In a recent judgment, the Bombay High Court delivered a critical analysis in the case of Monit Trading Private Limited against the Union of India & Ors. The legal dispute centered around the cancellation of Monit Trading’s registration under Section 29(2) of the CGST Act, 2017. This comprehensive article delves into the intricate details of the judgment, shedding light on procedural irregularities, legal nuances, and the profound observations made by the High Court.
Monit Trading Private Limited found itself entangled in a legal battle for the second time, seeking redress from the Bombay High Court concerning the cancellation of its registration. The genesis of the dispute lay in a show cause notice issued on January 5, 2021, which was notably deficient in specific details regarding the allegations. The notice also raised eyebrows due to the immediate suspension of the petitioner’s registration without clear grounds, a move contested by the petitioner for its procedural irregularity.
Procedural Lapses and Ambiguities
The High Court, in its analysis, underscored the deficiencies in the show cause notice, describing it as vague and ambiguous. The absence of concrete details and the suspension of registration without clear grounds were deemed violations of the principles of fairness and reasonableness. The subsequent order dated January 20, 2021, cancelling the registration retrospectively from July 1, 2017, raised further concerns as it was not part of the initial notice, indicating a lack of procedural transparency.
Unreasonable Cancellation Grounds
The order for cancellation cited the petitioner as a non-genuine entity under the CBIC jurisdiction based on instructions from an unspecified authority. The High Court emphasized the vagueness and lack of clarity regarding these instructions. The absence of any tax dues under Central, State, or integrated tax raised pertinent questions about the validity and reasonableness of such grounds for cancellation.
In response to the defective show cause notice and the subsequent cancellation order, the petitioner sought clarification through a letter to the Assistant Commissioner. The lack of response led to the filing of Writ Petition No. 3024 of 2021. The petition, when disposed of, directed the concerned officer to grant a personal hearing. Despite the petitioner submitting all necessary documents as per the court’s orders, the Assistant Commissioner passed another order on January 31, 2022, without adequately addressing the petitioner’s submissions.
High Court’s Observations
The High Court’s detailed analysis of the case revealed a glaring lack of discussion in the orders about the basis for cancellation. The judgment pointed out the absence of materials provided to the petitioner for allegations such as excessive Input Tax Credit utilization and discrepancies found by the State GST Authority, raising serious procedural concerns.
Violation of Principles of Natural Justice
One of the most critical aspects of the judgment lies in the High Court’s observation regarding the gross breach of principles of natural justice throughout the proceedings. The Court unequivocally set aside both the Assistant Commissioner’s order and the subsequent order by the Appellate Authority, terming their approach untenable and unfair. The court ordered the restoration of Monit Trading’s registration, emphasizing the paramount importance of adherence to procedural fairness and legal principles.
Observations on Officer’s Conduct
A pivotal juncture in the judgment is encapsulated in Point No. 13, where the High Court takes a strong stance against the conduct of the officers involved in the proceedings. The Court scrutinizes the actions of the Superintendent, the Assistant Commissioner, and the Joint Commissioner (Appeals-II), highlighting their deviation from the basic principles of fairness, reasonableness, and the duty to act in accordance with the law.
The first level of scrutiny falls on the Superintendent, who initiated the proceeding and issued the show cause notice. The Court criticizes the Superintendent’s approach, terming it as reckless and akin to acting as if there is no rule of law. The lack of specificity in the show cause notice and the predetermined consequence in the subsequent order raised serious concerns about the officer’s adherence to the elementary principles of natural justice.
Moving on to the Assistant Commissioner, Division-X, CGST and Central Excise, Mumbai, East, the Court observes a significant departure from the principles of fairness. The order of cancellation, dated January 31, 2022, is labeled as “gross breach of principles of natural justice” by the High Court. The lack of discussion on the reasons and the absence of material provided to the petitioner are highlighted, establishing a clear violation of the procedural safeguards that should accompany administrative adjudications.
