Natural justice in registration cancellation: adverse reports must be disclosed before action is taken against the dealer.

Cancellation of a registration certificate under section 9(6)(c) of the Orissa Sales Tax Act, 1947 read with rule 16A(1) of the Orissa Sales Tax Rules, 1947 may be justified where registration was obtained with ulterior motive, material facts were suppressed, or the certificate was misused, including cases of alleged non-existent manufacturing activity. However, any adverse material used to support cancellation or revisional action must be disclosed to the dealer, and a real opportunity of hearing must be given. Reliance on undisclosed reports violates audi alteram partem and renders the revisional order unsustainable. The order was therefore set aside and the matter remitted for fresh consideration after disclosure and de novo hearing.

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Issues: (i) Whether cancellation of the registration certificate could be sustained under section 9(6)(c) of the Orissa Sales Tax Act, 1947 read with rule 16A(1) of the Orissa Sales Tax Rules, 1947 on the ground that no manufacturing activity was found and the registration was allegedly misused. (ii) Whether the revisional order was vitiated because the reports obtained by the revisional authority were relied upon without furnishing the material to the petitioners and without giving them an effective opportunity of hearing.

Issue (i): Whether cancellation of the registration certificate could be sustained under section 9(6)(c) of the Orissa Sales Tax Act, 1947 read with rule 16A(1) of the Orissa Sales Tax Rules, 1947 on the ground that no manufacturing activity was found and the registration was allegedly misused.

Analysis: Section 9(6)(c) permits cancellation of registration where sufficient reasons exist beyond the contingencies specifically mentioned elsewhere in the provision. The power may be exercised where registration has been obtained with ulterior motive, material facts were suppressed, or the certificate is being misutilised. Rule 16A(1) likewise contemplates cancellation on good and sufficient reason, after reasonable opportunity of hearing wherever practicable. On the facts, the alleged absence of manufacturing activity and the alleged misuse of the certificate were matters capable of scrutiny under this provision.

Conclusion: The provision could apply in an appropriate case of non-existent activity or misuse, but the factual determination had to be made lawfully and on proper material.

Issue (ii): Whether the revisional order was vitiated because the reports obtained by the revisional authority were relied upon without furnishing the material to the petitioners and without giving them an effective opportunity of hearing.

Analysis: The revisional authority called for reports and used them to draw an adverse inference against the petitioners. There was no material to show that the reports or the relevant adverse material were disclosed to them before reliance was placed on those reports. Since material proposed to be used against a person must be disclosed and an effective hearing must be afforded, the decision-making process offended the rule of audi alteram partem and resulted in violation of natural justice.

Conclusion: The revisional order was vitiated by breach of natural justice and could not be sustained.

Final Conclusion: The challenge succeeded on the ground of denial of natural justice, the revisional order was set aside, and the matter was sent back for fresh consideration after disclosure of the material and a de novo hearing.

Ratio Decidendi: Adverse material relied upon for cancellation of registration must be disclosed to the affected dealer and a real opportunity of hearing must be given before an order affecting rights is made.

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