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2023 DIGILAW 2621 (ALL)

K. K. R. Industries v. Union of India

2023-11-21

AJAY BHANOT

body2023
JUDGMENT : Hon'ble Ajay Bhanot, J.-Heard Shri Vishwas Pandey, learned counsel and Shri Mahesh Dwivedi, learned counsel for the petitioner, Shri Naveen Chandra Gupta, learned Central Counsel for the respondent Nos. 1 and 2-Union of India and Shri Rishi Kumar, learned Additional Chief Standing Counsel for the State. 2. The petitioner in the writ petition is aggrieved by the impugned order ref. No. ZA090722077658X dated 13.7.2022 which cancels the GST registration under the GST Act. 3. The appeal of the petitioner has been rejected on grounds of limitation by the impugned order ref.No. ZD091023027190Y dated 6.10.2023 passed by the respondent No. 4. 4. The petitioner is also aggrieved by the show-cause notice ARNZA090622139048H dated 20.6.2022 passed by the respondent No. 5. 5. Shri Vishwas Pandey, learned counsel and Shri Mahesh Dwivedi, learned counsel for the petitioner submit that : I. The action of the authorities cancelling the GST registration of the petitioner is arbitrary and illegal. II. The order of cancellation of GST registration virtually compels the petitioner to shut down his business. III. The order is non-speaking and reflects non application of mind despite visit the petitioner with severe penalties. 6. Shri Rishi Kumar, learned Additional Chief Standing Counsel submits that : I. The petitioner failed to submit a reply to the show-cause notice. Hence, no speaking order is required. II. The petitioner can continue his business only in accordance with law and cannot complain if the registration certificate has been cancelled in the manner aforesaid. 7. Heard learned counsel for the parties. 8. The petitioner is engaged in the business of sale of scrap items. He has obtained a GST registration under the GST Act. The show-cause notice was issued to the petitioner proposing to cancel the registration of the petitioner dated 20.6.2023. The recitals in the show-cause notice disclosed that the GST registration of the petitioner was liable to be cancelled as the principal place of business was not found/available at the time of field visit. Admittedly, the petitioner could not tender his reply to the show-cause notice for various reasons beyond his control. 9. The show-cause notice is vague and lacks material particulars. The time and place of the field visit are not disclosed in the show-cause notice nor the details of the officials who allegedly conducted the visit have been provided therein. Admittedly, the petitioner could not tender his reply to the show-cause notice for various reasons beyond his control. 9. The show-cause notice is vague and lacks material particulars. The time and place of the field visit are not disclosed in the show-cause notice nor the details of the officials who allegedly conducted the visit have been provided therein. The lack of material particulars in the show-cause notice vitiates the same and the proceedings were liable to be dropped. The report of the officials who had allegedly visited the site of business has not been appended to the show-cause notice nor was supplied to the petitioner. 10. Further, the petitioner was directed to appear for tendering his reply to the show-cause notice dated 20.6.2022. Though the seven days time was granted for the reply, the matter was fixed before the authorities on 22.6.2022. 11. The time period is too short and is not sufficient for any noticee to tender an effective and complete defence of his case. On both these grounds the show-cause notice is vitiated and the proceedings in pursuance thereof are also liable to be set aside on this ground alone. The cancellation order dated 13.7.2022 is a non speaking order. It does not reflect any application of mind. Both the grounds go to the route of the jurisdiction of the authorities. 12. The narrative shall now be fortified by good authorities in point. The issue has been settled by authoritative pronouncements of this Court. Pankaj Bhatia, J. in M/s Chandra Sain, Sharda Nagar, Lucknow Thru. Its Proprietor Ms. Chandra Sain v. U.O.I. Thru. Secy. Ministry of Finance, New Delhi and 5 others, Writ Tax No. 147 of 2022, while delineating the duties of the noticing authority and process to be followed prior to cancellation of a licence and also the consequences of such cancellation held as under: ''6. Learned counsel for the petitioner argues that although no fault can be found with the appellate order dismissing the appeal as Aappellate Authority does not have the power to condone the delay in terms of the scheme of the Act, however, he argues that the order cancelling the registration is without application of mind; he draws my attention to the impugned order dated 13.2.2020, which does not disclose any application of mind. He, thus, argues that the quasi judicial order which has an adverse effect on the right of the petitioner to run business as guaranteed under Article 19 of the Constitution of India, the same has been done without any application of mind which is neither the intent of the Act nor can it be held to be in compliance of the mandate of Article 14 of the Constitution of India. He further argues that as the appeal has not been decided on merit, the doctrine of merger will have no application and it is only the order dated 13.2.2020 which affects the petitioner and as the same is devoid of any reasons, the same can be challenged before this Court as decided by the Hon'ble Supreme Court in the case of Whirlpool Corporation v. Registrar of Trademarks, Mumbai and others 7. He further places reliance on the judgment of this Court in the case of Om Prakash Mishra v. State of U.P. and others; Writ Tax No. 100 of 2022 decided on 6.9.2022 wherein this Court had recorded that every administrative authority or a quasi judicial authority should necessarily indicate reasons as reasons are heart and soul of any judicial or administrative order. 