M/S. M/S. Jai Mahavir Color Lab vs. Superintendent Of Central Tax
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The petitioner's GST registration was cancelled by the respondent without providing reasons or proper notice. The petitioner claims they were not served the show cause notice and did not submit any reply.
Held
The Court held that the cancellation order was passed without application of mind and in violation of principles of natural justice. The impugned order was set aside and treated as a show cause notice for fresh consideration.
Key Issues
Whether the cancellation of GST registration was done arbitrarily and in violation of natural justice principles due to lack of proper notice and reasons.
Sections Cited
CGST Act, 2017, IGST Act 2017
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Cause title — parties, addresses and appearances
passing the impugned order. 6. karned counsel for the Department, however, opposing the petition submits that it appears that there is default on the part of the petitioner so far as furnishing of the returns. That in the event if there is default of payment of returns continuously for a period of more than six months, the proceedings for cancellation of registration is initiated and this appears to be the case where there is default on the part of the petitioner leading to the issuance of the impugned order. Learned counsel further contends that the petitioner also had not made any efforts for making good the default by furnishing the returns and also paying the late fees of penalty that would be applicable with a request for restoration of the registration and in the absence any such efforts, the impugned order would not warrant interference at this juncture. ., J
3 o 7 . Dealing with an issue of cancellation of GST registration, this very High Court in Writ Petition No.25671 of 2023 decided on 03.10.2023 relying upon the decision of the High Court of Deihi in the case of Kritika Agarwal v. Union of India and othersr held as under: tn the case of Krltika Agarwal v. Union of Indla and others, wherein the High Court in the case of cancellation of GST registration had observed that 'the measure of cancellation of GST mstst be exercised u.tith ciranmspection and onlg in cases, uhere it is necessary". This in otherwise means that the intention of the Honble Delhi High Court by allowing the writ petition was that the authorities concern should take a more pragmatic approach so far as the case where GST registration is concerned and cancellation should not be restored in a mechanical manner or as a matter of routine. Similar decision has also been passed by Division Bench of this Court in W.P.No.36174 of 2022 uide order dated 2O.O9.2O21, where the Division Bench had set-aside the order of the appellate authority and the matter had been remanded back for fresh consideration on its own merits."
Recently, there was yet another decision of the High Court of Bombay under similar circumstances in the case of Nirakar Ramchandra Pradhan v. Union of lndia and Others2 whereby a show cause notice issued for cancellation of registration and the subsequent cancellation of GST registration was subjected to challenge, wherein, the Division Bench of the High Court of Bombay in paragraph Nos.7, 8, 9 and 11 held as under: -\.. F- ' w.p.lcl gqzqlzoz3 and cM Nos.36oo0/2o23 &3@O7/m23 2 2023 SCC OnLine 80m 2382
d 4 "
At the outset, we may observe that there appears to be ;;;; J";ce in the submissions as urged on behalf of the oliiuon"., that the show cause notice dated 27h Jrtly 2O22 i"";;J i" the petitioner itself was defective' inasmuch as' ;h;;; *"" no material whatsoever referred in the show cause ;;;;" ;" to why the petitioner was being labeled of having "Ut"r""a registration by meals of fraud, willful misstatement ;;;;;;"3t.n of racls. In our opinion' if the designated offr"".'ir"" to proceed against the petitioner o-t' "Y+ material' aetaits ln thai .egard ought to have been furnished to. the petitioner so as to invite the petitioner's reply on such senous llA",i"" of fraud being committed by the petitioner' The p"iit."". certainly *"J k"pt in total dar$res1 on the illegations which were sought to be raised against him so as to,i""t a case being put up by the department and which .r"" i" fact was nif informed to the petitioner and/or concealed from the petitioner. In these circumstances' there *." .ro question of ihe petitioner making any effective reply to the show cause noticC dated 27's'July 2022 ' Further such L""i" ,tta inherent defect in t].e show cause notice was also Urougtrt to the notice of the department and was informed by tne p-etition.r to the designated oIficer, however, it was of no ^.,.ii ." no steps were taken to remove such defect/ illegality ' in the show cause notice. The impugned order dated I l tt' rutrr"-U". 2022 catcelltrrg the registration of the petitioner ir.th". .o-pounds the illigality as the impugned order a-lso does not furnish any reason whatsoever in cancelling the registration of tl.e Petitioner.
