TaxTMI 
TaxTMI 
2020 (4) TMI 306
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....ded Tax Tribunal was justified in holding that the judgment of this court in the case of State of Gujarat v. Nageshi Enterprise, (2017) 104 VST 204 (Guj.) would be applicable to the facts of the appellant? (3) Whether the Gujarat Value Added Tax Tribunal was justified in confirming the order of the first appellate authority confirming the cancellation of registration certificate of the appellant on the basis of the allegations and grounds neither made out nor established in the original order cancelling the registration certificate?" 3. The facts stated briefly are that, the appellant was engaged in the business of trading in old machinery parts and metal scrap and was duly registered under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as "the GVAT Act") as well as the Central Sales Tax Act, 1956. Search proceedings were conducted at the premises of the appellant on 3.10.2013. During the course of search, it was alleged that the appellant had made purchases from dealers during the years 2010-11 and 2011-12 who were engaged in billing activities and, therefore, the concerned officers were of the view that the input tax credit claimed by the appellant in ....
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....respond to such notice immediately. However, the Commercial Tax Officer proceeded to pass the impugned order under section 27(5) of the GVAT Act cancelling the registration certificate of the appellant ab initio on the ground of default in payment of tax. The Commercial Tax Officer also observed that the transactions of the appellant were suspicious and, therefore, with a view to protect the interest of the revenue, the registration certificate of the appellant was being cancelled ab initio. 7. The appellant thereafter, immediately addressed a letter dated 6.2.2016, to the Commercial Tax Officer submitting that it had been unable to pay the outstanding dues due to severe financial crunch; however, it had arranged finances and had cleared the entire amount of outstanding tax dues. The appellant further submitted that after its experience for the years 2010-11 and 2011-12 of purchasing from intermediary traders leading to disallowance of input tax credit because of defaults made by the traders, the appellant had started making purchases directly from ship breakers and reputed companies. On the basis of such facts, the appellant prayed for restoration of the registration certificat....
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....consecutive tax periods from him under the provisions of the Act. It was pointed out that sub-section (5) of section 27 vests under the Commissioner discretion to cancel the certificate of registration and it is not mandatory to cancel the registration merely because there is a default in terms of the clauses enumerated under sub-section (5) of section 27. It was submitted that sub-section (5) of section 27 of the GVAT Act permits the Commissioner to cancel the certificate of registration from such date as may be specified by him. It was submitted that ordinarily the registration has to be granted to a dealer and should be continued as it directly affects the rights of the dealer under article 19(1)(g) of the Constitution of India. 10.1 It was submitted that the power of cancellation of registration under sub-section (5) of section 27 of the GVAT Act is discretionary as the expression employed therein is "may". It was further submitted that the words "from such date as may be specified" do not vest in the Commissioner the power to cancel the registration retrospectively, in a case where the infraction does not go to the root of the matter rendering the registration liable to be ....
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.... to the original order of cancellation of registration, it was pointed out that the said order is a nonspeaking order whereas in the appellate order, it has been recorded that some transactions are suspicious. It was urged that no prejudice would be caused to the revenue if the registration is restored. It was emphatically argued that retrospective cancellation invalidates all the appellant's genuine transactions and has serious consequences. In this regard, the attention of the court was invited to the provisions of sub-section (6) of section 27 of the GVAT Act, which provides that every person whose registration is cancelled under sub-section (5) shall pay in respect of every taxable goods held as stock on the date of cancellation, an amount equal to the tax that would be payable in respect of the goods if the goods were sold at fair market price on that date or the total tax credit previously claimed in respect of such goods, whichever is higher. 10.5 Reference was made to sub-section (11) of section 27 of the GVAT Act, which provides that the Commissioner shall publish in the manner as may be prescribed the particulars of dealers whose certificate of registration has been ca....
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....challenge to the penalty amount. It was submitted that merely because the appellant had restricted the challenge to the penalty amount, can by no stretch of imagination be said to be an admission on the part of the appellant that input tax credit had been wrongly availed of. 10.8 In support of his submissions, the learned advocateplaced reliance upon the decision of the Delhi High Court in Chhabra Electric Stores v. The Chief Commissioner, Delhi (1972) 30 STC 85 (Delhi) wherein it has been held that the words in clause (d) of rule 12(1) of the Delhi Sales Tax Rules, 1951 "from such date as may be specified in the order", in its opinion should be construed to mean either the date of the order or a date subsequent to the date of the order and not a date prior to the date of the order. 10.9 Reliance was also placed upon the decision of the Orissa High Court in the case of M.C. Agarwal v. Sales Tax Officer, Kesinga, and another, (1987) 64 STC 298, wherein the court was dealing with the question as to whether cancellation of registration certificate of a dealer under the Orissa Sales Tax Act can be given retrospective effect. The court held thus:- "4. Rule 16(1) of the Or....
