Case Law Details
Jagdamba Marble Vs Joint Commissioner (Appeals) (Chhattisgarh High Court)
The Chhattisgarh High Court allowed a petition filed by Jagdamba Marble challenging the cancellation of its GST registration. The cancellation was based on findings that the business was non-operational at its registered address, as the company had relocated without updating the GST portal. Although a physical verification confirmed the business’s operations at the new location, the appellate authority upheld the cancellation, citing a “Red Alert Notice” related to alleged fraudulent input tax credit (ITC) transactions. The petitioners argued that the cancellation violated their fundamental rights and natural justice principles, as the issues stemmed from an administrative oversight. The court found procedural lapses in the cancellation and appellate processes and directed the authorities to revoke the GST registration, enabling the petitioner to resume business activities. This judgment underscores the importance of procedural fairness in GST compliance and the necessity for businesses to update their registration details promptly to avoid disruptions.
FULL TEXT OF THE JUDGMENT/ORDER OF CHHATTISGARH HIGH COURT
1. Petitioners have filed this petition under Article 226/227 of the Constitution of India seeking following relief:-
(a) That this Hon’ble Court may kindly be pleased to allow the present writ petition.
(b) That, this Hon’ble Court may kindly be pleased to issue writ/order/direction to respondents thereby holding the impugned orders passed by respondent no.1 and 2 in Annexure P/1 and P/2 as issued to the petitioner as without authority of law and bad in law and/or in violation of fundamental rights and/or in violation of principles of natural justice and quash/set aside the same.
(c) That, this Hon’ble court may kindly be pleased to issue writ/order/direction to respondents to revoke the GST registration of the petitioner.
(d) That, this Hon’ble court may kindly be pleased to issue writ/order/direction to call for records of the case.
(e) That, to issue order/s, direction/s, writ/s or any other relief/s as this Hon’ble Court deems fit and proper considering the facts and circumstances of the present case and in the interest of justice.”
2. Relevant facts for disposal of this petition is that the petitioners herein are engaged in the business of ‘supply of marbles & allied products’ having ‘GSTIN: 22BNOPS6836G1ZL’ under the Chhattisgarh Goods & Services Tax Act, 2017 (for short, ‘CGST Act 2017’). Vide order dated 26/06/2023 (Annexure P-2), GST registration of the petitioner has been cancelled by respondent No.2/Assistant Commissioner stating that they do not doing any business from the specified place, however, petitioners have duly submitted before respondent No.2 that they have shifted their business in the new premises, but could not amend the place of business in the common GST portal, but respondent No.2 did not consider the same and cancelled their GST registration. Thereafter, petitioners have preferred an appeal before respondent No.1/Joint Commissioner seeking revocation of cancellation of GST registration, to which, respondent No.1 has duly conducted a physical verification of new business premises of the petitioners and found that the petitioners are doing the business from new premises, but they did not amend the said details in the GST portal, however, due to “red alert notice” being issued, respondent No.1 has rejected the said appeal vide impugned order dated 28.11.2023 (Annexure P-1). Hence this petition.
