Kartik Oil Industries (Huf) Vs State of Rajasthan (Rajasthan High Court)
The Rajasthan High Court considered a writ petition filed by Kartik Oil Industries (HUF) seeking quashing of the Order-in-Appeal dated 28.07.2023, whereby the Appellate Authority dismissed the petitioner’s appeal and upheld the Order-in-Original dated 12.06.2023 cancelling the petitioner’s GST registration.
The petitioner, a Hindu Undivided Family engaged in the business of trading edible oil, had been registered under the GST laws with effect from 18.01.2022. According to the petition, the petitioner purchased goods from registered suppliers against tax invoices, transported goods through tankers supported by goods receipts and e-way bills, made payments through banking channels, filed GST returns, and availed input tax credit.
The Court noted that the matter involved two rounds of proceedings. During the first round, a physical verification conducted on 16.12.2022 recorded that the petitioner’s declared place of business was closed and no business activity was found. Based on that report, a show cause notice in Form GST REG-31 proposing cancellation of registration was issued and the registration was suspended. The petitioner submitted its reply on 20.12.2022, responded to summons issued under Section 70 of the RGST Act, 2017, and furnished the required documents. After considering the material, the authorities dropped the cancellation proceedings by order dated 08.03.2023 in Form GST REG-20, and the suspension was revoked.
Subsequently, a second round of proceedings commenced on 19.04.2023 through a show cause notice in Form GST REG-17, alleging that the petitioner had issued invoices without supply of goods or services in contravention of the Act and the Rules. The petitioner submitted its reply on 28.04.2023. During the pendency of these proceedings, another physical verification was carried out on 01.06.2023, which again recorded absence of business activity at the premises and concluded that the petitioner’s transactions were not supported by actual movement of goods. Relying on these findings, the Proper Officer cancelled the GST registration by order dated 12.06.2023 on the ground that invoices had been issued without supply.
The petitioner filed a statutory appeal on 26.06.2023. A notice dated 12.07.2023 fixed the hearing on 20.07.2023, but the record from the adjudicating authority had not yet reached the Appellate Authority. After receipt of the record on 24.07.2023, a fresh notice was issued through the online portal fixing the hearing on 28.07.2023. As no one appeared on either date, the Appellate Authority dismissed the appeal ex parte on 28.07.2023, affirming the cancellation of registration.
The High Court observed that the appeal was disposed of in a short period after the effective notice. It noted that the absence on 20.07.2023 stood explained because the appellate record had not yet been received, as reflected by the issuance of the fresh notice after receipt of the record on 24.07.2023. The Court further recorded that the absence on 28.07.2023 resulted from the petitioner’s counsel being out of station and unaware of the listing, circumstances beyond the petitioner’s own control.
The Court considered two factors significant. First, it found that no prejudice would have been caused to the Revenue by granting another opportunity of hearing, particularly since Section 107(13) of the GST Act allows the Appellate Authority up to one year from the filing of the appeal to dispose of it. The Court observed that there was no statutory necessity to dispose of the appeal immediately after providing only four days between the effective notice and the hearing. Secondly, it noted that cancellation of GST registration carries serious civil consequences by extinguishing the petitioner’s ability to carry on business lawfully under the GST regime, and such an order should not rest on an appellate adjudication where the appellant was not heard despite a reasonable explanation for non-appearance.
Holding that denial of a reasonable opportunity of hearing would offend the principles of natural justice, the High Court clarified that it expressed no opinion on the merits of the allegation that invoices had been issued without supply of goods. Those issues were left for fresh consideration by the Appellate Authority.
Accordingly, the High Court set aside the Order-in-Appeal dated 28.07.2023, directed the petitioner to appear before the Appellate Authority, Kota, on 3rd August, and directed the Appellate Authority to grant the petitioner a personal hearing before passing fresh orders on merits in accordance with law. All pending applications were also disposed of.
FULL TEXT OF THE JUDGMENT/ORDER OF RAJASTHAN HIGH COURT
1. The petitioner, an HUF, seeks quashing of the Order-in-Appeal dated 28.07.2023 passed by Respondent No. 3, whereby the appeal preferred by the petitioner against the Order-in-Original dated 12.06.2023, cancelling the petitioner’s GST registration, was dismissed and the said Order-in-Original was upheld.
2. The petitioner is a Hindu Undivided Family engaged in the business of trading edible oil at Ramganj Mandi, Kota, and is registered under the GST laws (Registration No. 08AAMHM8705L2ZK, w.e.f. 18.01.2022). In the ordinary course of business, the petitioner purchases edible oil from registered suppliers against tax invoices; the goods are transported by tankers under goods receipts and e-way bills; payments are routed through banking channels; and the petitioner has been filing GST returns and availing input tax credit under the GST enactments.