Thus, in our clear opinion, the impugned order is required to be held to be illegal not only on the ground of the same U.i.rg l" breach of th-e principles of natural ju-stice but also of the Jame being in breich of the principles of natu-ral justice but also on th-e ground of total non application- of-mind' as the same is bereit of any reasons whatsoever which tJle law woutd recognize to justifu cancellation of tJre registration of the petitio"ner. The impugned order is - being passed mechanicaly and without application of mind is clearly seen as a bare reading of the impugned order'
For the aforesaid reasons' the impugned order is required io be held to be illegal and a total nullity lt is well settled principles of law that cancellation of registration certainly il""t" tfr" assessee with a civil consequence' The petitioner's registration could not have been cancelled without any reason, as no reasons were neither set out in the show cause notice nor set out in the impugned order' The show cause notice and the impugned order suffered from arr-,.iq'eurable defect which "o-p"1" us to exercise the di5cretionary juri iction under Article 226 of the Constitution of India to iuash and set aside the show cause notice as also the impugned ord.er based on such illegal show cause notice'
ry 5 a 11. According to the respondents, there was a modus operandi on t].e part of the petitioner to generate and cl,aim fake ITC. If what is stat€d on behalf of the revenue is to be believed to be correct, in such event, the desigrrated offrcer should have been more careful and could not have been so careless in issuing such defective show cause notice. The impugrred action in issuing such show cause notice and passing of the impugned order thereon, has in fact proved counter-productive to t}1e interest of revenue, if the department is correct in its case as put up in the reply a-ffrdavit for the frrst time. The concerned Commissionerate needs to take a serious view of such approach of the concemed Oflicers who are not following tl.e law in issuing appropriate show cause notices more particularly when the issues are serious. Such deviation by the concerned officers from deviating the following the well settled norms and procedures, in fact would benel-tt an assessee if there is material that he was committed illegalities." g. Likewise, there is yet another decision from the High Court of Madras in the case of Tvl. Sastha Engineering Works, Rep by its Partner v. State Tax Officer (Circlel and Another3 wherein the High Court of Madras in paragraph Nos.4 to 7 has held as under:
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It is submitted by the learned counsel for the Petitioner 2O2l etc., batch), dated 31.07.2022, issued t-I.e following directions: "229. In the light of the above discussion, these Writ Petitions are allowed subject to the following conditions: i. The petitioners are directed to file their returns for the period prior to the cancellation of registration, if such returns have not been already frled, together with tax defaulted which has not been paid prior to cancellation along with interest for such belated paJ.rnent of tax and fine and fee fixed for belated filing of ieturns for the defaulted period under tlre provisions of the Act, within a period of forty frve (45) days from I 2022 SCC OnLine Mad 8452
6 the date of receipt of a copy of this order, if it has not been already paid. ii. It is made clear that such pa5rment of Tax, Interest, hne / fee and etc. shall not be allowed to be made or adjusted from and out of arry Input Tax Credit which may be iying unutilized or unclaimed in the hands of these peLitioners. iii. If any Input Tax Credit has remained utilized, it shall not be utilised until it is scrulinized arrd approved by an appropriate or a competent officer of the Department. iv. Only such approved Input Tax Credit shall be allowed for being utilized thereafter for discharging future tax liability under the Act and Rule. v. The petitioners shall also pay GST and frle the returns for the period subsequent to the cancellaLion of the registration by declaring the correct va,lue of supplies and payment of GST shall also be in cash. vi. If any Input Tax Credit was earned, it shall be a-llowed to be utilised only after scrutinising and approving by the respondents or any other competent