Case Law Details
F R Trade Links Vs. State Tax Officer (Kerala High Court)
Disposing a Writ Petition (Civil) in F.R Trade Links Vs. The State Tax Officer & Ors (WPC No. 28917 of 2020 dated: 05.08.2021) the Hon’ble High Court of Kerala has declared that the proper officer is not vested with any power to cancel registration certificate of a dealer, for reasons not prescribed U/s. 29 (2) of the Central Goods & Services Tax Act/State Goods & Services Tax Act, 2017 (CGST Act & SGST Act).
Facts of the case
The registration certificate granted under the provisions of the CGST/SGST Acts to a dealer namely, F.R. Trade Links, was subsequently cancelled. The relevant portion of the show cause notice issued by the proper officer, as extracted in the judgment is as below;
”Whereas on the basis of information which has come to my notice, it appears that your registration is liable to be cancelled for the following reasons:
As per the intelligence squad report your business place is situated in the first floor of the three storied building which is partially completed with structure only and no building number affixed by the local authority.
You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.”
Even though the petitioner has rebutted the imputations by filing a detailed reply, the registration certificate was cancelled for the reasons as extracted from the order itself, as shown below;
”1. As per the new registration case verification report submitted by the inspector of this office dated 14/10/2020 and also the report of ASTO, Squad2, Intelligence wing, Kottayam at Pala dated 11.08.2020, it is observed that F R TRADE LINKS, 6/580-E, THEKKEMURANJOOR BUILDING, ERATTUPETTA – VAGAMON ROAD, ERATTUPETTA, Kottayam, Kerala, 686 121 with GSTIN 32CMEPR0466B1ZG is not functioning in the address given in the registration application at the time of registration. They also reported that, the business place is situated in the first floor of the three storied building which is partially completed with structures only. Said business place is an open space in pillars, having no partition walls or shutter. No building number is seen affixed by the local authority and no stock in the business premises. There is only a banner with phone number & GSTIN in the wall of three storied building. In the circumstances your contention against the SCN issued on 29/09/2020 is not acceptable. Hence the registration is canceled U/s.29(2) of the CGST/SGST Act 2017.”
Upon receipt of the said cancellation order the petitioner has filed an application U/s. 30 of the CGST/SGST Acts for revocation of the cancellation of Registration Certificate, which was also rejected. Thus aggrieved, the dealer approached the Court by a writ petition.
Held by the Court
√ The registration of the petitioner has been cancelled invoking the provision of Sub Section (2) of Section 29 of the CGST Act, 2017, which reads thus:
”29. Cancellation or suspension of registration: (1) xxxxxxxxxxx
(2) The proper officer may cancel the registration of a person 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, willful misstatement or suppression of facts;
Provided that xxxxxxxxxxxxxxxxxxxxxxxxxx
Provided further that xxxxxxxxxxxxxxxxxxxxxxxxxxxx.”
√ It is seen from the foregoing provision of law that the proper officer can cancel registration of a person for the reasons stated in Sub Section (2) of Section 29 of the CGST Act. However, in the present case the proper has failed to establish that the petitioner had contravened any of the provisions of the Act or Rules made thereunder, either in the show-cause notice issued or in the order of cancellation, impugned herein. Out of the five grounds arrayed U/s. 29(2), sub clause [e] has some remote relevance with the present situation (registration has been obtained by means of fraud, willful misstatement or suppression of facts). However, the same is also not seen proved herein.
√ The only reason, in the instant case, for cancellation of the registration is that, business place is situated in a building which is partially completed with structures only and no building number is affixed by the local authority. In fact, this allegation is totally insufficient for the purpose because Sub section (2) of Section 29 does not envisage the contingency of situation of place of business in a partially completed building having no building number affixed on it by the local authority. Consequently, the impugned order of cancellation of registration cannot stand in the scrutiny of law.
√ That apart, as per Rule 25 of the CGST/SGST Rules, where the proper officer is satisfied that the physical verification of the place of business of a person is required due to failure of Aadhaar authentication or due to not opting for Aadhaar authentication before grant of registration, or due to any other reason after the grant of registration, the proper officer may get verification of the place of business, in the presence of the said person, done. Thereafter, the verification report along with the other documents, including photographs, are required to be uploaded in FORM GST REG 30 on the common portal within a period of fifteen working days following the date of such verification. However, in the present case, the proper officer has not complied with this procedure but heavily relied on the report of another officer for cancellation of registration.
√ In the result, the writ petition is allowed, the impugned orders are quashed and set aside. Consequently, the respondents are directed to restore the registration of the petitioner.
Conclusion
♦ In the modern era, it is not desirable to deny or cancel registration under the GST laws relying on hyper technical grounds or on flimsy allegations. Denial of registration to a bonafide person is not at all a way to safeguard the interests of the Revenue. The GST Acts are being enforced by two powerful authorities –viz State GST Departments and the Central Excise & Customs, both are having sufficient infrastructure, enforcement machinery, manpower and advanced tools to curb any kind of tax evasion now a days. As such they are free to track the any dealer to ascertain the bonafides of his business activities. They could make good any leakage in revenue from any dealer or could detain, arrest or cancel the registration when and where the law requires so.
