Case Law Details
Limton Metals Limited & Anr. Vs Superintendent, Lalbazar Range III & Ors. (Calcutta High Court)
In a recent ruling, the Calcutta High Court addressed the legal implications of GST registration cancellation in the case of Limton Metals Limited & Anr. Vs Superintendent, Lalbazar Range III & Ors. The court examined a writ petition filed against the cancellation of the GST registration of Limton Metals. The primary contention revolved around the adequacy of the reasons provided in the show-cause notice for the cancellation.
The case began with a show-cause notice issued on January 19, 2024, which outlined the grounds for the cancellation of Limton Metals’ GST registration under the Central Goods and Services Tax Act, 2017. The notice cited “others” as the reason for the cancellation, a vague term that the petitioners argued did not comply with the statutory requirements.
Legal Arguments
Ms. Mukherjee, representing the petitioners, contended that the notice was inadequate as it failed to specify the grounds for cancellation clearly. She emphasized that Limton Metals is a registered company that has been filing regular returns with the Ministry of Corporate Affairs. Supporting documents were provided, which aimed to establish the legitimacy of the company and its operations. Ms. Mukherjee asserted that the cancellation order, issued on January 31, 2024, was not justified given the lack of specific reasons.
Conversely, Mr. Banerjee, representing the respondents, argued that the show-cause notice did provide sufficient information. He referred to documents attached to the notice that indicated investigations had raised concerns regarding the legitimacy of Limton Metals. The investigation suggested that the company might have been created solely to facilitate the passing of irregular Input Tax Credit (ITC) to other entities, without any actual supply of goods or services.
Mr. Banerjee further highlighted that the location of Limton Metals was reportedly untraceable during inspections, supporting the decision to initiate cancellation proceedings under Section 29 of the GST Act.
Court’s Evaluation
Upon hearing both parties, the court reviewed the documents and the arguments presented. The judges noted that while the petitioners claimed insufficient reasoning in the show-cause notice, the respondents had indeed provided supporting documentation that indicated serious concerns about the legitimacy of Limton Metals.
However, the court also acknowledged procedural deficiencies. Specifically, the court pointed out that Rule 25 of the Central Goods and Services Tax Rules, 2017, which outlines the necessary procedures for verifying a business’s existence, had not been strictly followed. The court indicated that the petitioners had not been properly notified of attempts to verify their business location, which is a critical aspect of due process in such matters.
In a crucial point of the judgment, the court noted the petitioners’ reluctance to cooperate with further inspections. The judges observed that this refusal raised doubts about the petitioners’ intentions and the bona fides of their operations. The court stressed that an unwillingness to allow inspection could suggest that the petitioners were withholding information.
Conclusion
Ultimately, the court dismissed the writ petition filed by Limton Metals Limited, concluding that the cancellation of the GST registration could not be overturned. While acknowledging that the procedural approach taken by the respondents might not have been ideal, the court held that it was not fundamentally flawed or without basis. The presiding judges ruled that since the petitioners did not demonstrate a willingness to resolve the issues raised by the respondents through further verification, the court found no grounds to intervene.
The ruling underscores the importance of specificity in show-cause notices regarding GST registration cancellations. It also highlights the necessity for businesses to maintain transparency and cooperate with regulatory authorities to ensure compliance and address any concerns regarding their operations.
In this case, the court emphasized that the burden of proof lies with the business entities to demonstrate their legitimacy, particularly in instances where their registration is being challenged. The decision reaffirms the position that vague grounds such as “others” are insufficient for justifying the cancellation of GST registrations without appropriate evidence and procedures.
FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT
1. The present writ petition has been filed, inter alia, challenging the show cause notice dated 19th January, 2024, for cancellation of the petitioner no.1’s registration under the Central Goods and Services Tax Act, 2017 (hereinafter referred to as the “said Act”) as also the order dated 31st January, 2024 cancelling the petitioner no.1’s registration under the said Act.
2. Ms. Mukherjee, learned advocate representing the petitioners by placing reliance on the aforesaid show cause notice submits that the same has not been issued in consonance with the provisions of Section 29 of the said Act. It is submitted that the show-cause notice does not disclose reasons as to why the petitioner no.1’s registration under the said Act is liable to be cancelled. Under the column reasons, “others” have been mentioned. According to the petitioners, the word “others” has not been specified as a ground for cancellation of registration under the said Act. It is submitted that the petitioner no.1 is a registered company and has been regularly filing returns with the Ministry of Corporate Affairs and such fact would corroborate from a copy of the print out from the Ministry of Corporate Affairs which is annexed at page 34 of the writ petition. According to the petitioners, despite the fact that the petitioner no.1 had responded to the aforesaid show cause notice, the respondents have purported to cancel the said registration of the petitioner no.1 by passing the order dated 31st January, 2024, which was served on the petitioner no.1 only on 1st February, 2024. In the facts as stated above, it is submitted that the order of cancellation cannot be sustained.