The scrutiny then extends to the Joint Commissioner (Appeals-II) CGST and Central Excise, Mumbai, who confirmed the order of cancellation. The High Court expresses surprise at the reasons provided by the Appellate Authority, which not only failed to address the breach of natural justice suffered by the petitioner but also relied on materials not supplied to the appellant. The Court emphasizes that the observations made by the Appellate Authority are ex facie untenable, questioning the authority’s understanding of the rules governing registration and its obliviousness to basic legal principles applicable for cancellation.
Judicial Conscience and Accountability
The High Court, in no uncertain terms, deems the case as a gross violation of canons of fairness, reasonableness, and the bounden duty of the officers to act in accordance with the law. The judgment asserts that officers in public positions, wielding drastic powers conferred by law, must exercise such powers with an onerous duty to adhere strictly to the rule of law and avoid reckless actions.
The Court further acknowledges the civil consequences of the orders passed by these authorities, directly affecting the rights of the petitioner guaranteed under Articles 19(1)(g) and 300A of the Constitution. It asserts that while the conduct of an assessee may breach rules and laws, the authorities cannot throw to the wind all cannons of fairness, non-arbitrariness, and lawful procedure required in administrative adjudication.
Implications and Lessons
The Monit Trading case, beyond addressing the specific grievances of the petitioner, serves as a precedent emphasizing the paramount importance of procedural fairness and adherence to legal principles in tax-related matters. The High Court’s pointed observations and reprimands directed towards the concerned officers send a strong message about the responsible exercise of powers conferred by law.
This judgment is not merely a legal victory for the petitioner but a stern reminder to the authorities about the consequences of deviating from the principles of natural justice. The Court’s decision aims to prevent unwarranted litigation and protect the legal rights of citizens, setting a standard for future administrative actions in tax matters.
In concluding its judgment, the High Court orders the restoration of Monit Trading’s registration, providing the respondents with the liberty to follow the due procedure in law. The judgment stands not only as a legal vindication for the petitioner but also as a beacon for fairness, reasonableness, and adherence to the rule of law in the exercise of administrative powers.
However, the High Court goes beyond the relief granted and takes a rare step of expressing its judicial conscience. The Court makes explicit observations on the conduct of the officers involved, underscoring the need for accountability, caution, and a strict adherence to the rule of law in administrative actions. This article, through an in-depth exploration of the Monit Trading case, aims to highlight the legal intricacies, the importance of procedural fairness, and the lessons it imparts for future administrative adjudications.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This is the second occasion the petitioner is required to approach this Court in regard to an action being taken against the petitioner for cancellation of its registration under Section 29(2) of the CGST Act, 2017.
2. At the outset, we may observe that in the present proceeding, we are confronted with an ex facie illegal order passed by the Joint Commissioner (Appeals-II) CGST and Central Excise, Mumbai.
3. The facts as would unfold are:-
Mr. Iyer, learned counsel for the petitioner has drawn our attention to a show cause notice dated 5 January 2021 issued to the petitioner purportedly calling upon the petitioner as to why the registration of the petitioner under the CGST Act should not be cancelled. It needs to be observed that the show cause notice itself, was bereft of particulars. It had no description on any details of the allegations. A perusal of the show cause notice itself would indicate that the well-settled norms of fairness and reasonableness were bypassed, in what can be termed as a vague and ambiguous show cause notice. We also note that the show cause notice itself records that the registration of the petitioner is being suspended from 5 January 2021 (from the date of the show cause notice itself). The show cause notice reads thus:
“1. In case, Registration has been obtained by means of fraud, wilful misstatement or suppression of facts.
Your are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.
Your are hereby directed to appear before the undersigned on 06/01/2021 at 03:25 PM
If you fail to furnish a reply within the stipulated date or fail to appear for personal hearing on the appointed date and time, the case will be decided ex parte on the basis of available records and on merits.
Please note that your registration stands suspended with effect from 05/01/2021.”
