2021 (10) TMI 256 - HC - GST

Court overturns cancellation of registration, orders restoration, stresses justification, allows filing of pending returns

M/s. Bright Star Plastic Industries Versus Additional Commissioner of Sales Tax (Appeal) and others

The Court set aside the orders rejecting the Petitioner's revocation application and appeal, directing the Department to promptly restore the Petitioner's ... Revocation of cancellation of registration of petitioner - preventive measure has been taken by the LPO to prevent future fraud or to prevent from recurrence for such the regular claims of the ITC - Section 30(2) of the OGST Act - HELD THAT:- To attribute fraud in such circumstances to the Petitioner, as a purchasing dealer, the Department would have to satisfy a high threshold of showing that the purchaser indulged in the transactions with the full knowledge that the selling dealer was non-existent. The Department would have to show that somehow the purchasing dealer and selling dealer acted in connivance to defraud the revenue. This threshold has not been made in the present case. In other words, the Department has failed to show that the Petitioner as a purchasing dealer deliberately availed of the ITC in respect of the transactions with an entity knowing that such an entity was not in existence. The impugned order of the LPO rejecting the Petitioner’s application for revocation of its cancellation of registration and the impugned appellate order dated 5th April, 2021 rejecting the Petitioner’s appeal are hereby set aside. The Department is now directed to restore the Petitioner’s registration forthwith by issuing appropriate orders/directions not later than one week from today - Petition allowed. Issues:1. Cancellation of registration under Section 30(2) of the OGST Act.2. Grounds for cancellation based on ITC claimed against fake invoices.3. Rejection of revocation application under Section 30 of the OGST Act.4. Legal provisions governing cancellation of registration.5. Interpretation of Rule 21 of the OGST Rules.6. Comparison with relevant legal precedents.Analysis:1. The Petitioner, a registered dealer under the Odisha GST Act, challenged the order of the Additional Commissioner of CT & GST rejecting the appeal against the cancellation of registration. The cancellation was based on the claim that the Petitioner had availed Input Tax Credit (ITC) against fake invoices issued by a non-existent supplier.2. The cancellation proceedings were initiated after the Petitioner's reply to a show cause notice (SCN) regarding ITC claimed against fake invoices. The Petitioner contended that the purchases were legitimate, supported by tax invoices fulfilling legal requirements. The cancellation was justified by the department based on unsatisfactory clarifications submitted by the Petitioner.3. Following the cancellation, the Petitioner applied for revocation under Section 30 of the OGST Act, which was rejected by the Opposite Party. The subsequent appeal to the Additional Commissioner of CT & GST was also dismissed, leading to the present legal challenge.4. The Court examined the legal provisions governing cancellation of registration and highlighted that Rule 21 of the OGST Rules specifies specific grounds for cancellation, none of which were applicable in the present case. The Petitioner's actions did not fall under the circumstances warranting cancellation as per the rule.5. The Court referenced a decision of the Gujarat High Court and the High Court of Telangana, emphasizing that cancellation of registration should not occur without proper justification. In the absence of evidence showing the Petitioner's involvement in fraud knowingly, the cancellation was deemed unjustified.6. Ultimately, the Court set aside the orders rejecting the Petitioner's revocation application and appeal, directing the Department to restore the Petitioner's registration promptly. The Department was instructed to allow the Petitioner to file pending returns affected by the registration cancellation.This comprehensive analysis of the judgment highlights the key issues, legal arguments, and the Court's reasoning leading to the decision to restore the Petitioner's registration.