08.06.2023: Registration Can Only Be Cancelled In Terms Of Conditions Prescribed Under Section 29(2) of the GST Act – Allahabad High Court

The Hon’ble High Court of Allahabad vide its order dated 20.03.2023 in the matter of M/s Shyam Sunder Sita Ram Traders Vs. State Of U.P. and 2 Others in Writ Tax No. – 991 of 2021, held that the registration of the assessee can only be cancelled in terms of Conditions prescribed in Section 29(2) of the GST Act.  Further, it was held that the cancellation of registration on the ground of being a bogus firm is not maintainable.

The Petitioner filed the writ petition before the Hon’ble High Court challenging the order dated 17.05.2021 passed by Assistant Commissioner, Commercial Tax, Bareilly, whereby the application filed for revocation of cancellation of registration has been rejected, as well as the order dated 14.09.2021 passed by the Additional Commissioner, Commercial Tax in Appeal No. APL1/057/2021, whereby the appeal has been dismissed.

Facts of the Case: –

  • That the petitioner is a registered Proprietorship firm and is doing the business in accordance with the Act and Rules. That On 15.12.2020, the petitioner changed its business address and, in this regard, the petitioner moved an amendment application, which was approved by the department on 09.02.2021.
  • That on 03.01.2021, a survey was conducted by the department at the earlier place of business and it was found that the firm is not existing/ running from the registered place.
  • Thereafter, a show cause notice was issued on 11.02.2021 alleging that the registration is liable to be cancelled on the basis of information received from STF that the firm is not existing/running at the registered place.
  • Pursuant to which, registration of the petitioner was cancelled vide order dated 31.03.2021 in absence of reply to show cause notice. It  was cancelled on the ground that as per the information received, the firm was indulged in availing fake ITC credit from bogus firm.
  • It was recorded in the order that the reply given by the petitioner was not satisfactory as at the time of survey, no business activity was found at the given address and the amendment as contended was not given before the survey and was an after-thought.
  • The petitioner for revocation of cancellation of registration, moved an application under Section 30 of the GST Act, which was rejected by an order dated 17.05.2021 without issuing any show cause notice before taking any decision on the application. It was mentioned in the order that despite notice dated 22.04.2021, no reply has been submitted.
  • Aggrieved by the order dated 17.05.2021, the petitioner preferred an appeal which was dismissed mainly on the ground that ‘in terms of the information received from various sources, ITC reversal orders were passed and nothing was found with regard to the said firm at the time of survey.’

Petitioner’s Submissions: –

  • Referring to Section 29(2) of the GST Act, it was submitted that the cancellation of the registration can be resorted to only when the conditions specified in sub-section 2 of Section 29 of the GST Act are attracted.
  • It was submitted that none of the clauses as prescribed in Section 29(2) states that non-availing ITC credit, can be a ground for cancellation. Further, the only allegation against the petitioner in the show cause notice was ‘nothing was found in the premise in question.’
  • To support its contention, reliance was placed on the judgment of this Court in DRS Wood Products Lucknow vs State of U.P. and others – Writ – C No. – 21692 of 2021 decided on08.2022 & on Apparent Marketing Private Limited vs State of U.P. and others – Writ Tax No. 348 of 2021 decided on 05.03.2022.
  • Lastly, it was argued that the respondents on the one hand, the firm is not existent whereas on the other hand, steps are being taken for recovery of the ITC allegedly wrongly taken under Section 74 of the CGST Act and both of them cannot go simultaneously.

On the Other hand, it was submitted on the behalf of the respondents that at the time of survey, nothing was found in the firm in question and the approval relied upon by the petitioner was subsequent to the survey, and the same is after thought.

Held: –

  • The Hon’ble Court after considering the submissions made, facts of the case and taking note of the relevant provisions & judgments referred, found that from the perusal of the order passed in appeal as well as the order cancelling the registration, it is apparent that the respondents have committed error while deciding the issue on the ground that several firms were availing wrong ITC credit and were essentially bogus firms.
  • It was found by the Hon’ble Court that this Court in the matter of Apparent Marketing Private Limited has already dealt with the said issue and has recorded that once registration is granted, the same could be cancelled only in terms of the conditions prescribed under Section 29(2) and allegedly being a bogus firm is not a ground enumerated under Section 29(2).
  • The Hon’ble Court therefore, following the said judgment and considering the fact that the respondents themselves have initiated proceedings against the firm under Section 74, found that the order rejecting the application for revocation was a wrong exercise of power by the department. Further, the appellate order is equally bad, inasmuch as, no such ground was mentioned before passing the order of cancellation and, thus the impugned orders 17.05.2021 and 14.09.2021 are set aside.

The Hon’ble Court with the above findings, allowed the writ petition with the liberty to the respondents to conclude the proceedings, if any initiated under Section 74 of the Act as per stand taken in the counter affidavit.

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