11.02.2023 : Registration Ordered To Be Restored When The Show Cause Notice Issued Was Found Vague And Issued In The Wrong GST Form – Kerala High Court

The Hon’ble High Court of Kerala vide its order dated 22.12.2022 in the matter of Dominic David Vs. The State Tax Officer, Commercial Tax Office, Works Contract, Alappuzha, The Joint Commissioner (Appeals) II Kerala, The Commissioner of State Taxes, Kerala in WP (C) No. 29807 of 2022, set aside and quashed the order cancelling the registration passed on the basis of the show cause notice, which was found to be issued in the wrong GST Form i.e., GST REG – 31 (suspension of registration) instead of GST REG – 17 (cancellation of registration).  It was found that the notice is absolutely vague and the reasons for proposing cancellation of registration is not clearly specified with any clarity.

The Petitioner filed the writ petition before the Hon’ble High Court challenging its cancellation of registration under the provisions of CGST/SGST Acts.

Facts of the Case: –

  • That the petitioner was issued a show cause notice calling upon the petitioner to show cause as to why the registration granted to it shall not be cancelled for failure to file returns for a continuous period of six months.
  • The petitioner in response to the aforesaid notice, did not file any reply and consequently, an order dated 05.2022 was issued under Section 29 of the CGST/SGST Acts, cancelling the registration of the petitioner.
  • The petitioner also against the cancellation, did not file any application for revocation as provided under Section 30 of the CGST/SGST Acts, but instead filed an appeal under Section 107 before the Appellate Authority on 08.2022, which was within time.
  • The said appeal was rejected by the Appellate Authority stating that it has no power to interfere with an order issued under Section 29 of the CGST/SGST Acts and since the petitioner had not filed any application for revocation within the time permitted under section 30 of the CGST / SGST Acts, the appellate authority has no option but to reject the appeal.

Petitioner’s Submissions: –

  • It was submitted on the behalf of the Petitioner that the finding of the appellate authority that it has no power to interfere with order passed under Section 29 and the only remedy available would be the filing of revocation application against it, is contrary to law. To Support its contention, reliance was placed on Commissioner of Income tax vs. Kanpur Coral Syndicate [(1964)53 ITR 225(SC)] and it was contended that ‘the power of the appellate authority is co-terminus with that of the original authority.’
  • It was submitted that option of filing revocation application under Section 30 is directory not mandatory as is indicated by the use of the word ‘may' in Section 30 instead of the word ‘shall'. To strengthen its stand, reliance was placed on the judgment of Hon’ble Supreme Court in Dhampur Sugal Mills vs. State of U.P [(2007) 8 SCC 338] that of this Court in Vijaya Mohini Mills vs. State of Kerala [(1989)75 STC 63]
  • Further, reference was made to the judgments of the Madras High Court in W.P. (C) No. 20035/22 dated 08.2022 and to the judgment in Suguna Cut Piece Centre Vs. Appellate Dy. Commissioner 2022 (99) GSTR 386, and it was that no useful purpose will be served by keeping an assessee out of the scheme of the scheme of the GST laws on account of cancellation of registration. It was also submitted that every tax law must be viewed as one facilitating business and not as an oppressive system which prohibits or does not encourage the conduct of business.
  • Lastly, it was submitted that the order of cancellation is bad in law, as it does not contain the document identification number, which has been mandated in Circular issued by the Government of India and also the view taken by the Supreme Court in P (C) No.320/2022 (judgment dated 18.07.2022).

On the other hand, it was contended on the behalf of the respondents that there is no dispute that the petitioner failed to file returns for the specified period and therefore there is no illegality whatsoever in the order of cancellation.  It is submitted that the petitioner did not apply for revocation within the time specified in Section 30 and also did not file any appeal within the time.

Held: –

  • The Hon’ble Court after considering the submissions made and facts of the case, was of the view this petition deserves to be allowed. The show cause notice in the instant case has been issued in Form GST REG – 31, which is the form for notice regarding suspension of registration.
  • Further, the Hon’ble Court after perusal of the show cause notice found that the notice is absolutely vague and the reason for proposing cancellation are not clearly specified with any clarity.
  • Thereafter, the Hon’ble Court took note of its own judgment in WP (C) No. 28783 of 2022, wherein it was held that ‘Therefore, the action taken by the officer by initiating proceedings in form GST REG-31 of the CGST Rules and completing the proceedings for cancellation of registration by issuing Ext.P1 order is clearly without jurisdiction. If the Officer wishes to initiate proceedings for cancellation of registration, he must issue a notice as specified in Rule 21 of the CGST Rules and in form GST REG-17 and not in form GST REG-31’; ‘Apart from the fact that Ext.P.5 is issued in the wrong form, it is also bad for the complete absence of any detail. It is clearly vague and therefore the law laid down in the judgments of the Gujarat High Court in Aggarwal Dyeing and Printing (supra) and Sing Traders (supra) clearly apply. I am in respectful agreement with the views expressed in those decisions. The judgments of the Karnataka High Court and the Madhya Pradesh High Court relied on by the learned Senior Government Pleader appear to have been handed down in completely different fact situations. I am also not inclined to follow the law laid down by the Court in those judgments.

The Hon’ble Court with the above observations & discussions, quashed the impugned order and allowed the writ petition.  The quashing of the impugned order of cancellation will not have the effect of absolving the petitioner of any fiscal liability. The petitioner will be required to file all defaulted returns together with tax, late fee, interest, penalty etc., within a period of two weeks from the date on which the registration of the petitioner is restored in compliance with this judgment.

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