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.... goods purchased by him, which are taxable at the last purchase point. In effect, by the grant of the certificate of registration, the Revenue holds out to the world at large that the person to whom the certificate is granted is a registered dealer under the Act, entitled to take advantage of all rights and privileges provided by the Act and the Rules. It is true, that it is open to the prescribed authority to cancel the registration certificate for good and sufficient reasons, after providing an opportunity to the concerned dealer of being heard. But, such cancellation of registration can take effect only from the date when the order was so passed. It cannot have any retrospective effect. It cannot in any manner affect the past transactions bona fide entered into by persons, who relying on the certificate of registration, entered into business deals and arranged their affairs. This is all the more so, in a case where no collusion between the selling dealer and the purchasers is neither alleged nor established. We are fortified in taking this view in the light of the following decisions: (1) Santumal v. Assistant Commissioner of Sales Tax [1963] 14 STC 287 (Bom), ....
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....99 STC 401 (Sudhakar Oil Traders v. Asst. Commercial Tax Officer), wherein the Division Bench of the Andhra Pradesh High Court has held that under article 19(1)(g) of the Constitution of India, a citizen has a fundamental right to carry on any occupation, trade or business, subject of course to reasonable restrictions imposed by the State under article 19(6), on the exercise of that right in the interest of general public. This legal position cannot be disputed. 11. The question before this Court is, whether a proper enquiry was held by respondent No.1 in conformity with the provisions of section 22 of the Act. After going through the impugned order, I find that the basis on which the show cause notice was issued to the petitioner, no proper enquiry was conducted before coming to the conclusion that the petitioner has some direct or indirect nexus with the defaulters. Mere relationship is not sufficient to come to this conclusion. It can be just a chance that the petitioner happens to be relation of a defaulting party. It can also be a matter of chance that he is carrying on the same business which was being carried on by the defaulting party and from the same premises. Bu....
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....ted v. State of Gujarat, rendered on 28.3.2014 in Tax Appeals No.157 and 158 of 2014, wherein the court observed that the scope of the appeal before the Tribunal was confined to the legality of the order of assessment passed by the Assessing Officer under the central sales tax regime and the legality of the order of the Commissioner (Appeals) dismissing the appeal of the assessee. The Tribunal in exercise of jurisdiction under appellate powers under section 73 of the GVAT Act could not have set aside that portion of the order of the Assessing Officer which was not even in appeal before itself. 10.17 It was accordingly, urged that the appeal deserves to be allowed and that the questions formulated by the court are required to be answered in favour of the appellant. 11. Opposing the appeal, Ms. Maithili Mehta, learned Assistant Government Pleader, invited the attention of the court to the order passed by the first appellate authority, to point out that the authority has referred to numerous transactions made by the appellant which are suspicious in nature. It was submitted that even if the transactions referred to by the first appellate authority are not taken into consideratio....
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....ntroducing a new provision or deleting an existing provision with retrospective effect per se shall be violative of Article 14 of the constitution. If that stand is accepted, then the necessary corollary shall be that legislature has no power to legislate retrospectively, because in that event a vested right is effected; of course, in special situation this court has held that such exercise was violative of Article 14 of the constitution. Reference in this connection may be made to the cases of State of Gujarat & Another v. Raman Lal Keshav Lal Soni & others,,(1983) 2 SCR 287; T. R. Kapur V. State of Haryana, 1986 (Supp) SCC 584; and Union of India v. Tushar Ranjan Mohanty, 1994(5) SCC 450. In the case of State of Gujarat v. Raman Lal (supra) a Constitution Bench on the facts and circumstances of that case observed: "The legislation is pure and simple, self-deceptive, if we may use such an expression with reference to a legislature-made law. The legislature is undoubtedly competent to legislate with retrospective effect to take away or impair any vested right acquired under existing laws but since the laws are made under a written Constitution, and have to conform to the d....
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....rant interference. 12. Before adverting to the merits of the rival contentions, it may be germane to quickly refer to the facts of the case. The record of the case shows that a notice dated 3.7.2015 came to be issued to the appellant in Form 401 under rule 48 of the GVAT Rules calling upon the appellant to pay the outstanding assessed tax dues for the years 2010-11 and 2011-12 and submit a challan evidencing payment thereof within eight days. The above notice was followed by a notice dated 17.12.2015, issued under sub-section (5) of section 27 of the GVAT Act in Form 104 prescribed under sub-rule (3) of rule 10 of the rules. A perusal of the said notice indicates that the Commercial Tax Officer has formed the belief that from 17.11.2010, with a view to evade payment of taxes, the appellant has: (c) not paid the outstanding tax/interest/penalty of Rs. 11,85,465/- for the period 1.4.2011 to 31.3.2012; (d) has not paid tax/interest/penalty of Rs. 74,573/- for the period 16.11.2010 to 31.3.2011; and (k) he has failed to produce the books of accounts. 13. Thereafter, the Commercial Tax Officer passed an order dated 12.1.2016, cancelling the registr....