8. In the present case from the perusal of the order dated 13.2.2020, clearly there is no reason ascribed to take such a harsh action of cancellation of registration. In view of the order being without any application of mind, the same does not satisfy the test of Article 14 of the Constitution of India, as such, the impugned order dated 13.2.2020 (Annexure 2) is set aside. The petition is accordingly allowed.'' 13. The said judgment was followed in M/s Viraj Polymers Private Ltd. v. State of U.P. and 3 others, Writ Tax No. 300 of 2022. 14. Similarly the consequences of a vague show-cause notice were also held by this Court in Drs. Wood Products Lucknow Thru. Its Partner Sh. Arun Jindal v. State of U.P. Thru. Prin. Secy. Tax and Registration Lko. and others, Writ Tax No. 21692 of 2022, by holding as under: ''18. A perusal of the show-cause notice at the first instance, clearly depicts the opaqueness of the allegations levelled against the petitioner, which were only to the ground that ''tax payer found non-functioning/non-existing at the principal place of business'. Prin. Secy. Tax and Registration Lko. and others, Writ Tax No. 21692 of 2022, by holding as under: ''18. A perusal of the show-cause notice at the first instance, clearly depicts the opaqueness of the allegations levelled against the petitioner, which were only to the ground that ''tax payer found non-functioning/non-existing at the principal place of business'. The said show-cause notice did not propose to rely upon any report or any inquiry conducted to form the opinion and on what basis was the allegation levelled that the tax payer was found non-functioning; it does not indicate as to when the inspection was carried. A vague show-cause notice without any allegation or proposed evidence against the petitioner, clearly is violative of principles of administrative justice. Cancellation of registration is a serious consequence affecting the fundamental rights of carrying business and in a casual manner in which the show-cause notice has been issued clearly demonstrates the need for the State to give the quasi-adjudicatory function to persons who have judicially trained mind, which on the face of it absent in the present case. The order of cancellation of the registration on the ground that no reply was given is equally lacking in terms of a quasi-judicial fervor as the same does not contain any reasoning whatsoever. The show-cause notice issued after the petitioner had filed an application for revoking the cancellation of registration also smacks of lack of judicial training by the quasi-adjudicatory authorities under the GST Act as it merely shows that no satisfactory explanation was received within the prescribed time. 19. The order rejecting the application for revocation of cancellation of registration takes the matter to the height of arbitrariness inasmuch as no reasons are recorded as to why the request for revocation of cancellation of registration could not be accepted and discloses absence of application of mind with regard to the averments contained in the application filed by the petitioner for revocation of cancellation of registration. 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 15.7.2020. 21. I have no hesitation in recording that the said authorities while passing the order impugned have miserably failed to act in the light of the spirit of the GST Act. 21. I have no hesitation in recording that the said authorities while passing the order impugned have miserably failed to act in the light of the spirit of the GST Act. The stand of the Central Government before this Court is equally not appreciable as on the one hand they are alleging that excess goods were found for which the petitioner is liable to pay duty and on the other hand there is justification to the order passed and impugned in the present petition.'' 15. This Court in Apparent Marketing Private Limited v. State of U.P. and 3 others, Writ Tax No. 348 of 2022, had occasioned to consider the consequences of cancellation of registration and the manner in which the authorities are liable to proceed in such matter. S.D.Singh, J. speaking for this Court held as under: ''12. Having heard learned counsel for the parties and having perused the record, in the first place, cancellation of registration has serious consequences. It takes away the fundamental right of a citizen etc. to engage in a lawful business activity. In the present case, undisputedly, the registration claimed by the assessee had been granted by the respondent authority. Therefore, a presumption does exist as to such registration having been granted upon due verification of necessary facts. If the respondent proposed to cancel the registration thus granted, a heavy burden lay on the respondent authority to establish the existence of facts as may allow for such cancellation of registration. Section 29(2) of the Act reads as below : ''Section 29. If the respondent proposed to cancel the registration thus granted, a heavy burden lay on the respondent authority to establish the existence of facts as may allow for such cancellation of registration. Section 29(2) of the Act reads as below : ''Section 29. Cancellation of suspension of registration (1) … (2) The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,- (a) a registered person has contravened such provisions of the Act or the rules made there under as may be prescribed; or (b) a person paying tax under Section 10 has not furnished returns for three consecutive tax periods; or (c) any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or (d) any person who has taken voluntary registration under sub-section (3) of Section 25 has not commenced business within six months from the date of registration; or (e) registration has been obtained by means of fraud, willful misstatement or suppression of facts: Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard. [PROVIDED FURTHER, that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.]'' 