♦ Destroying startup businesses ventured by young entrepreneurs at its threshold on certain hyper technical grounds, happened due to the inexperience, is not fair but unjust and unkind. Now, all our Governments, of Central as well as of various States, are wholeheartedly promoting all startups in our country to revive our economy, particularly in this pandemic situation and also to curb the problem of large scale unemployment.
♦ Moreover, it is held by the Hon’ble High Court of Kerala in Y. Mustaffa, Kanakom Traders Vs. Addl: S.T.O & Another [2002] 10 KTR 192 [Ker] that “Registration is a regulatory measure and denial of registration in almost all cases will lead to a situation that a person is prevented from attending a profession or trade. The pre-conditions are that the application has to be in order and the particulars correctly supplied. That a person is not having a manufacturing unit, or that he had affiliations with another person, or that he has no sufficient paraphernalia for carrying out the business, are insufficient to be projected as reason for denying him registration. It may even go to violate the fundamental rights of a person guaranteed under Article 19 of the Constitution of India”
♦ In Sri Sundha Metals V. CCT, Chennai & Another [2013] 57 VST 73 [Mad] the Hon’ble High Court of Madras has warned the authorities that the Revenue should not obstruct the assesses from carrying on the business at every stage with the tax collector’s point of view, but would deal with the matter from the point of view of the assesse.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
Heard both sides.
2. The petitioner, a registered person, by this petition, is challenging the orders at Exts.P8 and P12 cancelling his certificate of registration under the CGST/SGST Act and rejection of his application for revocation of cancellation of registration certificate.
3. Learned counsel appearing for the petitioner drew my attention to the order of cancelllation of registration and submitted that respondents have invoked provisions under Sub Section (2) of Section 29 of the CGST/SGST Act, 2017 for cancellation of registration of the petitioner. However, the reasons stated in the impugned order at Ext.P8 are not in consonance with the powers conferred by the respondents for cancellation of registration. It is further submitted by the learned counsel appearing for the petitioner that the order for rejection of application for revocation of cancellation also suffers from non-application of mind and it is an unreasoned order, without mentioning any reason for rejection of application for revocation of cancellation. Learned counsel appearing for the petitioner submitted that the petitioner has honestly given all necessary particulars in the application for registration of (Ext.P17) and no case is made out by the respondents that the registration has been obtained by the petitioner by means of fraud, willful misstatement or suppression of facts.
4. Learned counsel appearing for the petitioner, by placing his reliance on judgment of this Court in the matter of Y. Mustaffa, Kanakonam Traders, Erattupetta V. Additional Sales Tax Officer, Pala & Another [(2002) 10 KTR 192] submitted that the matter of registration is merely regulatory in nature and no overbearing importance can be given to minor lapses in such matter.
5. Learned Government Pleader opposed the petition by placing reliance on the counter affidavit. She submitted that several inspections were conducted by the respondents at the principal place of business of the petitioner. It is submitted that during inspection, it was found that no business was conducted at the place of principal business centre. The building was not having any building number or shutter and no books of accounts were placed at that place of principal business. The door was fully opened and some water tanks were kept. The building was found to be having no change in structure during second inspection. In second inspection, it was found that some stock was kept at the new premises near the house of the petitioner, but that place was not added in the GST registration and therefore, it was suspected to be a bogus. The business in the name and style of ‘F.R Trade Links’ was not found functioning in the given address and therefore, the impugned action was taken. Learned Government Pleader tried to place reliance on some other aspects which are unfortunately not mentioned as a reason for cancellation of registration of the petitioner and therefore, it is not necessary to elaborate the same while incorporating the argument of the learned Government Pleader.
6. I have considered the submissions so advanced and also perused the materials placed before me.
7. The impugned order of cancellation of registration of the petitioner is dated 02.11.2020 and is at Ext.P8. Perusal of that order shows that registration is cancelled by invoking provision of Sub Section (2) of Section 29 of the CGST Act, 2017. It is worthwhile to reproduce provisions of Sub Section (2) of Section 29 of the CGST Act, which reads thus:-
”29. Cancellation or suspension of registration: (1) xxxxxxxxxxx
(2) The proper officer may cancel the registration of a person 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, willful 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.”
It is seen from the foregoing provision of law that the proper officer can cancel registration of a person for the reasons stated in Sub Section (2) of Section 29 of the CGST Act. It is not the case of the respondents that the petitioner had contravened any of the provisions of the Act or Rules made thereunder, inasmuch as, no such allegation is levelled against the petitioner either in the show case notice (Ext.P5) nor such accusation is made against him in the impugned order at Ext.P8. My attention is not drawn to contravention of any provision of the Act or Rules framed thereunder by the learned Government Pleader. Similarly, there are no allegations either in the show cause notice or in the impugned order that the petitioner has failed to furnish returns for three consecutive tax periods or that he failed to file returns for a continuous period of six months. It is not averred either in the show cause notice or in the impugned order at Ext.P8 that the petitioner has taken voluntary registration under Sub Section (3) of Section 25, but has not commenced the business within six months from the date of such registration. Now the only provision which remains and empowers the respondent to cancel the registration is indulgence in fraud, willful misstatement or suppression of facts. Unfortunately, this is also not the case sought to be made out by the proper officer in the show cause notice at Ext.P5 or the impugned order at Ext.P8.