4. On the backdrop of such defective show cause notice, which in any case did not refer to any materials in regard to any fraud, willful, misstatement or suppression of fact, the Superintendent Smt. Leela P. Salian proceeded to pass an order dated 20 January 2021 cancelling the petitioner’s registration. The effective date of cancellation of the registration has been set out to be a retrospective date with effect from 1 July 2017, which was also not part of the show cause notice. The petitioner was never called upon to show cause that the registration was proposed to be cancelled ex post facto from 1 July 2017. We extract the said order so as to refer the reasons as set out to cancel the petitioners registration, which reads thus:
“1. Non Genuine Entitles under CBIC Jurisdiction.
Your registration is being cancelled as per the instructions from the Authority.
The effective date of cancellation of your registration is 01/07/2017.
Determination of amount payable pursuant to cancellation: Accordingly, the amount payable by you and the computation and basis thereof is as follows:
The amounts determined as being payable above are without prejudice to any amount that may be found to be payable you on submission of final return furnished by you.
You are required to pay the following amounts on or before failing which the amount will be recovered in accordance with the provisions of the Act and rules made thereunder:
5. It is clear from the reading of the above order that there were no tax dues either under the Central, State for the integrated tax payable by the petitioner. Peculiarly the order says that the registration has been cancelled as per the instructions from the As to which authority issued instructions whether they were oral or in writing, to whom they were given and for what reason, and whether on such instructions registration could at all be cancelled are question raised before us. The petitioner at no point of time was informed as to what were the instructions from any authority, nor the same forms part of the show cause notice. If on oral instructions such actions are to be resorted, it is nothing short of the concerned officer acting, as if there is no rule of law. In our opinion, there cannot be more vagueness, ambiguity leading to arbitrariness than what has been actually recorded in the order cancelling the petitioner’s registration.
6. In the aforesaid circumstances, and obviously confronted with such order, the petitioner through its advocate addressed a letter dated 9 March 2021 to the Assistant Commissioner of State Tax, requesting that the petitioner be furnished with documents on the basis of which the registration certificate has been cancelled. Such letter categorically referred that the order cancelling petitioners registration had recorded that it has been cancelled pursuant to the instructions from the authorities. The petitioner called upon the said officer to provide copies of all such materials, record, documents, panchanama, copy of statement recorded of employee of company etc., on the basis of which it was informed to the petitioner that the petitioner was not a non-genuine taxable person. Such request of the petitioner being not responded, the petitioner approached this Court in Writ Petition No.3024 of 2021. The said Writ Petition was disposed of by a co-ordinate Bench of this Court by an order dated 6 January 2022. In disposing of such petition, the Court observed that the application of the petitioner for revocation of the order cancelling its registration was pending with the concerned officer, who shall grant a personal hearing to the petitioner and decide the same. Pertinently, this Court also granted liberty to the petitioner to file written arguments and produce documents in support of its submissions, while keeping open all contentions of the parties. In pursuance to the said orders passed by this Court, the petitioner by its advocate’s letter dated 11 January 2022 submitted all the documents, namely, the Sales register, Samples sale invoices, Purchase register, Purchase invoices, Stock register etc. Although such material was placed before the authority as permitted by the orders passed by this Court, the Assistant Commissioner, Division-X, CGST and Central Excise, Mumbai, East, passed an order dated 31 January 2022 cancelling the petitioner’s registration for the reasons, such order would set out, which reads thus:
“Order for cancellation of Registration
This is in reference to your Writ Petition No.3024 of 2021 dated 06.0 1.2022 regarding revocation of cancellation of GST registration dated 28.01.2021.
* Whereas no reply to notice to show cause has been submitted; or
* Whereas on the day fixed for hearing you did not appear; or
* Whereas the undersigned has examined your reply and submissions made at the time of hearing, and is of the opinion that your registration is liable to be cancelled for following reason(s).
1. As per the investigation carried out by this Commissionerate, M/s Monit Trading Pvt. Ltd. has utilized more ITC in GSTR 3B than what was available in GSTR 2A and subsequently, the ITC has been blocked.