3. Learned counsel for the petitioners submits that respondent no.1 erred in passing the impugned order Annexure-P/1 as it has been passed against the mandate of Section 29 of the CGST Act 2017. The Jagdamba Marble, Gram Temri, Mana Camp, Raipur is a proprietorship firm engaged in the business Trading of Marble and Allied products. The GST registration of the said firm was duly taken by the petitioners on 18/04/2019 and specified the principal place/address of business as ‘2nd Floor, Q 326, R.D.A Colony, Boriya Khurd, Raipur, Chhattisgarh’ (hereinafter referred to as old place of business). After sometime in the month of December 2022, the petitioners have shifted their business to a new place ie ‘Gram Temri, Mana Camp, Raipur, Chhattisgarh 492015’ (hereinafter referred to as new place of business). Respondent No.2 conducted the physical verification of old place of business on 12/06/2023 and found that the business was not operated from the old place, the petitioners could not co-operate in said physical verification as he was out of town. The respondent-authority issued a show cause notice to the petitioners on 22/06/2023 to cancel the GST registration of their firm, to which, petitioners immediately submitted the reply on the same day stating that due to lack of knowledge inadvertently they could not amend the details of new place of business in the GST portal, however, respondent No.2 did not consider the same and passed the order Annexure P-2 on 26/06/2023 and thereby cancelled the GST registration of firm of the petitioners mentioning therein that petitioners did not conduct any business from the old place of business. Thereafter, petitioners filed an appeal before respondent no.1 challenging the order Annexure P-2, to which, respondent no.1 directed the respondent no.2 to again conduct a physical verification of the new place of business of the petitioners. Respondent no.2 again conducted the physical verification of the new place of business and submitted a report on 26/10/2023 before respondent no.1 wherein mentioned that business was found operational by the petitioners in new place, however, respondent no.1 rejected the appeal by the impugned order Annexure P-1 based on the fact that though the business have been found operational from new place of business but a “Red alert” notice has been issued to the petitioners due to which the GST registration is not liable for revocation, which is bad in law, because respondent no.1 has contravened the provision of Section 107 (11) of the CGST Act, 2017 in not making any inquiries against the ITC passed and/or availed by the petitioners. Section 107 (11) duly provides for confirm, modify or annul the order appealed against but the same by no means empowers the respondent no.1 add something new in the order appealed against. Hence, respondent no.1 has acted beyond the powers conferred upon him as it has no power vested to go beyond the show cause notice and the impugned order appealed against. Learned Counsel further submits that a bare reading of the “Red Alert Notice” clarifies that the same was issued by the respondent based on the fact that the business of the petitioners was not found in the old place of business and, due to which, the ITC passed on to the buyers of the petitioners is fake and liable to be recovered by the buyers. The respondents are well vested with powers to again issue a clarification stating that business has been found to be operational from a new place of business and same was not amended by the petitioners due to lack of knowledge and the ITC passed by the petitioners is valid, but same has not been done by the respondents. The act of the respondents in not revoking the GST registration of the petitioners is against the Article 19 (1) (g) and Article 21 of the Constitution of India, because the petitioner no. 2 is unable to carry on his business as he is unable to issue any invoice due to which he is unable to supply any goods leading to a stand still in his business operations due to which his Right to Life and livelihood is impacted which is against Article 21. Learned Counsel lastly contended that the petitioners are willing to pay the taxes but are unable to do so because cancellation has been duly effected from 18/04/2019, i.e., the date of registration, due to which the petitioners are unable to furnish returns namely FORM GSTR-1 & GSTR-3B and pay taxes thereof. The act of respondents in not revoking the GST registration is causing revenue leakage to the Government. In support of his contention, learned Counsel places reliance upon the judgment passed by hon’ble Supreme Court in case of Neelima Misra vs Harinder Kaur Paintal and others reported in AIR 1990 SC 1402.
