Vss Constructions vs Deputy State Tax Officer

Heard Mr. K. Chandrasekhar Reddy, learned counsel for the petitioner and Mr. K. Bhaskar Reddy, learned Assistant Government Pleader for Commercial Taxes appearing for the respondents. Perused the entire record.

The challenge in the present writ petition is to the Order for Cancellation of Registration passed by respondent No.1, dated 02.08.2023, whereby, the GST registration of the petitioner stands cancelled with effect from 01.07.2017.

The impugned order reflects that the cancellation of registration was done on account of the registration having been obtained in contravention of Section 29(2)(e) alleging fraud, wilful misstatement or suppression of facts.

Learned counsel for the petitioner has contended that though a show cause notice was issued on 26.05.2023 before the impugned order of cancellation of registration being passed and the contents of the show cause notice also was as vague as it could be in as much as no specific details of the alleged fraud, willful misstatement or any suppression of facts made by the petitioner not being specified. That in the absence of which, the petitioner could not give proper effective reply to the respondents and thereby, the impugned order has been passed. Therefore, the impugned order is per se bad in law. Learned counsel further submits that a plain reading of the show cause notice as also the impugned order of cancellation of registration would clearly indicate that the same has been issued in a mechanical manner without appreciation of any facts, grounds and reasons and also without proper application of mind. The contents of the show cause notice as also the contents of the impugned order are the same, wherein, except for reproducing the provision of law that is envisaged in Section 29(2)(e), there does not appear to be any other facts and grounds available which lead to the cancellation of registration.

This Court, recently, in W.P.No.1596 of 2024 decided on 23.01.2024 had allowed the writ petition setting aside the cancellation of registration under similar circumstances and the matter was remitted back for the respondent authorities to pass an order afresh. For ready reference, paragraphs Nos.7, 8 and 9 are reproduced herein under:

“7. Dealing with an issue of cancellation of GST registration, this very High Court in Writ Petition No.25671 of 2023 decided on 03.10.2023 relying upon the decision of the High Court of Delhi in the case of Kritika Agarwal v. Union of India and others W.P.(C) 9424/2023 and CM Nos.36000/2023 &36001/2023 held as under:

“in the case of Kritika Agarwal v. Union of India and others, wherein the High Court in the case of cancellation of GST registration had observed that “the measure of cancellation of GST must be exercised with circumspection and only in cases, where it is necessary”. This in otherwise means that the intention of the Hon’ble Delhi High Court by allowing the writ petition was that the authorities concern should take a more pragmatic approach so far as the case where GST registration is concerned and cancellation should not be restored in a mechanical manner or as a matter of routine. Similar decision has also been passed by Division Bench of this Court in W.P.No.36174 of 2022 vide order dated 20.09.2021, where the Division Bench had set-aside the order of the appellate authority and the matter had been remanded back for fresh consideration on its own merits.”

Recently, there was yet another decision of the High Court of Bombay under similar circumstances in the case of Nirakar Ramchandra Pradhan v. Union of India and Others 2023 SCC OnLine Bom 2382 whereby a show cause notice issued for cancellation of registration and the subsequent cancellation of GST registration was subjected to challenge, wherein, the Division Bench of the High Court of Bombay in paragraph Nos.7, 8, 9 and 11 held as under:

“7. At the outset, we may observe that there appears to be much substance in the submissions as urged on behalf of the petitioner, that the show cause notice dated 27th July 2022 issued to the petitioner itself was defective, inasmuch as, there was no material whatsoever referred in the show cause notice as to why the petitioner was being labeled of having obtained registration by means of fraud, willful misstatement or suppression of facts. In our opinion, if the designated officer was to proceed against the petitioner on such material, details in that regard ought to have been furnished to the petitioner so as to invite the petitioner’s reply on such serious allegation of fraud being committed by the petitioner. The petitioner certainly was kept in total darkness on the allegations which were sought to be raised against him so as to meet a case being put up by the department and which was in fact was not informed to the petitioner and/or concealed from the petitioner. In these circumstances, there was no question of the petitioner making any effective reply to the show cause notice dated 27th July 2022. Further such basic and inherent defect in the show cause notice was also brought to the notice of the department and was informed by the petitioner to the designated officer, however, it was of no avail as no steps were taken to remove such defect/illegality, in the show cause notice. The impugned order dated 11th November 2022 cancelling the registration of the petitioner further compounds the illegality as the impugned order also does not furnish any reason whatsoever in cancelling the registration of the petitioner.

Thus, in our clear opinion, the impugned order is required to be held to be illegal not only on the ground of the same being in breach of the principles of natural justice but also of the same being in breach of the principles of natural justice but also on the ground of total non application of mind, as the same is bereft of any reasons whatsoever which the law would recognize to justify cancellation of the registration of the petitioner. The impugned order is being passed mechanically and without application of mind is clearly seen as a bare reading of the impugned order.

For the aforesaid reasons, the impugned order is required to be held to be illegal and a total nullity. It is well settled principles of law that cancellation of registration certainly meets the assessee with a civil consequence. The petitioner’s registration could not have been cancelled without any reason, as no reasons were neither set out in the show cause notice nor set out in the impugned order. The show cause notice and the impugned order suffered from an incurable defect which compels us to exercise the discretionary jurisdiction under Article 226 of the Constitution of India to quash and set aside the show cause notice as also the impugned order based on such illegal show cause notice.

