost of Rs.50,000/- shall be paid to the petitioner within a period of two months, failing which the petitioner shall be entitled to file a contempt petition.
Facts of the case: - The petitioner is a partnership firm carrying on business of manufacture and trading of Veneer and was granted the registration number under CGST Act 2017. The petitioner claims to be carrying out the business from the registered place of business as registered with the GST Authorities and are paying taxes. A show-cause notice dated 08.05.2020 was issued to the petitioner under Rule 22(1) of the GST Rules whereby it was alleged that on the basis of the information which has come to the notice of the Assistant Commissioner it appears that your registration is liable to be cancelled for the following reasons: - “Taxpayer found Non-functioning/Not Existing at the Principal Place of Business".
Subsequently, thereto, an order came to passed on 22.05.2020 (Annexure - 12) wherein the following has been recorded: "This has reference to your reply dated 17/05/2020 in response to the notice to show cause dated 08/05/2020 Whereas no reply to notice to show cause has been submitted. The effective date of cancellation of your registration is 22/05/2020."
The petitioner while trying to upload his E-Way Bill came to know that the registration of the petitioner - firm has been cancelled on 08.05.2020, as such, the petitioner moved an application for revocation of the order dated 08.05.2020 in terms of the provisions contained in Section 30 of the U.P. GST Act, 2017. The said application specifically stated that the fact with regard to cancellation came to the knowledge of the petitioner in the month of June, 2020. In any case, the said application was within the time prescribed under Section 30 of the Act. In response to the said application filed by the petitioner, a showcase notice was again issued on 13.06.2020 stating that the application for revocation is liable to be rejected.
In response to the said show-cause notice, the petitioner moved an application seeking 15 days extension of time to give a reply in view of the marriage of the daughter of the petitioner scheduled on 24.06.2020. Without considering the said application, an order came to be passed on 15.07.2020 rejecting the application for revocation of cancellation of the registration on the reasons as recorded in the show cause notice that no satisfactory explanation was received within the prescribed time.
Aggrieved against the said order, an appeal was filed under Section 107 of the Act before the Appellate Authority constituted under the Act. The learned counsel for the petitioner argues that the show-cause notice is bereft of any facts on the basis of which the petitioner was called upon to file a reply. He argues that the show-cause notice is meant to put the assessee on guard and to give a reply in respect of alleged charges against him, whereas in the present case the show-cause notice is totally silent with regard to the averments contained or reply to be made against the petitioner.
He further argues that the show-cause notice which led to the initial cancellation of the registration was never served upon the petitioner and in any case, if the petitioner had applied for revocation of cancellation of registration in terms of the mandate of Section 30 of the Act, it was incumbent upon the Assessing Authority to have passed an order considering the larger mandate of Section 30 of the Act, which has not been done. He further argues that the Appellate Authority has erred in dismissing the appeal on the grounds, which are totally extraneous to the proceedings as the inquiry of the year 2018 or inspection report dated 20.03.2020 were neither the basis of the show-cause notice nor were ever supplied to the petitioner nor was the petitioner ever confronted to give reply and response to the said inquiry. He further argued that in any event, on the one hand the allegations against the petitioner are that no commercial activities were being carried out at the place of registration on the other hand the CGST as well as the UP GST Authorities have alleged shortage of finished goods and seizure of the goods on account of expired E-Way bill respectively. He draws my attention to Section 29 of the Act, which provides for cancellation of registration and on the grounds on which the same can be done.