4. Learned State Counsel opposes the submission of counsel for the petitioners and would submits that the petitioners have preferred the present Writ Petition being aggrieved by impugned orders Annexuer P-1 & P-2 whereby GST registration of the petitioners’ firm has been cancelled. The petitioners were issued with a Registration Certificate wherein the principal address/place of business was mentioned as “2nd Floor, Q-326, R.D.A. Colony, Boriya Khurd, Raipur, District Raipur (CG). 492013″ and said certificate was valid from 18-04-2019. As per provisions of Section 28 of the GST Act, every registered person who has been assigning with Unique Identity Number is required to inform the proper officer of any change in information furnished at the time of registration or subsequent thereto and on such application the proper officer shall ascertained the facts and approve or reject the amendment in the registration. The petitioners ought to have moved application informed GST REG-14 before the Proper Officer for amendment of his registration which the petitioners have failed to do and this fact has been admitted by the petitioners themselves before the concerned authority as well as before this Court. As per Section 35 of the CGST Act 2017 every registered person is require to keep and maintain at his principal place of business as mentioned in the certificate of Registration a true and correct account of production or manufacture of goods, Inward and Outward supply of goods or services or both, Stocks of goods, Input tax credit availed, Output tax payable and paid and such other particulars as may be prescribed. Spot verification under Rule 25 of the Central Goods and Services Tax Rules, 2017 (for short, CGST Rules 2017) was conducted wherein it was found that the principal place of business as mentioned in the Registration Certificate of th petitioners was actually a flat/apartment situated in the 2nd Floor, Q-326, R.D.A. Colony, Boriya Khurd, Raipur. It was further found that the business was not functioning in the said address/place. A panchanama (Annexure R-1) was also prepared and, thereafter, verification report Annexure R/2 was prepared. In view of the above facts, the petitioners were issued with a Show-Cause-Notice dated 22-06-2023 and they have simply said that they could not amend the principal place of business, therefore, as per provisions of Section 29 of the CGST Act 2017 and Rule 21 (a) of the CGST Rules 2017, the Registration Certificate of the petitioners have rightly been cancelled. The petitioners have preferred an appeal before the respondent No.1 seeking revocation of GST Registration to which the Appellate Authority has considered the case of petitioners and again conducted a spot verification at the new place of business ie “Gram Temri, Mana Camp, Raipur (C.G) 492015” as has been mentioned by the petitioners themselves. The spot inspection was conducted on 26-10-2023 and it was found that the petitioners are running their business from village Temri, Mana Camp. Raipur (C.G) 492015, and the State Tax Inspector had submitted a favourable report in favour of the petitioners. The State Tax Inspector proposed to revoke the cancellation and activate the GST number of the petitioners. Though the proposal for revocation of cancellation and activation of GST number was proposed as mentioned above, respondent No.1 found that after cancellation of registration of the petitioners vide order dated 26-06-2023, a ‘Red Alert Notice’ was issued with respect to the petitioners and as per said notice a Special All India Drive against the Fake GST Registration had been initiated on the guidelines formulated to verify the premises of suspected registrant of GST and to detect fake registration in order to thwart any unscrupulous attempts to pass on fraudulent input tax credit and prevailed tax. In this connection since the petitioners were found to be non- existing and a fake registrant. It was observed from the record that the petitioners have passed on fraudulent input tax to various parties without actual supply of goods. The detail of the recipient of such input tax credit and the amount from the fake registrant was also enclosed along with the said notice. Since the petitioners were found to be non-existing at the principal place of business, they was treated to be a fake registrant and a notice with respect to the same was issued against them. As per said notice, the petitioners had passed on fraudulent input tax credit to various parties without actual supply of goods. It is highly unlikely that a firm can carry out a business of Granite, Marbles, and Kota Stones Etc. from a flat/apartment that to situated on the 2nd floor. From the Electronic Credit Ledger of the petitioners, it appears that every month there has been balance of stocks amounting to huge amount of money and, therefore, it is absolutely impossible for anyone to conduct a business of Granite, Marbles, Kota Stones Etc. from an aforesaid flat and to stock products of huge amounts every month. In view of above, this petition deserves to be dismissed.
5. Heard learned counsel for the parties and perused the impugned orders as well as evidence/material available on record.
6. Section 29 of the CGST Act, 2017 deals with the cancellation or suspension of registration. Section 29 (2) is relevant for disposal of this case and the same is reproduced below:-
“29.Cancellation or suspension of registration.-
(1) xxxxxxx
(2) The proper officer may cancel the registration of a per-son from such date, including any retrospective date, as he may deem fit, where,
-(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
(c) any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:
Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard.
[Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.]”
