2022 (8) TMI 406 - HC - GST

Taxpayer wins challenge against arbitrary GST registration cancellation without proper inquiry or evidence

Drs Wood Products Lucknow Thru. Its Partner Sh. Arun Jindal Versus State Of U.P. Thru. Prin. Secy. Tax And Registration Lko. Andors.

Allahabad HC allowed petition challenging rejection of revocation of GST registration cancellation. Taxpayer's registration was cancelled for allegedly ... Rejection of revocation of the cancellation of the registration - allegation is that taxpayer found Non-functioning/Not Existing at the Principal Place of Business - no reply to notice to show cause has been submitted - HELD THAT:- 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. 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 15.07.2020. Thus, 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. In the present case, the arbitrary exercise of power cancelling the registration in the manner in which it has been done has not only adversely affected the petitioner, but has also adversely affected the revenues that could have flown to the coffers of GST in case the petitioner was permitted to carry out the commercial activities. The actions are clearly not in consonance with the ease of doing business, which is being promoted at all levels. For the manner in which the petitioner has been harassed since 20.05.2020, the State Government is liable to pay a cost of Rs.50,000/- to the petitioner - petition allowed. Issues Involved:1. Validity of the show-cause notice for cancellation of GST registration.2. Legality of the order rejecting the revocation of cancellation of registration.3. Evaluation of the appellate authority's decision.4. Compliance with Section 29 and Section 30 of the GST Act.5. Allegations of arbitrary exercise of power by the authorities.6. Impact on the petitioner's business and associated costs.Detailed Analysis:Issue 1: Validity of the Show-Cause Notice for Cancellation of GST RegistrationThe court scrutinized the initial show-cause notice dated 08.05.2020, which alleged that the taxpayer was 'Non-functioning/Not Existing at the Principal Place of Business.' The court found the notice to be vague and lacking specific allegations or evidence. It did not detail when the inspection was conducted or the basis for the allegations. The court emphasized that a show-cause notice must provide sufficient details to enable the taxpayer to respond adequately, and the absence of such details violated principles of administrative justice.Issue 2: Legality of the Order Rejecting the Revocation of Cancellation of RegistrationThe order dated 15.07.2020 rejected the application for revocation of cancellation of registration, citing that no satisfactory explanation was received within the prescribed time. The court criticized this order for lacking reasoning and failing to address the petitioner's request for an extension due to personal circumstances (daughter's marriage). The court found the rejection to be arbitrary and devoid of a proper judicial approach.Issue 3: Evaluation of the Appellate Authority's DecisionThe appellate authority dismissed the appeal based on an inspection report from 20.05.2020, which found no business activity at the registered premises and noted another firm operating there. The court noted that the appellate authority relied on extraneous factors, such as a 2018 inspection report, which were neither part of the original show-cause notice nor confronted to the petitioner. The court found this approach to be flawed and indicative of a lack of judicial training among the quasi-judicial authorities under the GST Act.Issue 4: Compliance with Section 29 and Section 30 of the GST ActThe court examined the compliance with Section 29, which outlines grounds for cancellation of registration, and Section 30, which deals with revocation of cancellation. The court found that none of the grounds under Section 29 were established against the petitioner. Moreover, the authorities failed to consider the larger mandate of Section 30 when rejecting the revocation application. The court highlighted the need for a more judicious approach in such quasi-judicial proceedings.Issue 5: Allegations of Arbitrary Exercise of Power by the AuthoritiesThe court observed that the actions of the authorities were arbitrary and lacked proper reasoning. The cancellation of registration and subsequent rejection of the revocation application were carried out in a manner that demonstrated a lack of judicial training and understanding of the principles of natural justice. The court condemned the authorities for their casual and opaque handling of the matter.Issue 6: Impact on the Petitioner's Business and Associated CostsThe court noted that the arbitrary cancellation of registration adversely affected the petitioner's business and potential revenue to the GST coffers. The court ordered the renewal of the petitioner's registration and imposed a cost of Rs.50,000/- on the State Government for the harassment caused to the petitioner. This cost was to be paid within two months, failing which the petitioner could file a contempt petition.ConclusionThe court set aside the impugned orders dated 18.01.2021 and 15.07.2020, finding them contrary to the mandate of Sections 29 and 30 of the GST Act and principles of natural justice. The petition was allowed, and the registration of the petitioner was ordered to be renewed forthwith. The court also imposed a cost of Rs.50,000/- on the State Government for the arbitrary exercise of power and the resultant harassment to the petitioner.