3. Mr. Banerjee, learned advocate representing the respondents submits that in the instant case, the petitioner no.1 was duly notified the circumstances as to why the aforesaid show cause notice had been issued. By referring to the said show cause, it is submitted that the show cause includes supporting documents. From the documents appearing at pages 37 and 38 of the writ petition it would transpire that on the basis of an investigation carried on, since, it prima facie appeared that the petitioner no.1 is a fake entity which was created only to pass on irregular ITC to the recipient of invoices without underlying supply of goods or service or both, appropriate action under Section 29 of the said Act was initiated. He submits that in course of inspection, location of the petitioner no.1’s place of business could not be identified. Such fact, according to the respondents would corroborate from the Panchnama and the report of the postal department which is placed before this Court, a copy whereof is taken on record.
4. In the circumstances as aforesaid, it is submitted that there is no irregularity on the part of the respondents in passing the aforesaid order. It is still further submitted that the aforesaid proceeding was initiated by invoking the powers conferred on the proper officer by virtue of Section 29(2)(e) of the said Act.
As such no interference is called for.
5. Heard the learned advocates appearing for the respective parties and considered the materials on Although, a lot of argument has been advanced by the learned advocate representing the petitioners that the show cause notice did not identify and/or specify the reasons it would, however, transpire from the show cause, that it referred to certain supportive documents which were also made over to the petitioner no.1 along with the aforesaid show cause notice. From the document appearing at page 37 of the writ petition, being a communication issued by the Assistant Commissioner, it would transpire that a prima facie opinion had been formed that the petitioner no.1 was a fake entity and was created only to pass on irregular ITC to the recipient of invoices without underlying supply of goods or services or both. This aforesaid information was thus, passed on the petitioners before taking the final decision and by affording opportunity to the petitioner no.1 to explain.
6. Having regard to the aforesaid, it cannot be said that the petitioner no.1 was not disclosed the reasons as to why the show cause had been issued. However mere disclosure of reasons, in my view, does not satisfy the requirement of the provisions contained in Rule 25 of the Central Goods and Services Tax Rules, 2017 (hereinafter referred to as the “said Rules”). A perusal of the aforesaid Rule would demonstrate the mode and manner in which the physical verification of the business premises in certain cases are required to be carried out. Admittedly, in this case, the petitioners were not notified of the attempt made by the respondents to identify the petitioner no.1’s place of business. Although, Mr. Banerjee, by placing reliance on the endorsement made by the postal authorities on a letter dated 17th January, 2024 attempts to establish that the petitioner no.1 is not in existence, I am of the view that such a procedure to establish the existence or non-existence of a company is unknown in law. Be that as it may, taking into consideration the fact that on physical verification the existence of the petitioner no.1’s business location could not be located by the respondents and since, the petitioners complain of procedural irregularity in connection with the physical verification of the petitioner no.1’s business premises, this Court to test out the bona fide of the petitioners, had sought for the views of the petitioners whether the petitioners are ready and willing to cooperate for a further inspection to be conducted by the respondents in accordance with the Rule 25 of the said Rules. Unfortunately, the petitioners’ advocate insists that unless the order as aforesaid is set aside, the petitioners are not ready and willing to permit the respondents to inspect the petitioner no.1’s business premises.
7. Having regard to the aforesaid, and the reluctance of the petitioners to corporate for a further inspection raises serious doubts as regards bona fide of the petitioners. Although, the procedure adopted by the respondents to cancel the petitioner no.1’s registration under the said Act may not be strictly as per the procedure laid down, however, the same cannot be said to be per se illegal or without any basis, especially when the petitioners are not interested to have the factual determination as regards the existence of the petitioner no.1’s business premises made by the respondents, tested out by a further inspection. The above raises a presumption that the petitioners are withholding information and have not approached this Court with clean hands. In the facts noted above, I am of the view that the petitioners are not entitled to any relief under Article 226 of the Constitution of India.
8. The writ petition stands dismissed.
9. There shall be no order as to costs.
10. Urgent Photostat certified copy of this order, if applied for, be made available to the parties upon compliance of necessary formalities.
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