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....f natural justice. 15. The appellate authority, in the order dated 3.8.2016, has placed reliance upon the record of the search proceedings and referred to transactions with numerous parties on the basis of details obtained from the list of transactions, and has observed that the dealer has stated that their assessment for 2010-11 and 2011-12 is completed. Against the order passed for 201011, the Tribunal has given its decision and it is required to be noted that the dealer had admitted that their transactions were bogus, and in the appeal preferred before the Tribunal the dealer had asked for relief only qua the penalty. The appellate authority has further noted that the purchase and sales from the dealers referred to in the order are ab initio void and that the dealers are involved in planned tax evasion with the intention of evading payment of tax to the Government, in view whereof, there is reason to believe that the appellant is also involved in evasion of tax. The appellate authority has thereafter referred to various main symptoms of bogus billing as enumerated in the said order. Thereafter the appellate authority has observed that the appellant has admitted that its trans....
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....rnment revenue. Reliance was placed upon the decision of this court in State of Gujarat v. Nageshi Enterprise, rendered on 23.11.2016 in Special Civil Application No.1122 of 2016 and it was submitted that since the appellant had paid the tax and interest amount, it is deemed to have accepted the tax liability. Thus, indirectly the appellant was not an honest tax payer, and the payment made by him, indicates that the transfers were not genuine. 16.1 Before the Tribunal, on behalf of the appellant, it was submitted that as per the provisions of section 27(5)(i) of the GVAT Act, if the appellant had without entering into a transaction of sale, issued any tax invoice, retail invoices, bill or cash memorandum then and then only the authority had the right to cancel the registration. It was submitted that the payment of tax could not be considered as covered under the provisions of that sub-section. The Tribunal has referred to paragraph 7.1 of the above decision in the case of State of Gujarat v. Nageshi Enterprise (supra) and has referred to the order passed by the cancelling authority wherein it has tick marked the reason for cancellation as 'failed to pay tax due from you'. The Tr....
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....n is concerned, namely, whether, on the facts and in the circumstances of the case, the Gujarat Value Added Tax Tribunal was justified in confirming ab initio cancellation of the registration certificate of the appellant, it may be germane to refer to sub-section (5) of section 27 of the GVAT Act which reads as under:- "(5) If a dealer- (a) has failed to file three consecutive returns under this Act; (b) knowingly furnishes incomplete or incorrect particulars in his returns with a view to evade tax; (c) has failed to pay the tax due for three consecutive tax periods from him under the provisions of this Act; (d) having issued tax invoice or retail invoices, has failed to account for the said invoices in his books of account; (e) holds or accepts or furnishes or causes to be furnished a declaration, which he knows or has reason to believe to be false; (f) [....DELETED] (g) has been convinced of an offence under this Act, or under the earlier law; (h) discontinues his business and has failed to furnish information regarding such discontinuing , (i) without entering into a transaction of sale iss....
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....on of the Commissioner. Since sub-section (5) of section 27 of the GVAT Act does not contain the words "from a date not earlier than the date of the order", this is a clear indication of the legislative intent, not to curtail the date of cancellation of registration to the date of the order of cancellation of registration. In other words, sub-section (5) of section 27 of the GVAT Act permits the Commissioner to cancel the certificate of registration even with retrospective effect. 22. The question that then arises for consideration is, whether in the facts of the present case, the Commercial Tax Officer was justified in retrospectively cancelling the registration of the appellant from the next date after it was issued. 23. From the facts referred to hereinabove, it is evident that the sole valid ground on which the notice under sub-section (5) of section 27 of the GVAT Act was issued was on the ground of non-payment of assessed tax dues. Insofar as production of books of accounts is concerned, the said ground is a ground for suspension of registration and not a ground for cancellation. In the opinion of this court, such an infraction with regard to nonpayment of assessed tax ....
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....dealer with retrospective effect. Thus, retrospective cancellation has a cascading effect and innocent parties have to bear the brunt of such cancellation; and as experience shows, once the registration of a dealer is cancelled ab initio, the Department treats even those transactions which were valid at the time when they were made, to be invalid and initiates proceedings against all those dealers who have made transactions in the past with such dealer whose registration is cancelled retrospectively. However, if the registration of such a dealer is cancelled prospectively, it affects only the dealer concerned, and in respect of those past transactions that are proved to be invalid they can be dealt with in the assessment and action can also be taken against those parties who have entered such invalid transactions. When the registration of a dealer is cancelled in accordance with law and such cancellation is published by the Commissioner in the manner provided under sub-section (11) of section 27 of the GVAT Act, those who deal with such dealer knowing full well that his registration has been cancelled, deal with him at their own peril. However, a person who deals with a dealer havi....
