The Hon’ble High Court of Allahabad vide its order dated 05 March 2022 in the matter of Apparent Marketing Private Limited Vs. State of U.P. and others in Writ Tax No. 348 of 2021 held that the show cause issued without mentioning the specific charge is vague and defective. Further the orders proceeded to be passed on the basis of such defective show cause notice without affording an opportunity of hearing to the assessee are also vague and against the principles of natural justice, thus not sustainable.
The assessee preferred the Writ assailing the order dated 12.02.2021 passed by the Appellate Authority in Appeal No. GST/994/2022, order dated 21.08.2020 and the order dated 13.08.2020 passed by the Assistant Commissioner, Ghaziabad.
- The assessee is trading in Pan Masala and Tobacco and was granted registration under the UP GST Act, 2017 w.e.f. 17.08.2017, the assessee is duly depositing tax and filing its returns on time.
- On 12.2017 a survey was conducted at the business premise of the assessee and the premises were found closed. Thereafter another survey was conducted on 16.12.2018 and no adverse material was discovered during the survey proceedings.
- That besides the above two surveys the assessee was also cooperating with the department in certain proceedings against a third party in which it was summoned under Section 70.
- The assessee received a notice under Section 29 through eportal of revenue department on 07.2020 cancelling its registration stating the only reason i.e. ‘Your firm was found bogus in inspection of SIB. Information received from headquarter’., and the assessee was required to file the reply within seven days and to appear before the authority on 24.07.2020.
- The assessee neither filed a reply to the notice and nor appeared before the authority and no order was passed by the authority on the day of hearing i.e., 07.2020.
- Later on, the authority without issuing a further notice to the assessee passed an ex-parte order dated 08.2020 and cancelled the registration of the assessee without stating any further reason. The order states i.e.,’ No reply about SCN that your firm was found bogus in inspection of SIB. Information received from headquarter.’
- The assessee against the aforesaid order dated 08.2020 filed an application for revocation under Section 30. In response, the assessee received a notice dated 21.08.2020 requiring it to furnish a reply within seven days and to appear on the appointed date or time, however no date and time was mentioned on the notice.
- The assessee duly uploaded its reply on the same day i.e., 08.2020 and on the same day without providing any personal hearing, the respondent authority passed the order rejecting the application for revocation of cancellation of registration stating the same reason and the reply filed being not found satisfactory.
- That aggrieved of the aforesaid order dated 08.2020, the assessee filed an appeal and the Appellant authority also dismissed the appeal relying on the survey report dated 15.12.2017.
Petitioners Plea: –
- It was submitted on behalf of the petitioner that there is gross violation of the natural justice on more than one count. Firstly, admittedly no reply was filed by the petitioner for the notice dated 07.2020, the order dated 13.08.2020 & order dated 21.08.2020 were passed without providing any personal hearing to the assessee.
- Secondly, neither the show cause notice dated 07.2020 nor the orders dated 13.08.2020 & 21.08.2020 stated any reason permitted by the statute for cancellation of the registration. Moreover, the assesee was never confronted with any adverse material relied upon by the respondent authorities for cancelling the registration, adopting a mechanical exercise.
- Further it was submitted that the registration can be cancelled only if the case of the assessee falls in the five conditions prescribed under Section 29(2) of the Act and being ‘bogus’ is not one of the conditions prescribed.
- The registration of the assessee has been cancelled mentioning it as ‘bogus’ without specifying the exact nature of the charge against the asseseee. The assessee was never confronted with any adverse material for which the registration was cancelled, the reasons stated by the Appellate Authority are patently false however if the asseessee had been given the opportunity to confront the adverse material, it would have filed its reply to state the correct facts.
On the other hand, it was submitted on the behalf of the respondents that there is enough adverse material to substantiate that it was completely a ‘bogus’ firm and not conducted any business. The registration had been taken for creating a trail of false invoices. The asseessee being aware of the correct facts with respect to the survey did not file any reply to the notice, thus the Appellate authority has rightly passed the order.
- The Hon’ble High Court after considering the submissions from the both side and law applicable on the issue, observed that the cancellation of registration has serious consequences and takes away the fundamental right of the citizen, to engage in a lawful business activity.
- The registration granted by the respondent authority would have been given after the due verification of necessary facts and now if it has been cancelled by the respondents, a heavy burden lies on the respondent authority to establish the existence of facts which resulted in cancellation of registration.
- The Hon’ble Court taking note of law stated in Section 29 of the CGST Act (Cancellation of registration) observed that the registration may not be cancelled merely by describing it as ‘bogus’, it should fall in any of the conditions as laid down under Section 29 and those conditions do not exist in the present case.
- That if the authority has cancelled the registration, it ought to have mentioned the provision/condition i.e., either Section 29 (2) (c) or Section 29(2) (d), for violation of which the registration of the assessee has been proposed to be cancelled.
- It is an obligation on the part of the respondent authority to specify the exact charge/reason for which it proposed to cancel the registration and unless it is specified by the authority, the notice itself would be defective. Further if there is no charge in the show cause notice at the initial stage, the authority cannot be allowed to specify/or improve the charge later.
- The respondent authority merely by describing the firm as ‘bogus’ and not specifying the exact charge leveled against the assessee, deprived the assessee of the opportunity of rebutting the same.
- The Hon’ble High Court, as observed above, held that the charge against the assessee in the notice dated 07.2020, in order dated 13.08.2020, and in the notice dated 21.08.2020 are completely vague when the Statute itself provides for issuance of show cause notice with specific grounds.
- Further it was noticed by the Hon’ble Court that the assessing authority did not pass an order on 07.2020 i.e., date of hearing for notice dated 22.07.2020, however chose to pass an order on 13.08.2020 and not on the same day i.e 24.07.2020, and that too without providing any further notice or personal hearing to the assessee when it has the option to do so. It cannot be overlooked that in the revocation of cancellation of registration proceedings, a notice dated 21.08.2020 was issued to asseessee to file the reply within seven days and to appear on the appointed date and time but there was no mention of date and time in the notice and after considering the reply dated 21.08.2020 submitted by the assessee, the respondent authority went on to pass the order on the same day i.e., 21.08.2020 without providing any personal hearing to the assessee.
- The Hon’ble Court, as noticed above, held that the order dated 08.2020 is vague and defective as the there is no discussion about the reply filed by the assesse and no reason as to why the ex-parte order dated 13.08.2020 has not been recalled.
- The Hon’ble Court also observed that the Appellate authority considered the matter on merits however it may have adopted a proper course of setting aside the orders dated08.2020 and 21.08.2020 when there was no legally permissible reason given by the original authority for cancellation of registration and the Appellate Authority would have corrected the error of original authority especially in procedural matter as such mistakes are liable to be repeated affecting number of citizens/assesses.
The Hon’ble Court with the above findings set aside the orders dated 12.02.2021, 21.08.2020 and 13.08.2020 and allowed the writ petition with the liberty to the respondent authority to issue a fresh notice with specified grounds under Section 29(2) of the Act. It was also conveyed to the Ld. Standing Counsel to provide the copy of the order to the Commissioner, State Tax, U.P. Lucknow, so that such cases do not arise in future.