Shifa Leathers vs. The Commisisoner Of

Held

The Court held that the impugned order of cancellation of the petitioner's VAT registration was liable to be quashed. Firstly, it was found that the show cause notice issued did not propose cancellation of registration, meaning the respondent did not issue a show cause notice specifically proposing cancellation. This violated the mandatory procedural requirement of Section 39(15) of the Tamil Nadu Value Added Tax Act, 2006, which mandates an opportunity of being heard before making an order under Section 39(14). Secondly, the Court reiterated the principle that retrospective cancellation of registration is bad in law, as established in State of Maharashtra Vs. Suresh Trading Company (1998) 109 STC 439 and followed by this Court in WP No. 22890 of 2013. The Court quashed the impugned order. While normally the matter would be remitted, the petitioner stated they had not conducted any transactions after the impugned order. The Court allowed the petitioner's relief to the extent of setting aside the retrospective application of the order, leaving it open to the respondent to proceed further if they wished to do so by issuing a proper show cause notice.

Facts

The petitioner, Tvl. Shifa Leathers, represented by its Proprietor, S. Rafeek Raja, filed a writ petition challenging the order dated 06.07.2015 passed by the Assistant Commissioner (CT)-II, Dindigul. This order cancelled the petitioner's VAT registration with effect from 08.01.2014. The cancellation was based on allegations that the petitioner had falsely claimed Input Tax Credit. A show cause notice dated 30.06.2015 was issued, and the petitioner reportedly appeared and offered an explanation. The petitioner sought to quash the impugned order and direct the respondent to reactivate their VAT registration.

Key Issues

1. Whether the cancellation of the petitioner's VAT registration was in compliance with the procedure stipulated in Section 39(14) and (15) of the Tamil Nadu Value Added Tax Act, 2006? 2. Whether the retrospective cancellation of VAT registration is legally permissible? Petitioner's arguments: The petitioner contended that the show cause notice issued did not propose cancellation of registration, and therefore, the respondent failed to issue a proper show cause notice before passing the impugned order. They argued that this violated the mandatory procedure under Section 39(15) of the TNVAT Act, which requires an opportunity of being heard. Furthermore, the petitioner relied on the principle that retrospective cancellation of registration is bad in law, citing the Supreme Court decision in State of Maharashtra Vs. Suresh Trading Company and a High Court decision in WP No. 22890 of 2013. Respondents' arguments: The respondents filed a counter affidavit and argued for sustaining the impugned order, taking the Court through the contents of the counter and typed set of papers.