2023 (12) TMI 1098 - HC - GST

GST registration cancellation challenged successfully due to lack of proper verification and notice violations

M/s. Roxy Enterprises Versus Union Of India & Ors.

Delhi HC disposed of petition challenging GST registration cancellation. Court found no proper physical verification was conducted at petitioner's ... Cancellation of GST registration of petitioner - SCN did not specify the reasons for proposing to cancel the petitioner’s GST registration - whether the petitioner was carrying on its business from the declared principal place of business? There is a controversy whether the petitioner had informed the visiting team as to his then current address. Whereas, the petitioner claims that he has informed the visiting team regarding his new address, the same is disputed by the respondents as there is nothing on record to substantiate the same. HELD THAT:- It is apparent that no physical verification had been carried of the petitioner’s earlier premises during the period 14.10.2022 to 31.05.2023. Any such verification was required to be carried in accordance with the Rules, which also mandates the petitioner to be issued a notice for the same. It cannot be accepted that the Appellate Authority could have taken a definite view of the petitioner being non- functional from its declared place of business prior to 31.05.2023. It is also apparent that there is no contest that the petitioner had furnished evidence of his leasing another premises with effect from 31.05.2023. Undisputedly, the petitioner has not been unable to upload his application for change of its earlier place of business as the petitioner’s GST registration stood suspended with effect from 25.01.2023. The concerned official of the respondents shall visit the petitioner’s current premises (336/26, Onkar Nagar-B, Tri Nagar, Delhi-110035), within a period of one week from date, to verify whether the petitioner is occupying the same - In the event the petitioner is found occupying and operating from the aforesaid premises, the petitioner’s GST registration shall be restored immediately thereafter - The petitioner shall file the requisite application regarding shifting to his new place of business. The concerned official shall verify whether the petitioner has filed the requisite returns as well as application for updating its current place of business on the record. Petition disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether cancellation of GST registration may be sustained where the show cause notice does not specify reasons but the subsequent cancellation order does. 2. Whether cancellation on the ground that the registered person was not carrying on business from the declared principal place of business is justified absent contemporaneous physical verification in accordance with statutory rules. 3. Whether an appellate authority may reject an appeal against cancellation where there is documentary evidence of occupation of a new premises from a specific date but no positive proof that the taxpayer was non-functional at the earlier premises during an intervening period. 4. Whether the High Court should entertain writ jurisdiction challenging an appellate order where a statutory tribunal remedy exists but the tribunal is not constituted. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Sufficiency of Show Cause Notice: legal framework Legal framework: Principles require that a show cause notice inform the person of the case to be met so as to enable effective hearing and compliance with principles of natural justice; the cancellation order must be founded on reasons that were pleaded or confronted in the notice and opportunity to reply. Interpretation and reasoning: The Court found the show cause notice dated 25.01.2023 failed to specify the reasons for proposed cancellation; the reasons appeared only in the subsequent cancellation order dated 14.02.2023. The omission deprived the taxpayer of an effective opportunity to meet the precise case which the revenue ultimately relied upon. Ratio vs. Obiter: Ratio - A show cause notice that does not disclose the grounds ultimately relied upon in the cancellation order cannot sustain that order insofar as it impairs the right to be heard. Conclusion: The cancellation order dated 14.02.2023 could not be sustained and required remand for fresh consideration after affording a full opportunity to be heard. Issue 2 - Requirement and mode of physical verification under the CGST Rules Legal framework: Rule 25 of the Central Goods & Service Tax Rules, 2017 prescribes the procedure for physical verification of business premises where required, including that verification be done in the presence of the person and the verification report (with photographs) be uploaded in FORM GST REG-30 within fifteen working days. Interpretation and reasoning: Cancellation on the ground that the taxpayer was not carrying on business from the declared place of business contemplates compliance with Rule 25 where physical verification is the