GST Registration Cancellation Quashed Due to Absence of Reasons in SCN

Afzal Husain Saiyed Vs Principal Commissioner of Central Tax (Bombay High Court)

Summary: The Bombay High Court considered a petition challenging the cancellation of GST registration and attachment of bank accounts under the Central Goods and Services Tax Act, 2017. The petitioner, engaged in metal scrap trading, was issued summons on allegations of availing Input Tax Credit through fake invoices and was subsequently arrested and placed in judicial custody. Thereafter, a show cause notice for cancellation of registration was issued, and bank accounts were attached. The petitioner contended that the show cause notice and cancellation order did not contain any reasons and were therefore legally defective. It was also argued that the petitioner could not respond to the notice because he was in judicial custody. Regarding bank account attachment, the petitioner submitted that no prior intimation had been given and that the attachment did not satisfy the requirements of Section 83 of the CGST Act. The respondents opposed the petition by referring to alleged ITC transfers and statements recorded during investigation. The High Court held that the show cause notice and cancellation order were arbitrary and illegal because they contained no reasons and violated principles of natural justice. Accordingly, the Court quashed the notice and cancellation order and restored the registration. However, the Court declined to interfere with the bank account attachment, directing the petitioner to avail the remedy under Rule 159(5) of the CGST Rules. The Court permitted the petitioner to file objections within one week, to be decided in accordance with law without limitation objections.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

By this petition filed under Article 226 of the Constitution of India, the petitioner has challenged the cancellation of registration under Central Goods and Service Tax Act by an order dated 5^th October 2023 and attachment of his Bank Account No.4412198904 with Kotak Mahindra Bank and Bank Account No.259904778835 with IndusInd Bank on 12^th September 2023.

2. Brief facts are as under :-

(i) The petitioner is engaged in the business of trading in metal scrap and is registered under Central Goods and Services Act, 2017 (for ppn short “the CGST Act”).

ii. 5^th September 2023, summons were issued to the petitioner in regard to avail of Input Tax Credit (ITC) by using fake invoices.

iii. On 8^th September 2023, the petitioner was arrested and was judicially remanded.

iv. On 18^th September 2023, a show cause notice was issued to the petitioner for cancellation of the registration and on 12^th September 2023, bank accounts were also attached. It is on this backdrop that the present petition is filed.

3. The petitioner has contended that the show cause notice and order for cancellation of the registration do not provide for any reasons which is an incurable defect, and therefore, the same be quashed and set aside. The petitioner also submitted that since he is in judicial custody, he could not respond to the said show cause notice and, therefore, the same is passed ex-parte. The petitioner relied upon the decision of this Court in case of Makesburry India Pvt. Ltd. Vs. State of Maharashtra & Ors. passed in Writ Petition No.7506 of 2023 decided on 3^rd October 2023 in support of his contention that such a notice is bad in law. With respect to the attachment of the bank accounts, the petitioner submitted that no intimation of the same has been given to him by the Respondents and it is only on the intimation from the banks, he came to know that the bankaccounts  are attached.

The 4. petitioner further stated that the attachment is also not in accordance with Section 83 of the CGST Act, inasmuch as, there is no formation of an opinion by the Commissioner. The petitioner, however, alternatively, contended that he may be permitted to avail the remedy available under sub-rule (5) of Rule 159 of Central Goods and Services Tax Rules, 2017 (for short “the CGST Rules”) and to make an application for revocation of the attachments.

5. Per contra, the respondents have drawn our attention to the affidavit-in-reply and more particularly paragraph 22 and submitted that on the date when the show cause notice for cancellation of the registration was issued, the petitioner had transferred ITC amounting to Rs.3,09,60,643/- although he was in judicial custody on that date. The respondents also referred to the statement recorded on 7^th September 2023 to justify the action of cancellation of registration and attachment of the bank accounts. The respondents further submitted that in the statement of the petitioner, he has stated that he does not have any employee in the firm whereas in the petition, he has, on oath, stated that attachment of the bank accounts needs to be lifted since he has to make payment of salaries to his various employees. The respondents also relied upon the decision of this Court in case of Ashok Kumar Vishwakarma Vs. Union of India & Ors. passed in Writ Petition No.11326 of 2023 decided on 4^th October 2023 and contended that insofar as the attachment of the bank accounts are concerned, the petitioner needs to adopt the remedy by invoking sub-rule (5) of Rule 159 of the CGST Rules. The respondents prayed for dismissal of the present petition.