2.1 During the first round of proceedings (December 2022 – March 2023), on 16.12.2022, pursuant to an order of the Additional Commissioner, the State Tax Officer conducted a physical verification of the petitioner’s declared place of business and reported that the premises were found closed with no business activity at site. On the strength of that report, a show cause notice in Form GST REG-31 proposing cancellation of registration was issued the same day and the registration was suspended. The petitioner replied on 20.12.2022; summons under Section 70 of the RGST Act, 2017 followed on 10.01.2023, in response to which the petitioner furnished the documents sought. Upon consideration of the material, the cancellation proceedings were dropped by order dated 08.03.2023 in Form GST REG-20 and the suspension was revoked.
2.2 However, second round ensued on 19.04.2023, fresh cancellation proceedings were initiated by a show cause notice in Form GST REG-17, this time alleging that the petitioner had issued invoices without supply of goods or services, in contravention of the Act and the Rules. The petitioner replied on 28.04.2023.
2.3 During the pendency of these proceedings, a second physical verification was conducted on 01.06.2023, which again recorded that no business activity was being carried on from the premises and concluded that the petitioner’s transactions were not supported by actual movement of goods. By order dated 12.06.2023, the Proper Officer cancelled the petitioner’s GST registration on the ground of issuance of invoices without supply.
2.4 The appeal filed by petitioner led to ex parte dismissal. The petitioner preferred a statutory appeal on 26.06.2023. A notice dated 12.07.2023 fixed the hearing for 20.07.2023; upon receipt of the record from the adjudicating authority, a fresh notice dated 24.07.2023 fixed the hearing for 28.07.2023. No one appeared for the appellant on either date, and by order dated 28.07.2023, the Appellate Authority dismissed the appeal and affirmed the cancellation.
2.5 Hence, this writ petition.
3. Learned counsel for the parties have been heard on the averments in the petition vis-à-vis the reply.
4. The appeal, filed on 26.06.2023, was disposed of within a mere sixteen days of effective notice, in hot haste, so it appears to us. No doubt, the petitioner even earlier did not appear on 20.07.2023, however, on said date, on prior information from the office of the Appellate Authority itself, the record had not yet been received from the adjudicating authority. The record reached the Appellate Authority only on 24.07.2023, on which date a fresh notice was issued through the online portal fixing the hearing four days later, on 28.07.2023. The petitioner’s counsel before the Appellate Authority was out of station for about a week and had no knowledge of this listing. Instead of granting a further opportunity, the Appellate Authority mechanically passed the ex parte order dated 28.07.2023. Notwithstanding, that the Section 107(13) of the GST Act allows the Appellate Authority a period of one year from filing (i.e., until 25.06.2024) to decide the appeal. There was thus no statutory compulsion to precipitate the disposal.
5. Furthermore, on a conspectus of the record, the position that emerges is a narrow one. The non-appearance on the first date (20.07.2023) is satisfactorily explained, the record itself had not reached the Appellate Authority, a fact borne out by the issuance of the fresh notice upon its receipt on 24.07.2023. The non-appearance on the second date (28.07.2023) is attributable to the default of the petitioner’s counsel, who was out of station and unaware of the listing, circumstances beyond the petitioner’s own control. The case is thus one of a party being visited with an ex parte adverse order essentially for the fault of its counsel.
6. Two considerations weigh with us:
(a) No prejudice to the Revenue from a fresh hearing. Section 107(13) itself contemplates disposal of the appeal within one year of filing. The appeal having been filed on 26.06.2023, ample time remained; a gap of four days between the effective notice (24.07.2023) and the hearing (28.07.2023), followed by immediate ex parte disposal, cannot be characterised as a fair and reasonable opportunity in the circumstances.
(b) Serious civil consequences. Cancellation of GST registration extinguishes the petitioner’s ability to carry on business lawfully under the GST regime. An order carrying such consequences ought not to rest on an appellate adjudication in which the appellant was never heard, when the failure to appear stands reasonably explained.
7. We are therefore of the considered view that the petitioner deserves to be afforded a reasonable opportunity of hearing to present its case and defence before the Appellate Authority. Denial of such an opportunity would offend the principles of natural justice and would, in any event, only breed further avoidable rounds of litigation. We make it clear that we express no opinion on the merits of the allegation that invoices were issued without supply of goods; that is for the Appellate Authority to decide afresh.
8. Accordingly, the Order-in-Appeal dated 28.07.2023 is set aside. The petitioner shall appear before the Appellate Authority, Kota, on 3rd August. Upon such appearance, the learned Appellate Authority shall grant the petitioner an opportunity of personal hearing and thereafter proceed in accordance with law and pass fresh orders on merits.
9. All pending applications also stand disposed of.