13. Therefore, the registration once granted could be cancelled only if one of the five statutory conditions was found present. Per se, no registration may be cancelled by merely describing the firm that had obtained it, was ''bogus''. The word ''bogus'' has not been used by the statute. The only contingency to which such expression may relate may be one appearing under Clauses (c) and (d) of Section 29(2) of the Act being where a registered firm does not commence its business within six months of its registration. Other than that, the term ''bogus'' may also refer to a satisfaction contemplated by Section 29(2)(c) of the Act where registration may be cancelled if the registered firm has not furnished its return for continuous period of six months. Those conditions have not been shown to exist in this case. 14. Other than that, the term ''bogus'' may also refer to a satisfaction contemplated by Section 29(2)(c) of the Act where registration may be cancelled if the registered firm has not furnished its return for continuous period of six months. Those conditions have not been shown to exist in this case. 14. Yet, in case the authority wanted to cancel the existing registration, it ought to have mentioned (in the show-cause notice), if it proposed to cancel the registration for violation of Section 29(2)(c) of the Act or for violation of Section 29(2)(d) of the Act. It cannot be a matter of contemplation or option either with the authority or the assessee to find out for itself by any guesswork or exploratory exercise, if the case fell in any of the conditions of Section 29(2) of the Act. 15. Registration having been granted earlier, the obligation existed on the authority to specify the exact reason/charge on which it proposed to cancel the registration. In the present case, unless the respondent authority had first specified the reason why it proposed to cancel the registration and unless the authority had specified the reason why it was attempting to treat the assessee firm ''bogus'' i.e. whether reference was being made to Section 29(2)(c) or Section 29(2)(d) of the Act - by specifically stating the facts as may give rise to that charge and unless the supporting material giving rise to that charge had been referred to in that notice, the notice itself remained defective in material aspect. 16. Though the notice for cancellation of registration may not be placed on a high pedestal of a jurisdictional notice, at the same time, unless the essential ingredients necessary for issuance of such notice had been specified therein at the initial stage itself, the authorities cannot be permitted to have margin or option to specify and/or improve the charge later. 17. In the present case, by merely describing the assessee firm ''bogus'', the respondent authority did not make known to the assessee the exact charge that was being levelled against the assessee. Correspondingly, the respondent authority deprived the assessee of the necessary opportunity to rebut the charge. 18. In view of the discussion made above, the charge levelled in the notice dated 22.7.2020 and as was reiterated in the order dated 13.8.2020 and the further notice dated 21.8.2020 are wholly, vague. Correspondingly, the respondent authority deprived the assessee of the necessary opportunity to rebut the charge. 18. In view of the discussion made above, the charge levelled in the notice dated 22.7.2020 and as was reiterated in the order dated 13.8.2020 and the further notice dated 21.8.2020 are wholly, vague. Effectively, it prevented the assessee to rebut the same. The statute contemplates issuance of the notice in specified circumstances for specific grounds. Those could not be diluted or muddled or made vague by describing the assessee firm as ''bogus''. In absence of any specific charge, the respondent authority could not be permitted to proceed to cancel the assessee's registration. Though it may remain open to the Assessing Authority to issue a fresh notice with exact charge specification, the proceedings arising from the impugned notice is inherently defective. 16. The judgments of this Court are squarely applicable to the facts of this case. This Court finds that the show-cause notice dated 20.6.2022 was vague and unsustainable in law. 17. The order dated 13.7.2022 cancelling the GST registration of the petitioner is not speaking order which reflects non application of mind by the authorities. The authorities have adopted procedure not known to law while cancelling the GST registration of the petitioner. Action of the authorities is not sustainable in law. 18. The show-cause notice dated 20.6.2022 passed by the respondent No. 5 is vague. 19. The order dated 13.7.2022 passed by the respondent No. 3 and the order dated 6.10.2023 passed by the respondent No. 4 as well as the show-cause notice dated 20.6.2022 passed by the respondent No. 5 are liable to be quashed and are quashed. 20. The writ petition is allowed. 21. It is open to the authorities to proceed afresh against the petitioner in accordance with law.