7. Rule 21 of the CGST Rules 2017 sets out the grounds on which the registration may be cancelled. The said Rule is set out below:
“21. Registration to be cancelled in certain cases -The registration granted to a person is liable to be cancelled, if the said person,-
(a) does not conduct any business from the declared place of business; or
(b) issues invoice or bill without supply of goods or services (or both) in violation of the provisions of this Act, or the rules made thereunder; or
(c) violates the provisions of section 171 of the Act or the rules made thereunder.
(d) violates the provision of rule 10A.
(e) avails input tax credit in violation of the provisions of section 16 of the Act or the rules made thereunder; or
(f) furnishes the details of outward supplies in FORM GSTR-1 under section 37 for one or more tax periods which is in excess of the outward supplies declared by him in his valid return under section 39 for the said tax periods; or
(g) violates the provision of rule 86B.”
8. A bare reading of above will make it clear that Section 29 of the CGST Act 2017 read with Rule 21-a of the CGST Rules 2017 are the only provisions which lay down the process of cancellation and the grounds on which the proceedings can be invoked by the department for cancellation of registration. Suspension can also be done only for the same reasons. No other ground beyond the statutory mandate could be taken into consideration for cancellation of GST registration.
9. Petitioners are engaged in the business of trading of marble and allied products, they had GST registration with the respondent-department under the CGST Act 2017 in which principal place of business is specified as ‘2nd Floor, Q-326, RDA Colony, Boriya Khurd Raipur (CG)’. A physical inspection was conducted at the place of business and the petitioner was found closed and non-fucntional at the principal place of business. Therefore, a show cause notice was issued to petitioner for cancellation of GST registration issued in favour of petitioner for violating the provisions of Rule 21 (a) of the CGST Rules 2017 i.e. not found conducting any business from the declared place. Petitioner submitted reply to show-cause notice intimating that he has changed the place of business, however, inadvertently for want of knowledge the same could not be intimated to the department. Dissatisfied with reply submitted by petitioner, respondent No.2 cancelled the GST registration of petitioner.
Against the cancellation order, the petitioner filed an appeal before the appellate authority i.e. respondent No.1 and prayed for revocation of registration. Meanwhile, the petitioner intimated the department about the change in address of place of business and also updated in GST portal. Along with appeal, a report of the State Tax Inspector has also been filed in which it has been reported that during physical verification conducted on 26.10.2023, business was found functional at the new place ie village Temri, Ekta Nagar, Mana Camp, Raipur. It is also mentioned in the report that Assistant Commissioner, State Tax, Circle-3 Raipur has also recommended for revocation of registration of petitioner.
10. Perusal of copy of notice dated 10.7.2023 (Annexure R-4) annexed along with return filed on behalf of respondents/State would show that during special drive against fake registrations, petitioner is found to be non-existent business entity and engaged in bill trading activities, and therefore, immediate action to block/recover the fraudulent income tax credits available by petitioner is recommended. There is nothing on record of this writ petition to show as to what action has been taken thereafter against the petitioner.
11. Respondent No.1 by the order impugned Annexure P-1 dismissed the appeal of the petitioner by recording that though business place of petitioner was found to be functional as per report of State Tax Officer, but the Reporting Officer has not examined the petitioner in respect of Red Alert Notice issued to him and as such, the report is incomplete. Relevant portion of the order impugned is extracted below for ready reference:-
12. It is well settled that it is beyond the competence of an authority to make out in favour of the department a case which the department had never canvassed and which the petitioner had never been required to meet. The Hon’ble Supreme Court in the case of Commissioner of Central Excise, Bhubaneswar -I versus Chambdany Industries Ltd reported in 2009 (9) SCC 466 as also in case of of Precision Rubber Industries Pvt. Ltd. vs. Commissioner of Central Excise, Mumbai reported in 2016 (334) ELT 577, that no new case would have been set up or decided contrary to the show cause notices and that the Department is not allowed to travel beyond the show cause notice.