2. As per the Reports submitted by the State GST Authority, the following discrepancies were found.
a. The company is found to be non-existent at their registered principal place of business.
b. The owner of the said premises confirmed that there was no legal rental agreement executed between himself and the TP. The consent letter uploaded by the TP in the portal pertains to different premises.
c. The TP has failed to submit any books of accounts either in the physical form or in the electronic form which were also not available in the registered place of business.
The effective date of cancellation of your registration is 01.07.2017.”
7. It is clearly seen that there is no discussion in the above order as to why and on what material the said officer had reached to the conclusion and/or the basis forming such opinion. There is no material on record to show that any document in regard to the investigation carried out by the office of the Assistant Commissioner was provided to the petitioner, which is one of the grounds for cancellation of the registration, that the petitioner had utilized more Input Tax Credit (ITC) in GSTR 3B than what was available in GSTR 2A. In fact there was not the slightest of reference of any such allegations in the show cause notice. The second ground on which the registration is cancelled was referring to report submitted by the State GST Authority, and which had certain discrepancies as set out in paragraphs 2(a) (b) (c) of the order as noted above. The petitioner was never confronted / supplied any material in this regard. Also for the first time in such order passed by Assistant Commissioner, such reasons have been set out and are being made known to the petitioner. In our opinion, this itself is sufficient to reach a conclusion that the impugned order dated 31 January 2022 passed by the Assistant Commissioner, was in gross breach of principles of natural justice and deserved to be set aside.
8. The petitioner, however, following the due course of law filed an appeal against the order dated 31 January 2022 passed by the Assistant Commissioner, cancelling the petitioner’s registration. The appeal was filed before the Appellate Authority/Joint Commissioner (Appeals-II) as noted above, who has passed the impugned order.
9. It appears from the record that the fate of the petitioner insofar as the approach of the appellate authority is concerned, was not different. The unfairness in fact stood compounded even in the adjudication of the appeal before such high Officer. This is clear from the reading of the impugned order passed by the Joint Commissioner (Appeals-II). The Joint Commissioner (Appeals-II) while confirming the order passed by the Assistant Commissioner, cancelling the petitioner’s registration, has purported to set out reasons. We are quite surprised at the reasons which are set out by the Appellate Authority in confirming the order passed by the Assistant Commissioner. Firstly, the impugned order does not address the issue of breach of the principles of natural justice suffered by the petitioner before the Assistant Commissioner. As stated above, the appellate authority however appears to have compounded the inherent illegality by relying on materials which was never supplied to the appellant and which was also not to the knowledge of the petitioner. The appellate authority also has made observations in the teeth of the rules governing registration and/or oblivious of the basic rules which would be applicable for cancellation of the registration. In such context, we refer to Rule 56(10) which reads thus:
“56. Maintenance of accounts by registered persons.-
(10) Presumption of Maintenance of Documents, Registers or An Books of Account
Unless proved otherwise, if any documents, registers, or any books of account belonging to a registered person are found at any premises other than those mentioned in the certificate of registration, then aforesaid documents. registers or any books of account shall be presumed to be maintained by the said registered person.”
10. This apart there is quite casualness in the appellate authority discharging its statutory jurisdiction, inasmuch as the documents as submitted by the petitioner as permitted to be submitted by orders dated 6 January 2022 passed by the Division Bench of this Court are not bothered to be referred, much less discussed or any reasons attributed on these documents, in recording a blanket conclusion as set out in paragraph 13(D) of the impugned order, that the company was found non-existent and no books of accounts, physical or electronic form, were found maintained at the principal place of business. As pointed out on behalf of the petitioner all the necessary books which were available with the petitioner were submitted, which we have noted above. There is not a whisper of reference to such material in the impugned order passed by the appellate authority. This apart even in regard to the premises of the petitioner, the petitioner had furnished documents and reasons on the rental agreement it had with the sister concern M/s. Kayavlon Impex Pvt. Ltd. The appellate authority nowhere refers as to why such rental agreement would be not acceptable for the petitioner to occupy the premises much less under any rule. The appellate authority is certainly not an authority which would have any jurisdiction which any forums under the Rent Act or under the Companies Act would exercise to comment on the nature of the said agreement. Thus, in our opinion the reasons as set out by the appellate authority in confirming the order passed by the Assistant Commissioner are ex facie untenable. At no point of time, it appears that the petitioner was called upon to furnish any clarification on the legal status or any factual details of the rental agreement or any other documents which were not on the record before the appellate authority. Even the observations which are made in respect of the directors of the petitioner are totally untenable.