factual foundation. In the present case, no physical verification of the earlier premises during the critical period (14.10.2022 to 31.05.2023) was carried out in accordance with the Rules; the visiting team's encounter on 06.06.2023 recorded the taxpayer standing outside and produced disputed accounts of disclosure of the new address. The absence of a Rule-compliant verification log/report undermines a definitive finding of non-occupation for the intervening period. Precedent Treatment: No prior authorities were cited or relied upon by the Court in the judgment; the decision is grounded on statutory text and principles of fair procedure. Ratio vs. Obiter: Ratio - Adverse factual conclusions about non-occupation founded on physical verification must comply with Rule 25; absence of such compliance vitiates the finding and any consequent cancellation based thereon. Conclusion: The Appellate Authority and the officer could not validly conclude the taxpayer was non-functional at the declared place of business prior to the date the new lease commenced, given the lack of Rule 25 compliant verification for the intervening period. Issue 3 - Treatment of documentary evidence of new premises and inference of a gap in occupation Legal framework: Determination of whether a registrant is carrying on business from the declared address is a fact-sensitive inquiry to be based on documentary evidence, physical verification, and opportunity to explain; uninterrupted occupation may be shown by contemporaneous documents or verified physical presence. Interpretation and reasoning: The taxpayer produced a rent agreement for the earlier premises (dated 15.11.2021 for eleven months) and a rent agreement for the new premises commencing 31.05.2023. The Appellate Authority inferred a gap between 14.10.2022 (expiry of earlier lease) and 31.05.2023 and therefore found lack of continuity. The Court held that, in absence of any Rule 25 verification during that period, the unilateral inference of non-occupation was impermissible. The Appellate Authority had accepted the new lease commenced 31.05.2023 but rejected the taxpayer's claim of continued occupation of the earlier premises without any compliant verification to negate that claim. Ratio vs. Obiter: Ratio - Where documentary proof establishes occupation of a new premises from a certain date and there is no Rule-compliant verification negating continued occupation of the earlier premises during the intervening period, the revenue cannot conclusively rely on an inferred gap to sustain cancellation. Conclusion: The Appellate Authority's rejection of the appeal on the ground that the taxpayer could not substantiate continuity of operation at the earlier premises was unsustainable without proper verification; restoration of registration was warranted pending verification. Issue 4 - Exercise of writ jurisdiction where statutory tribunal remedy exists but is not available Legal framework: Writ jurisdiction is discretionary and may be exercised where statutory remedies are illusory or unavailable; existence of an alternative remedy does not oust writ relief if the alternative cannot be efficaciously invoked. Interpretation and reasoning: Although a statutory appeal to the Tribunal was available, the Tribunal had not been constituted and therefore the remedy was not an efficacious alternative. In these circumstances the High Court entertained the writ petition challenging the appellate order. Ratio vs. Obiter: Ratio - Writ jurisdiction may be exercised where the statutory adjudicatory forum is not available such that the statutory remedy is not efficacious. Conclusion: The Court appropriately exercised writ jurisdiction to decide the matter on merits and direct limited fact-finding and interim relief. Relief, Directions and Limitation on Findings (operative conclusions) Interpretation and reasoning: Rather than ordering immediate restoration as a final adjudication on merits, the Court directed a limited, prompt factual verification of the new premises within one week; if the taxpayer was found occupying and operating from that premises, the GST registration was to be restored immediately. The taxpayer was directed to file the requisite application for change of principal place of business and the authorities to verify filing of returns and update records. The Court clarified that the respondents remain free to initiate proceedings if statutory defaults are found. Ratio vs. Obiter: Ratio - Interim restoration of registration coupled with directed verification is an appropriate remedy where procedural infirmities in cancellation and absence of Rule-compliant verification exist, subject to post-verification correction if defaults emerge. Conclusion: The petition was disposed by ordering prompt physical verification, conditional restoration of registration if occupation of the new premises is found, and direction to complete statutory record updates; the respondents' right to initiate further proceedings if defaults are discovered was preserved.