2025 (10) TMI 668 - HC - GST

Retrospective cancellation of registration void for jurisdictional defect; registration restored retrospectively and authority barred from reissuing notice

Nikita Agarwal Versus The Assistant Commissioner of Revenue Commercial Taxes and State Tax, Jorasanko Charge & Ors.

The HC allowed the petition, holding the retrospective cancellation of the appellant's registration void for jurisdictional defect in the show cause ... Dismissal of appeal affirming the order of cancellation of the appellant’s registration with retrospective effect - delay and laches in approaching the writ court - explanation offered by the appellant is that since the Tribunal was to be constituted the appellant had awaited for constitution of Tribunal - HELD THAT:- The explanation offered appears to be reasonable and the writ petitioner cannot be thrown out on the ground of laches and delay. Moreover, when the Appellate Tribunal is yet to be constituted. For the purpose of disposal of the appeal and the writ petition disputed questions of facts of the case need not be gone into and the documents are required to be perused. The authority, namely, the Assistant Commissioner issued show cause notice to the appellant on 24.03.2022 for cancellation of registration of the appellant on the ground that registration obtained by means of fraud, willful misstatement or suppression of facts. The license was suspended with effect from the said date. Show cause notice was issued on 23.05.2022 and the appellant was directed to appear before the authority on 30th May, 2022. Since no reply was submitted by the appellant, the authority, namely the Assistant Commissioner, by order dated 5.4.2022 cancelled the registration with retrospective effect i.e. 9.5.2019. The appellant filed an application for revocation of the order of retrospective cancellation of the registration. Show cause notice was issued on the said application on 2.5.2022. The application was rejected stating that the reply to the show cause notice has not been filed within the time permitted - The show cause notice is absolutely vague and does not furnish any details nor does it say whether the allegation is that of fraud or willful misrepresentation or suppression of fact. Therefore, the entire edifice of the proceeding has to collapse because of the defective show cause notice at any stage or at a subsequent stage of the proceeding or appellate stage. This inherent defect, which is a jurisdictional error, cannot be rectified. The cancellation of registration has been made with retrospective effect. In the show cause notice the authority suspended the license with effect from the date of issuance of the show cause notice and there was no proposal in the show cause notice that cancellation of registration is proposed to be done with retrospective effect - What is apprehended by the Hon’ble Court in Ramesh Chander [2024 (1) TMI 1014 - DELHI HIGH COURT] as occurred in the assesse’s case since the customers have been issued notice for recovery of tax, penalty and interest as pointed earlier if there is an inherent defect in the show cause notice the defect cannot be cured at any stage or subsequent stage of the proceeding nor before the appellate authority. That apart, the department cannot be given a second lease of life to resurrect the matter once again by issuance of a fresh show cause notice. The retrospective cancellation of the appellant’s registration and the order passed by the Appellate Authority affirming such retrospective cancellation are bad in law. In the result, the appeal and the connected application as well as the writ petition are allowed and the orders of retrospective cancellation of registration of the appellant is set aside and the authorities are directed to restore the registration with retrospective effect and thereafter consider the application filed by the appellant for additional place of business in accordance with law. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether delay and laches in approaching the writ court barred relief where appellate/tribunal remedies were awaited and the appellant received consequential notices only later. 2. Whether a show-cause notice alleging registration obtained by 'fraud, willful misstatement or suppression of facts' which fails to specify factual particulars or distinct allegations satisfies the requirements of a fair and effective notice in quasi-judicial proceedings. 3. Whether cancellation of tax registration with retrospective effect is permissible where the show-cause notice did not propose retrospective cancellation and no objective satisfaction for retrospective effect is recorded. 4. Whether defect in a show-cause notice of the nature above constitutes a jurisdictional error that vitiates subsequent orders including appellate confirmation and renders retrospective cancellation unsustainable. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Delay and Laches in Seeking Writ Relief Legal framework: Principles of laches and delay in public law challenges, and the availability of writ remedies where alternative appellate bodies are contemplated or constituted. Precedent treatment: The Court considered established principles that delay will not automatically defeat a petition where reasonable explanation is given and where the appellant awaited constitution of an appellate tribunal; such explanation may render delay excusable. Interpretation and reasoning: The Court accepted the appellant's explanation that constitutional delay arose from awaiting the constitution of the appellate tribunal and that consequential recovery notices were issued only later, prompting relief. The Court held that the explanation was reasonable and that laches could not be used to dismiss the petition. Ratio vs. Obiter: Ratio - delay