6. We have heard learned counsel for the petitioner and the respondents and with their assistance. We also have perused the documents annexed to the petition and the reply affidavit filed by respondent nos.1 and 2.

7. Having heard learned counsel for the parties, in our view, the show cause notice and order cancelling the registration clearly does not provide for any reason whatsoever for such action being taken against the petitioner and, therefore, there is an incurable defect in the order which cannot be improvised in the reply of the respondents. In our view, the order cancelling the registration ought to have contained reasons for the said cancellation of the registration and in the instant case, no such reason can be found in the order cancelling the registration. This bench in an identical situation, has quashed and set aside such order of cancellation of registration which was bereft of any reason. The petitioner is justified in placing reliance on the decision in case of Makesburry India Pvt. Ltd. (supra). Para 12 of the said decision reads thus:-

“12. Learned counsel for the petitioner would thus be correct in submitting that the impugned order cancelling the petitioner’s registration as also rejecting the petitioner’s appeal are ex-facie without application of mind, as no reasons are set out in both the orders. The petitioner’s contention that the impugned orders are in breach of principles of natural justice and has resulted into unwarranted harassment to the petitioner as much substance. In support of his contention, reliance is placed on the decision of this Court in C.P. Pandey & Co. Vs. Commissioner of State Tax¹, Monit Trading Pvt. Ltd. Vs. Union of India², Ramji Enterprises & Ors. Vs. Commissioner of State Tax & Ors.³ and Nirakar Ramchandra Pradhan Vs. Union of India & Ors.⁴ ”

8. We are, therefore, of the view that insofar as the order cancelling the registration and show cause notice for such cancellation are concerned, the same is arbitrary and illegal.

9. Insofar as the attachment of the bank accounts is concerned, the petitioner and the respondents are at ad idem that the petitioner should avail the remedy provided by sub-rule (5) of Rule 159 of the CGST Rules. We are, therefore, of the opinion that the petitioner needs to invoke sub-rule (5) of Rule 159 of the CGST Rules to the order of attachment in question as the rule itself would permit. Thus, in the facts and circumstances of the case, we are not inclined to exercise our discretionary jurisdiction under Article 226 of the Constitution of India to interfere in the impugned attachment order.

10. We accordingly dispose of the petition in terms of the following order : –

O R D E R

i. The impugned show cause notice dated 18^th September, 2023 is quashed and set aside. The consequential order dated 5th October, 2023 cancelling the petitioner’s registration also would stand quashed and set aside.

ii. We also clarify that we have not precluded the respondents from exercising any other powers as may be available to the respondents in law as the facts and circumstances may warrant.

iii. Needless to observe that setting aside the impugned order would result in the registration of the petitioner being restored. It is, however, clarified that this would not preclude the revenue from issuing any fresh order to suspend the registration as may be permissible in law.

iv. Insofar as the attachment of the bank accounts is concerned, the petitioner is free to adopt the remedy available under sub-rule (5) of Rule 159 of the CGST Rules as the petitioner was bonafide pursuing the present petition. We permit the petitioner to raise an objection by invoking sub-rule (5) of Rule 159 of the CGST Rules within a period of one week from the date of uploading this order. If the same is filed, let the same be decided by the Commissioner in accordance with law without raising any objection as to limitation. All contentions of the parties in that regard are expressly kept open.

v. Petition is disposed of in the above terms. No costs.

Notes:

1 (2023) 10 Centax 11 (Bom.)

2 (2023) 8 Centax 248 (Bom.)

3Writ Petition No.277 of 2023 dated 10.07.2023

4 Writ Petition No.2534 of 2023 dated 11.09.2023