The Hon’ble High Court of Allahabad vide its order dated 05.08.2022 in the matter of DRS Wood Products Lucknow Thru. Its Partner Arun Jindal Vs. State of U.P. Thru. Prin. Secy. Tax and Registration LKO. And Ors. in Writ – C No. 21692 of 2021, set aside the orders being against the provisions of Section 29 and Section 30 of the Act, and also finding the orders against the principles of adjudication by quasi-judicial authorities and shows lack of judicial training by the quasi-judicial authorities under the GST Act.

The petitioner filed the writ petition before the High Court challenging the appellate order dated 18.01.2021, whereby the appeal filed by the petitioner against the order dated 15.07.2020, rejecting the application for revocation of the cancellation of registration, was dismissed.

Facts: –

• That the petitioner is a partnership firm carrying on a business of manufacture and trading of Veener and was granted registration number under CGST Act, 2017, however the petitioner prior to GST, was registered under the UPVAT Act and the CST Act.
• The assessments of the petitioner were carried out with respect to establishment of the petitioner under the VAT and CST Act for the assessment year 2017-18 and it was claimed by the petitioner that it is carrying on the business from the registered place of business, as registered with the GST Department, and are paying taxes.
• That a show cause notice dated 08.05.2022 was issued to the petitioner alleging that on the basis of information received your registration is liable to be cancelled for the reason ‘Taxpayer found Non-functioning/Not Existing at the Principal Place of Business’.
• Later, an order dated 22.05.2020 was passed cancelling the registration of the petitioner, wherein it was stated that ‘Whereas no reply to notice to show cause has been submitted. The effective date of cancellation of your registration is 22/05/2020.’
• That the petitioner came to know about the cancellation of registration while trying to upload the E-way Bill, thus, the petitioner moved an application for revocation of order dated 08.05.2020 under Section 30 of the U.P. GST Act, 2017, specifically stating that the fact of cancellation of registration came to the knowledge of the petitioner in June, 2020 and the application has been moved within the time prescribed under Section 30.
• Thereafter, considering the revocation application of the petitioner, again a show cause notice dated 13.06.2020 stating the reason for rejection of the revocation application that ‘firm was properly issued show cause notice vide ref number ZA090520010436Y, no satisfactory explanation was received within prescribed time’
• That in response to the said show cause notice, the petitioner moved an application and sought extension of 15 days’ time to file the reply, due to marriage of daughter of the petitioner. However, without considering the application of the petitioner, an order dated 15.07.2020 was passed rejecting the revocation application of the petitioner on the same reasons as recorded in the show cause notice.
• That aggrieved of the said order, the petitioner filed an appeal under Section 107 before the appellate authority, submitting that the firm of the petitioner is operational on the premises in question, and also written submissions were filed during the pendency of appeal in which all relevant documents were furnished before the Appellate Authority.
• However, the Appellate authority dismissed the appeal recording that ‘an inspection was carried out on 20.05.2020 on the premises of the petitioner, the committee comprising of three persons did not find any activity pertaining to the firm over the property in question. The partners of the firm did not cooperate and there was no commercial activity on the premises.  It was also recorded in the inspection report that there was a mention that over the property bearing Gata No.56, BKT, Lucknow, the said firm M/s Star Enterprises had taken the property on lease from one Shri Arun Jindal (Partner of the Firm).  It was also recorded that even earlier in a search carried out on 15.05.2018 by SIB, it has come to the knowledge that on the place in question, no activity of manufacturing or selling was being carried out and no commercial activities were found and based upon the said report, therefore, the appellate authority formed an opinion that the firm was got registered with a view to help in evasion of tax’.