excused where appellant reasonably awaited tribunal constitution and only later suffered concrete prejudice warranting court intervention. Obiter - none material beyond application to facts. Conclusion: Delay and laches did not bar the writ petition in the circumstances; the petition could be heard on merits. Issue 2 - Sufficiency and Fairness of the Show-Cause Notice Legal framework: Requirement that a show-cause notice in quasi-judicial statutory proceedings furnish sufficient particulars so that the noticee can meaningfully defend; fair procedure must not be an empty formality. Precedent treatment: The Court relied on higher-court dicta emphasizing that a show-cause notice must convey to a person of ordinary prudence that an effective opportunity to rebut the allegations is available and not merely a prelude to a predestined order. Interpretation and reasoning: The notice in question merely alleged that registration was obtained by 'fraud, willful misstatement or suppression of fact' without specifying facts, distinguishing between these distinct allegations, or giving particulars. The appellate record showed that the noticee was not put on earlier notice of the specific allegations and that some documentary assertions by the department (e.g., landlord identity statements) were inconsistent with the noticee's position. The Court held that such vagueness renders the notice ineffective to commence a fair procedure because it prevents meaningful reply and defence. Ratio vs. Obiter: Ratio - a show-cause notice that is vague and fails to furnish particulars of the alleged misconduct is defective and cannot sustain subsequent orders; such defect is a fundamental procedural infirmity. Obiter - remarks on factual inconsistencies in departmental material were explanatory of application of the rule. Conclusion: The show-cause notice was defective for want of particulars and effective opportunity to defend; the proceedings founded on it could not stand. Issue 3 - Retrospective Cancellation of Registration and Requirement of Objective Satisfaction Legal framework: Statutory power to cancel registration may permit retrospective effect, but the exercise of that power must be based on objective satisfaction and not be mechanical; retrospective cancellation has significant consequences for third parties and therefore demands justification. Precedent treatment: The Court applied the principle that retrospective cancellation cannot be routine or automatic and must be predicated on objective criteria showing that retrospective effect is fit and proper in the circumstances. Interpretation and reasoning: The cancellation order recorded retrospective effect without any recorded objective satisfaction justifying such retrospectivity. The original show-cause notice suspended the license prospectively and contained no proposal for retrospective cancellation. The Court observed that mere non-filing of returns or procedural lapses does not automatically warrant retrospective cancellation covering periods when returns were filed. Further, retrospective cancellation produced adverse consequences for customers who received recovery notices; absent clear circumstances justifying such effect, the use of retrospective cancellation was impermissible. The Court also noted that a defective show-cause notice cannot be cured at a later stage to justify retrospective cancellation. Ratio vs. Obiter: Ratio - retrospective cancellation requires recorded, objective satisfaction and cannot be imposed mechanically or without prior notice; where absent, retrospective cancellation is unlawful. Obiter - emphasis on consequential prejudice to customers as a policy consideration supporting scrutiny of retrospectivity. Conclusion: The retrospective cancellation was unsupported by objective satisfaction and was unlawful; retrospective effect could not be sustained. Issue 4 - Jurisdictional Effect of Defective Notice on Subsequent Appellate Confirmation Legal framework: Fundamental defects in jurisdiction-commencing documents invalidate subsequent proceedings and orders, including appellate confirmation, where the original proceedings were vitiated. Precedent treatment: The Court followed the principle that certain procedural defects (e.g., a show-cause notice so defective that it deprives a person of a meaningful opportunity to be heard) amount to jurisdictional errors incapable of cure by later stages or confirmation by appellate authorities. Interpretation and reasoning: Given the finding that the show-cause notice was vague and defective, and that retrospective cancellation lacked objective justification, the Court held that the appellate authority could not salvage the invalid action by affirming it. The defect permeated the entire adjudicatory process and consequently rendered the appellate order bad in law. Ratio vs. Obiter: Ratio - a jurisdictional defect in the initiating notice vitiates subsequent orders including appellate confirmations; such defects are incurable by later stages. Obiter - procedural directions regarding reconsideration of ancillary applications (e.g., additional place of business) were consequential to the principal holding. Conclusion: The appellate order affirming retrospective cancellation was invalid; the defect was jurisdictional and could not be remedied on appeal. Final Disposition and Directions (as consequence of above conclusions) Conclusions: The retrospective cancellation and the appellate confirmation were set aside. The registration was to be restored and authorities were directed to consider pending applications (such as for additional place of business) in accordance with law. The Court's order therefore annulled the impugned retrospective cancellation and required administrative reconsideration consistent with the legal principles outlined above.