8. For better understanding of the matter, let us put on record the relevant portion of the show cause notice making out and conveying the case of the department to the petitioner for soliciting his reply. The relevant portion of the show cause notice (Ext.P5) reads thus:-
“Whereas on the basis of information which has come to my notice, it appears that your registration is liable to be cancelled for the following reasons:
1. As per the intelligence squad report your business place is situated in the first floor of the three storied building which is partially completed with structure only and no building number affixed by the local authority.
You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.”
It is thus clear that the allegation levelled against the petitioner by the respondent department is to the effect that business place is situated in a building which is partially completed with structure only and no building number is affixed by the local authority.
9. Now let us put on record the reason mentioned in the order for cancellation of registration dated 29.09.2020 (Ext.P8), which reads thus:-
“1. As per the new registration case verification report submitted by the inspector of this office dated 14/10/2020 and also the report of ASTO, Squad2, Intelligence wing, Kottayam at Pala dated 11.08.2020, it is observed that F R TRADE LINKS, 6/580-E, THEKKEMURANJOOR BUILDING, ERATTUPETTA – VAGAMON ROAD, ERATTUPETTA, Kottayam, Kerala, 686 121 with GSTIN 32CMEPR0466B1ZG is not functioning in the address given in the registration application at the time of registration. They also reported that, the business place is situated in the first floor of the three storied building which is partially completed with structures only. Said business place is an open space in pillars, having no partition walls or shutter. No building number is seen affixed by the local authority and no stock in the business premises. There is only a banner with phone number & GSTIN in the wall of three storied building. In the circumstances your contention against the SCN issued on 29/09/2020 is not acceptable. Hence the registration is canceled U/s.29(2) of the CGST/SGST Act 2017.”
10. It is thus clear that in consonance with the allegation levelled in the show cause notice, the impugned order is passed for the reason that the business place is situated in a building which is partially completed with structures only and no building number is affixed by the local authority. Even otherwise, the respondent department cannot go beyond the show cause notice issued by it to the petitioner, requiring the petitioner to defend the case against him as conveyed to him in the show cause notice. Thus, this Court will have to examine whether the reasons stated in the show cause notice, which is reproduced in the foregoing paragraph, can be construed as reason for cancellation of registration as per provisions of Sub Section (2) of Section 29 of the CGST Act, 2017. The answer to this question is found to be in negative, because Sub section (2) of Section 29 does not envisage the contingency of situation of place of business in a partially completed building having no building number affixed on it by the local authority. Such is not the reason as contemplated by Sub section (2) of Section 29, authorising the proper person to cancel the registration of a person in exercise of the powers conferred by the relevant provision of the statute. Consequently, the impugned order at Ext.P8 cannot stand in the scrutiny of law. Consequently, the order of rejection of application for revocation of cancellation is also illegal and cannot stand in the scrutiny of law.
11. At this juncture, it is apposite to take note of Rule 25 of the CGST/SGST Rules. According to the provision of this Rule, where the proper officer is satisfied that the physical verification of the place of business of a person is required due to failure of Aadhaar authentication or due to not opting for Aadhaar authentication before grant of registration, or due to any other reason after the grant of registration, the proper officer may get verification of the place of business, in the presence of the said person, done. Thereafter, the verification report along with the other documents, including photographs, are required to be uploaded in FORM GST REG 30 on the common portal within a period of fifteen working days following the date of such verification.
12. In the case in hand, the State Tax Officer, Pala is the proper officer for assessment and he is a competent officer to invoke provisions of Rule 25. The State Tax Officer, Pala is also the registering authority of the petitioner. This officer has issued a notice to cancel the registration of the petitioner in FORM GST REG 17, based on the report of the intelligence officer. It is clear that the State Tax Officer, Pala has himself did not conduct any enquiry as contemplated in Rule 25. He proceeded further to cancel registration, despite the fact that the petitioner was aggrieved by the report of the intelligence officer as seen from the reply tendered by the petitioner. The proper officer, as such, ought not to have proceeded ahead with cancellation of the registration on the basis of report of the intelligence officer. The proper officer ought to have independently assessed the situation, particularly, when the petitioner had produced the receipt of the building tax from the local authority (Ext.P3) to prove the authenticity of his stand. This seems to have been not done by the proper officer. Without considering this document at Ext.P3, the registering authority had cancelled the registration. The application for revocation of cancellation of registration is also rejected by the respondent without proper enquiry in the matter.
In the result, the writ petition is allowed. The impugned orders at Exts.P8 and P12 are quashed and set aside. Consequently, the respondents are directed to restore the registration of the petitioner.
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Author/Blogger: Aji V. Dev, Advocate, High Court of Kerala at Aji V. Dev & Associates, Ernakulam, Kochi, available at ajivdev@yahoo.co.in/ advajivdev@gmail.com/9447788404
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