According to the respondents, there was a modus operandi on the part of the petitioner to generate and claim fake ITC. If what is stated on behalf of the revenue is to be believed to be correct, in such event, the designated officer should have been more careful and could not have been so careless in issuing such defective show cause notice. The impugned action in issuing such show cause notice and passing of the impugned order thereon, has in fact proved counter-productive to the interest of revenue, if the department is correct in its case as put up in the reply affidavit for the first time. The concerned Commissionerate needs to take a serious view of such approach of the concerned Officers who are not following the law in issuing appropriate show cause notices more particularly when the issues are serious. Such deviation by the concerned officers from deviating the following the well settled norms and procedures, in fact would benefit an assessee if there is material that he was committed illegalities.”

Likewise, there is yet another decision from the High Court of Madras in the case of Tvl. Sastha Engineering Works, Rep by its Partner v. State Tax Officer (Circle) and Another 2022 SCC OnLine Mad 8452 wherein the High Court of Madras in paragraph Nos.4 to 7 has held as under:

“4. It is submitted by the learned counsel for the Petitioner that in identical circumstances, this Court, in the case of Tvl.Suguna Cutpiece Vs The Appellate Deputy Commissioner (ST) (GST) and others (W.P.Nos. 25048, 25877, 12738 of 2021 etc., batch), dated 31.01.2022, issued the following directions:

“229. In the light of the above discussion, these Writ Petitions are allowed subject to the following conditions:

i. The petitioners are directed to file their returns for the period prior to the cancellation of registration, if such returns have not been already filed, together with tax defaulted which has not been paid prior to cancellation along with interest for such belated payment of tax and fine and fee fixed for belated filing of returns for the defaulted period under the provisions of the Act, within a period of forty five (45) days from the date of receipt of a copy of this order, if it has not been already paid.

ii. It is made clear that such payment of Tax, Interest, fine / fee and etc. shall not be allowed to be made or adjusted from and out of any Input Tax Credit which may be lying unutilized or unclaimed in the hands of these petitioners.

iii. If any Input Tax Credit has remained utilized, it shall not be utilised until it is scrutinized and approved by an appropriate or a competent officer of the Department.

iv. Only such approved Input Tax Credit shall be allowed for being utilized thereafter for discharging future tax liability under the Act and Rule.

v. The petitioners shall also pay GST and file the returns for the period subsequent to the cancellation of the registration by declaring the correct value of supplies and payment of GST shall also be in cash.

vi. If any Input Tax Credit was earned, it shall be allowed to be utilised only after scrutinising and approving by the respondents or any other competent authority.

vii. The respondents may also impose such restrictions / limitation on petitioners as may be warranted to ensure that there is no undue passing of Input Tax Credit pending such exercise and to ensure that there is no violation or an attempt to do bill trading by taking advantage of this order. viii. On payment of tax, penalty and uploading of returns, the registration shall stand revived forthwith.

viii. On payment of tax, penalty and uploading of returns, the registration shall stand revived forthwith.

ix. The respondents shall take suitable steps by instructing GST Network, New Delhi to make suitable changes in the architecture of the GST Web portal to allow these petitioners to file their returns and to pay the tax/penalty/fine.

x. The above exercise shall be carried out by the respondents within a period of thirty (30) days from the date of receipt of a copy of this order.

xi. No cost.

xii. Consequently, connected Miscellaneous Petitions are closed.”

The same has been consistently thereafter followed by this Court in various decisions, viz.,

a) M/s.Maaruthi Foundations Private Limited Vs Deputy Commissioner (ST) (FAC), reported in 2022 (5) TMI 405;

b) J. Jayakrishnan Vs The Additional Chief Secretary/Commissioner of Commercial Taxes, Chennai reported in 2022 (7) TMI 1226;

c) TVL.Jeyalakshmi Store represented by its Proprietor, Sivanu Pandian Vs Commissioner of Commercial Taxes reported in 2022 (7) TMI 1275 ;

d) M/s.Pearl and Company Vs The Commissioner of Commercial Taxes in W.P(MD)No.19127 of 2022.

In view of the fact that this Court has been consistently following the directions issued in the case of Tvl.Suguna Cutpiece Vs Appellate Deputy

Commissioner (ST) (GST) and others (W.P.Nos.25048, 25877, 12738 of 2021 etc., batch) and the Revenue/Department has also accepted the said view as evident from the fact that no appeal has been filed in any of the matters, this Court intends to follow the above order of this Court.

In view of the same, this Court feels that the benefit extended by this Court in the earlier orders referred to above in Suguna Cutpiece Centre's case cited supra, may be extended to the Petitioner”.

Taking into consideration the aforesaid judicial pronouncements and also considering the factual aspects as is evident in the instant case, we are of the considered opinion that the show cause notice as also the impugned order lacks information and details as to the alleged fraud, willful misstatement or suppression of facts, if any, committed by the petitioner. Therefore, it would be difficult to sustain the said impugned order.

For the aforesaid reason, the impugned order stands set aside/quashed. However, the respondents are at liberty to issue fresh show cause notice to the petitioner if at all if they want to give the details of the allegation of charges that are found against the petitioner. To which, the petitioner is expected to give a prompt reply and thereafter, the Authorities shall take appropriate decision, strictly, in accordance with law.

However, it is made clear that if at all if the Department intends to issue show cause notice, they may do it within a period of fifteen (15) days, from the date of receipt of a copy of this order. If at all if the Department issues show cause notice in the said circumstances, the petitioner would not be permitted to avail the ITC which remains unutilized till the finalization of the show cause proceedings. It is further made clear that in the event if the show cause notice is not issued within the stipulated period of fifteen (15) days from the date of receipt of a copy of this order, the order of restraining the petitioner to avail the unutilized ITC would automatically stand waived.

In view thereof, the Writ Petition stands allowed.

Consequently, miscellaneous petitions pending, if any, shall stand closed. No order as to costs.