11. In the above circumstances, we have no alternative but to set aside the impugned order-in-original dated 31 January, 2022 passed by the Assistant Commissioner, and impugned order passed by the Joint Commissioner, (Appeals-II). We order restoration of the petitioner’s registration, with liberty to the respondents to follow the due procedure in law, in the light of the observations as made by us, in the event if any fresh action is intended to be taken against the petitioner. Ordered accordingly.
12. Although we have granted the above relief, we are not inclined to rest here, when in exercise of our writ jurisdiction, we have come across something which would disturb our judicial conscience. Having considered the facts of the case, we would be failing in our duty if we do not comment on the unfair approach of the officers who have passed the orders as referred by us. Firstly, the approach of the Superintendent at whose instance the proceeding commenced and who issued the show cause notice; secondly, of the Assistant Commissioner, Division-X, CGST and Central Excise, Mumbai, East, who passed the order of cancellation of petitioner’s registration dated 31 January 2022; and thirdly of the Joint Commissioner, (Appeals-II) CGST and Central Excise, Mumbai who passed the impugned orders on the petitioner’s appeal.
13. We would normally not make such observations, however, in our opinion, the present case is gross. It has surpassed all canons of fairness, reasonableness and the bounden duty of these officers to act in accordance with law. Such officers in their public position wield drastic powers which are conferred on them by law, however such powers are coupled with a onerous duty and obligation to be exercised strictly in accordance with law and in no other manner, much less recklessly. As observed above, each of these officers have deviated in adhering to such basic principles in the jurisdiction which they were empowered to exercise as conferred by law. In fact on the edifice of a patently illegal show cause notice, the consequence of which appeared to be predetermined, the first authority proceeded to pass an order against the petitioner cancelling its registration. If the elementary principles of law of adherence to the principles of natural justice, in regard to issuance and adjudication of show cause notices are not being followed by such authorities, the fate of the citizens at the hands of the authorities, is just to be imagined. This is one case which in our opinion is an eye opener. Certainly, the orders passed by these authorities have resulted in civil consequences. It has directly affected the rights of the petitioner guaranteed under Articles 19(1) (g) and 300A of the Constitution. We may observe that in a given case the conduct of the assessee may be howsoever in breach of the rules and law, but that does not mean that the authorities who are to act under law could have powers to throw to the wind all cannons of fairness, non arbitrariness and discard the lawful procedure required to be followed by them in any administrative adjudication. At all material times, such authorities would be required to act in strict adherence to the rule of law in passing orders in discharge of their official duties under the Act and the Rules. Such officers can in no manner have an approach to violate any legal rights of the citizens. We are constrained to make these observations so that other assessees who are similarly situated are not affected at the hands of such officers. The pain and suffering of any person who becomes a victim of such approach needs to be felt and realized by them in resorting to such actions. The authorities cannot drag the assessees into unwarranted litigation. The observations of the Court and the anguish needs to reach these officers.
14. Let a copy of this order be forwarded by Mr. Mishra learned counsel for the Revenue to each of the concerned officers wherever they are posted. Also Mr.Mishra and the office is directed to forward a copy of this order to the Secretary Ministry of Finance, Government of India, so that due care and caution is taken, and officers who are responsible and who can act in accordance with law, man such responsible positions.
15. Disposed of in the above terms. No costs.