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....ctice adopted by this Tribunal, when the tax and interest are paid, penalty is normally deleted. Even otherwise, there was no justification of levying penalty at the rate of 150% of tax and even there is no justification of retaining of 75% of penalty in appeal by the learned Deputy Commissioner. He has therefor submitted that the entire penalty should be deleted." 28. Thus, while levy of tax, interest and penalty had been challenged by the appellant in the appeal, in view of the normal practice adopted by the Tribunal, the learned advocate for the appellant confined the challenge only to the levy of the remaining amount of penalty. In the opinion of this court, confining the challenge only to the penalty component in the light of the normal practice of the Tribunal can by no stretch of imagination be construed as an admission on the part of the appellant that the transactions in question were invalid. In State of Gujarat v. Nageshi Enterprise (supra), on which reliance has been placed by the Tribunal, this High Court has recorded thus: "7.1. xxxxxxxx "At this stage it is required to be noted that in the present case the respondent has specifically admitted tha....
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....ent of tax, interest and penalty. However, the order cancelling the registration has been passed on two grounds; firstly that the appellant had not produced challan evidencing payment of the outstanding dues; and secondly, in the interest of the Government revenue as the transactions were suspicious. Thus, while the notice in Form 104 was issued on one ground, in the order cancelling the registration, the cancelling authority has travelled beyond the grounds stated in the show-cause notice and has added a new ground, namely, in the interest of the Government revenue as the transactions were suspicious. 31. Section 27 of the GVAT Act bears the heading, 'Suspension or Cancellation of Registration'. Sub-section (1) of section 27 provides for cancellation of registration on the ground of discontinuance or transfer of business or the dealer having ceased to be liable to pay tax. Sub-section (5) of section 27 provides for the contingencies in which the Commissioner can cancel the certificate of registration of a dealer. Sub-section (5A) of section 27 provides for suspension of the registration on the grounds set out therein. One such ground as contemplated in clause (e) thereof is tha....
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....e appellant is bad on two counts; firstly, it travels beyond the show cause notice and is, therefore, in breach of the principles of natural justice; and secondly, the registration has been cancelled on grounds extraneous to sub-section (5) of section 27 of the GVAT Act. 34. In the appeal preferred by the appellant, the appellate authority has found that the tax and interest had been paid and penalty had been waived by the Tribunal, but instead of allowing the appeal on the ground that the sole ground on which the show cause notice was issued stood complied with, has proceeded to enter into an inquiry of the transactions entered into by the appellant with different entities which were downloaded from the details found online and relying upon such material, has upheld the order of cancellation. The appellate authority has also found that the appellant had admitted that the purchases were bogus and presumed that the purchases being bogus, the sales also must be bogus. The appellate authority has therefore, travelled much beyond the scope of the show cause notice and has placed reliance upon the material which was not subject matter of the show cause notice issued to the appellant ....
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....4) In disposing of an appeal, the Appellate Tribunal may, after giving the parties a reasonable opportunity of being head either in person or by a representative. (a) in the case of an order of assessment or penalty. (i) confirm, reduce, enhance or annul the assessment or penalty or both; (ii) set aside the assessment and direct the assessing authority to make a fresh assessment after such further enquiry as may be directed; or (iii) pass such other orders as it may think fit; or (b) in the case of any other order, confirm, cancel or vary such order." 5. Considerable emphasis was laid by counsel for 'the appellant upon sub-section(4) which indicates what things the Appellate Tribunal may do while disposing of an appeal and in particular it was pointed out that under 'sub-section(4)(a)(i) the Appellate Tribunal has been given power 'to enhance the assessment" while disposing of an appeal against an order of assessment after giving the party a reasonable opportunity of being heard and it was urged that such power could be exercised even when the appeal against the Appellate Assistant Commissioner's assessment order....
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.... 36. Section 73 of the GVAT Act provides for appeal. Sub-section (6) thereof provides that subject to such rules or procedure as may be prescribed, an appellate authority may pass such order on appeal as it deems just and proper. In the present case, the show cause notice was issued on only one ground, and hence, in view of the settled legal position, the cancelling authority could not have gone beyond the show cause notice. Therefore, in an appeal preferred against the order of the cancelling authority, the first appellate authority could not have gone beyond the scope of the show cause notice and taken into consideration totally new facts for the purpose of upholding the cancellation of registration. 37. Sub-rule (1) of rule 57 of the GVAT Rules provides that before an appellate or revising authority passes an order in appeal or revision which is likely to affect the appellant or applicant or any other person adversely, it shall serve notice in Form 503 and shall give him a reasonable opportunity of being heard. 38. Form 503 is the format prescribed for notice under section 73 or section 75 of the GVAT Act informing the party that the appellate/revising authority propose....