13. In case of Ramlala vs. State of UP and others reported in 2023 SCC OnLine (All) 2479, it is propounded that a person must be accorded a fair chance to put up his case and therefore the authorities cannot traverse beyond the show cause notice. Relevant paragraphs are extracted herein:
“9. The principle that emerges from the above judgments is patently clear that a show cause notice is required to provide details of the nature of the offence and the grounds on which the show cause notice has been issued. Furthermore, the order that is subsequently passed, based on the show cause notice, cannot go beyond the said show cause notice and cannot in any manner penalise the noticee on grounds that were not stated in the show cause notice.
10. The rationale for not allowing the respondents from going beyond the realm of the show cause notice is that the petitioner has to be given a chance to put up his case with regard to the said show cause notice. In the event, a particular case is made out in the show cause notice and the order passed subsequently is beyond the said show cause notice, the same would amount to violation of the principles of natural justice, as the petitioner would not have been aware of the new grounds or new factual elements and could never have placed his case for the above before the authority concerned. It is in this background that the Supreme Court in umpteen judgments has laid down the law that an order passed by an authority cannot go beyond the scope of the show cause notice. In fact, the Supreme Court in the case of The Board of High School and Intermediate Education, U.P. v. Kumari Chitra Srivastava, (1970) 1 SCC 121 has categorically stated that the principles of audi alteram partem are required to be followed even if the same is burdensome in nature. Justice S.M. Sikri in his inimitable style stated as follows:
“Principles of natural justice are to some minds bur- densome but this price – a small price indeed – has to be paid if we desire a society governed by the rule of law.”
14. In the case at hand, from the order impugned it transpires that respondent No.1 while adjudicating the appeal of petitioner against the cancellation of registration and dismissed the same on the ground that the reporting officer has not examined the petitioner with respect to ‘red alert notice’ issued by the department to the petitioner and as such, report is incomplete, which is clearly impermissible in law. Thus, it is apparent and abundantly clear that respondent No.1 has completely travelled beyond the scope of show cause notice because the regarding the ground on which appeal of petitioner is dismissed by impugned order i.e. issuance of red alert notice, there is no whisper either in the show-cause notice or order cancelling the registration. Further, it also amounts to violation of principles of natural justice as neither a proper show-cause notice has been issued nor any opportunity of hearing was given to the petitioner with respect to allegation of red-alert notice i.e. non-existing unit and fake registration. It is also now well settled that before adjudicating any issue which is against the interest of a party; opportunity of hearing should be granted to him. Accordingly, in the opinion of this Court, respondent No.1 has committed an error while confirming the cancellation of registration solely on the basis of non-examination of petitioner on the point of red alert notice when the same was not the issue in the show cause notice and also ignoring the report of the Sales Tax Officer as also recommendation of the Assistant Commissioner, State Tax, Circle-3 Raipur for revocation of registration of petitioner.
15. Perusal of record would show that petitioner has intimated the change of business premises to the department through GST Portal. Thereafter, on 26.10.2023 the State Tax Officer concerned conducted physical verification of the changed placed of business and petitioner is found to be conducting business from new place declared on 26.6.2023. It has also been reported that for want of knowledge, petitioner could not intimate the department about the change in place of business. The reason of cancellation of registration was that during spot verification at the principal place of business, the same was found closed and non-functioning and since the petitioner has already rectified the said defect by intimating new address of place of business to the department as well as through GST portal, which was also found operational during spot verification, therefore, in the considered opinion of this Court, no fruitful purpose would be served in refusing to revoke the GST registration of petitioner.
For the foregoing discussions and reasons, the writ petition is allowed. Impugned order, Annexure P-1, passed by respondent No.1 affirming the order dated 26.6.2023, Annexure P-2, is hereby set aside and GST registration of the petitioner is hereby revoked. Petitioner is directed to file GST returns for the period till date, if not filed, in accordance with law within a period ‘30 days’ from the date of restoration of GST registration of petitioner by respondent Department.
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