Petitioner’s Submissions: –

• That a Show cause notice dated 28.05.2021 was placed on record on the behalf of the petitioner, wherein on the basis of the inspection carried out, it was found that the goods lying in the premises of the petitioner were stored contrary to the rules and thus, liable to be confiscated. It was also submitted that the goods of the petitioner were seized for carrying the goods on the basis of expired e-way bill on 20.06.2020.
• The Show cause notice is bereft of any facts as it is totally silent with respect to the allegations made or reply to be made against by the petitioner.
• The show cause notice, which initially led to cancellation of the registration of the petitioner was never served on the petitioner.
• That if a revocation application under Section 30 has been filed, it is an incumbent upon the assessing authority, to pass an order considering the larger mandated of Section 30, which has not been done in the present case.
• That the Appellate Authority has dismissed the appeal on the irrelevant grounds as the inquiry of 2018 & inspection report dated 20.03.2020, were neither the basis of show cause noticer nor were supplied to the petitioner and was ever confronted with it.
• That on the one hand, it has alleged that there are no commercial activities on the registered and on the other hand, the authorities have alleged shortage of finished goods and seizure of goods on account of expired E-Way Bill.
• That referring to the law stated in provisions of Section 29 of the Act, it was submitted that none of the grounds as contained in Section 29, were alleged or established against the petitioner.
• That reliance was placed on the judgment of Hon'ble Supreme Court in the case of Commissioner of Central Excise, Bangalore v. Brindavan Beverages (P) Ltd. and Ors. – (2007) 5 SCC 338 and 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 show-cause notice have been explained in detail by the Hon'ble Supreme Court.
• Lastly, relying on the judgments of this court in Apparent Marketing Private Limited v. State of U.P. & Ors. – Writ Tax No. 348 of 2021, M/s Ansari Construction v. Additional Commissioner Central Goods and Services Tax (Appeals) and Ors. – Writ Tax No. – 626 of 2020, M/s S.S. Traders v. State of U.P. & Ors – Writ Tax No. 651 of 2021, wherein the similar issued was dealt with by the Hon’ble Court, it was prayed to allow the writ petition.

Respondents’ Submissions: –

• It was submitted on the behalf of the respondents that an investigation was carried out on 20.03.2020 by a committee at the registered premises of the petitioner and neither any business activity nor any stock or employee was found at that place, moreover, another firm M/s Star Enterprises was found operation at the registered premises.
• It was argued that the partner of the firm did not cooperate in the investigation and no books of account/entries were produced before the investigating Officer. The petitioner did not even file a reply to the show cause notice.
• That on the date of investigation no goods were found and accordingly the registration was cancelled, however, it appears that after the cancellation of registration, some goods might have been placed by the petitioner at the registered premises.

Held: –

• The Hon’ble Court after considering the submissions, facts of the case and law applicable found after perusal of show cause notice that at the first instance, clearly shows the opaqueness in the allegations levelled against the petitioner, which were only for the reason that ‘tax payer found non-functioning/non-existing at the principal place of business’, without relying on any report or inquiry, enabling the authorities to form an opinion that the tax-payer was found non-functioning. The show cause notice does not indicate that when the inspection was carried out.
• Further, it was found that a vague show cause notice without any allegation or proposed evidence against the petitioner, is clearly in violation of principle of administrative justice.
• That cancellation of registration has serious consequences affecting the fundamental rights of carrying on the business, and that too in such a casual manner in which the show cause notice has been issued, clearly shows the need for the State to give the quasi-judicial adjudicatory function to persons who have judicially trained mind.
• Moreover, the order cancelling the registration on the ground no reply was given is equally lacking in terms of quasi-judicial function as the same does not contain any reasoning whatsoever.
• That the show cause notice issued after the filing of revocation application by the petitioner, also shows lack of judicial training on the part of quasi-judicial adjudicatory authorities under the GST Act as it merely states that no satisfactory explanation was received within the prescribe time.
• It was also found that the order rejecting the revocation application is highly arbitrary as it records no reason as to why the request for revocation of cancellation of registration could not be accepted and discloses non-application of mind. 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.
• That the petitioner in the submissions made in the appeal, had extensively stated and produced evidence to substantiate that the commercial activity was being carried out by the petitioner, however, the same was not even considered by the Appellate authority while deciding the appeal. The Appellate authority went further and relied on a report of 2018, which was neither confronted to the petitioner nor was ever part of the record based upon which the orders have been passed. This case clearly highlights the manner in which the quasi-judicial authorities and the appellate authorities are working under the GST Act.
• The Hon’ble Court, with the above, held that the authorities while passing the impugned order have miserably failed to act in the light of the spirit of the GST Act. Thus, the impugned orders are contrary to the mandate of Section 29 and Section 30 as well as the principle of adjudication by the quasi-judicial authorities.

The Hon’ble Court with the above findings allowed the writ petition by setting aside the impugned orders with the directions to renew the registration of the petitioner immediately. A cost of Rs. 50,000/- was imposed on the State, to be paid to the petitioner for the harassment caused to it by the actions of the respondent authorities.