authority. vii. The respondents may also impose such restrictions / limitation on petitioners as may be warranted to ensure that there is no undue passing of Input Tax Credit pending such exercise and to ensure t]lat there is no wiolation or an attempt to do bill trading by taking advantage of this order. viii. On pa5rment of tax, penalty and uploading of returns, the registration shall starrd revived forthwith. viii. On payment of tax, penalty and uploading of returns, tJre registration shall stand revived forthwith. ix. The respondents shall take suitable steps by instructing GST Network, New Delhi to make suitable changes in the architecture of the GST Web portal to allow these petitioners to file their returns arrd to pay the tax/penalty/frne. x. The above exercise shall be carried out by the respondents within a period of thirty (30) days from the date of receipt of a copy of this order. xi. No cost xii. Consequently, are closed." connected $iscellaleous Petitions I
ry 7
The same has been consistently thereafter followed by this Court in various decisions, viz., a) M/ s.Maaruthi Foundations Priuate Limited. Vs Deputy Commissioner (ST) (FAC), reported in 2022 (5) TMI a05; b) J. Jayakrislman ys The AdditionaL Chtq kcretary/ Contmbsioner of Commercial Toxes, Chennai reported in 2O22 (71 TMI 1226; reported in 2022 (7) TMI 1275 ; dl M/ s.Pearl and Compang Vs The Commissioner of and the Revenue/Department has also accepted the said view as evident from ttre fact that no appeal has been iiled in any of the matters, this Court intends to follow the above order of this Court.
In view of the same, this Court feels that the beneht extended by this Court in the earlier orders referred to above in Suguna Cutpiece Centre's case cited supra, may be extended to the Petitioner.
A plain pemsal of the impugned order dated 21.09.2020 and the contents therein coupled with the statement of oath made by the learned counsel for dre petitioner that the show cause dated 2O.O8.2O2O was never served upon the petitioner nor has he submitted any reply to the said show cause notice on 3O.08'2020 as has been contended by the authority, we are also taking note of the fact that the impugned order does not make a reference of the contents of the repiy, if any, submitted by the petitioner' To make things worse, the impugned order also does not disclose the grounds onwhichtheauthoritiesconcernedvrergcompelledtoissuethe
8 cancellation of the registration. Therefore, the impugned order is liable to be interfered with this ground alone'
Considering the above facts and circumstances, the impugned order d.ated 2LOg.2O2O stands set aside/quashed' However, since tlre impugned orders have been passed without affording any opportunity of hearing to the petitioner, it is ordered that the impugned order d,ated, 21.09.2O20 itself be treated as a show cause notice and the petitioner may enter appearance before respondent No.1 and submit a detailed reply on or before 29.02.2024. The petitioner would also be at liberty to submit returns which they have not yet filed along with the late fees on application for delayed submission of returns so that the registration of the petitioner gets restored. Since the matter is being remitted back by this Court, the question of limitation should not come in the way of the petitioner or for the respondents in taking any decision on the claim ofthe petitioner. L2. Since the setting aside of the order dated 21.O9.202O would automatically restore the registration of the petitioner, it is made clear that if any Input Tax Credit (lTC) remains unutilized, the petitioner shall not be permitted to utilize the same till the finalization of the show cause proceedings as directed above.
In view thereof, the Writ Petition stands a,llowed (-,
9 Consequently, miscellaneous petitions pending, if any, shall stand closed' No order as to costs. .A.V.S.PRASAD ASSISTANT REGISTRAR To 6 PSK. GJP 1 2 3 4 5 //// sr/ SECTIOXOFFICER Suoerintendent of Central Tax, Musheerabad Range' GST Commissionerate' Sebunderabad, Telangana' fl,1flfii$i,?.ffitr'##dtr-nd'tu:"","., Two CD CoPies .\k_
HIGH COURT DATED:1 2l,0212024 ORDER WP.No.3521 ot 2024 i.it. :..- \:., ALLOWTNG THE WRIT PETITION WITHOUT COSTS 2x 1b i rr ri .i
Reproduced from the public record of the Telangana High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.