The Learned counsel for the petitioner argues that none of the grounds as contained in Section 29 of the Act were alleged or established against the petitioner. He has drawn my attention to the judgment of the Hon'ble Supreme Court in the case of Oryx Fisheries Private Limited v. Union of India and Ors. - (2010) 13 SCC 427 wherein the requirements and reasoning of a showcause notice have been explained in detail by the Hon'ble Supreme Court. He next relies upon the judgment of the Hon'ble Supreme Court in the case of Commissioner of Central Excise, Bangalore v. Brindavan Beverages (P) Ltd. and Ors. - (2007) 5 SCC 338 wherein the Hon'ble Supreme court has noticed the manner in which the show-cause notice was passed. He also relies upon three judgments of this Court i.e Writ Tax No.348 of 2021 (Apparent Marketing Private Limited v. State of U.P. & Ors.) decided on 05.03.2022, Writ Tax No.626 of 2020 (M/s Ansari Construction v. Additional Commissioner Central Goods and Services Tax (Appeals) and Ors.) decided on 24.11.2020 & Writ Tax No.651 of 2021 (M/s S.S. Traders v. State of U.P. & Ors.) decided on 02.11.2021, wherein almost identical issues were considered by the High Court.
The department contended that on the date of investigation, no goods were found and, accordingly, the registration was cancelled. It appeared that after the cancellation of the registration, some goods might have been placed by the petitioner at the place
Judgement of High court
(a) In the light of the submissions made at the Bar, this Court is to consider whether the action taken against the petitioner in respect of cancellation satisfies the test of the requirement of Section 29 of the Act or not?
(b) A perusal of the show-cause notice at the first instance, clearly depicts the opaqueness of the allegations levelled against the petitioner, which were only to the ground that ‘tax payer found non-functioning/non-existing at the principal place of business’.
(c) The said show-cause notice did not propose to rely upon any report or any inquiry conducted to form the opinion and on what basis was the allegation levelled that the tax payer was found non-functioning; it does not indicate as to when the inspection was carried. A vague show-cause notice without any allegation or proposed evidence against the petitioner, clearly is violative of principles of administrative justice. Cancellation of registration is a serious consequence affecting the fundamental rights of carrying business and in a casual manner in which the show-cause notice has been issued clearly demonstrates the need for the State to give the quasi-adjudicatory function to persons who have judicially trained mind, which on the face of it absent in the present case. The order of cancellation of the registration on the ground that no reply was given is equally lacking in terms of a quasi-judicial fervor as the same does not contain any reasoning whatsoever. The show-cause notice issued after the petitioner had filed an application for revoking the cancellation of registration also smacks of lack of judicial training by the quasi-adjudicatory authorities under the GST Act as it merely shows that no satisfactory explanation was received within the prescribed time.
(d) The order rejecting the application for revocation of cancellation of registration takes the matter to the height of arbitrariness inasmuch as no reasons are recorded as to why the request for revocation of cancellation of registration could not be accepted and discloses absence of application of mind with regard to the averments contained in the application filed by the petitioner for revocation of cancellation of registration. It is also not clear as to why the request of the petitioner to adjourn the matter because of the marriage of his daughter was not even considered prior to passing of the rejection order dated 15.07.2020.
(e) This case clearly highlights the manner in which the quasi-judicial authorities and the appellate authorities are working under the GST Act. The manner of disposal as is present in the present case can neither be appreciated nor accepted.
(f) I have no hesitation in recording that the said authorities while passing the order impugned have miserably failed to act in the light of the spirit of the GST Act. The stand of the Central Government before this Court is equally not appreciable as on the one hand they are alleging that excess goods were found for which the petitioner is liable to pay duty and on the other hand there is justification to the order passed and impugned in the present petition
(g) Finding the orders contrary to the mandate of Section 29 and 30 of the Act as well as the principles of adjudication by the quasi-judicial authorities, the orders impugned dated 18.01.2021 (Annexure - 19) and 15.07.2020 (Annexure - 16) cannot be sustained and are set aside and the registration of the petitioner shall be renewed forthwith.
(h) In the present case, the arbitrary exercise of power cancelling the registration in the manner in which it has been done has not only adversely affected the petitioner, but has also adversely affected the revenues that could have flown to the coffers of GST in case the petitioner was permitted to carry out the commercial activities. The actions are clearly not in consonance with the ease of doing business, which is being promoted at all levels. For the manner in which the petitioner has been harassed since 20.05.2020, the State Government is liable to pay a cost of Rs.50,000/- to the petitioner. The said cost of Rs.50,000/- shall be paid to the petitioner within a period of two months, failing with the petitioner shall be entitled to file a contempt petition