Case Law Details
S.S. Traders Vs State of U.P (Allahabad High Court)
Quashed cancellation of GST registration order as no opportunity of being heard was given
The Hon’ble Allahabad High Court (Allahabad HC) in the matter of M/S. S.S. Traders v. State of U P and 3 Others [WRIT TAX No. – 651 of 2021 dated November 02, 2021], quashed the cancellation of GST registration order as no opportunity of hearing was accorded. Further, said that the denial of opportunity of hearing to the assessee as is mandated in the first proviso to Section 29(2) of the Central Goods and Services Tax Act, 2017 (CGST Act) vitiates the proceedings as well as the orders cancelling the registration.
M/S. S.S. Traders (“the Petitioner”) filed the current petition being aggrieved of the order dated July 17, 2021 passed by Additional Commissioner, Grade-2 (Appeal), Commercial Tax, Muzaffarnagar (“the Respondent”) in which the order dated May 28, 2021 for cancellation of GST registration of the Petitioner was upheld.
Factually, the Petitioner was engaged in the business of purchase and sale of Iron and Steel Goods and it was registered under the provisions of the CGST Act. By means of show-cause notice the Petitioner was directed to show cause why its registration should not be cancelled. The Petitioner submitted its reply but by means of order the registration of the Petitioner was cancelled for the reason that no one was found at the place of the business and neither any business activity nor any bill book were found at the time of the survey and the landlord of the premises had informed the survey team that no one came there to start a business and no business activity takes place there.
The cancellation of GST registration order further observed that after scrutinizing the return it was found that the Petitioner had purchased goods worth Rs. 29,50,000/- from non-existing dealers and availed bogus input tax credit with mala fide intention. It was also found that after granting registration the Petitioner did not furnish bank account details in due time in terms of Rule 10A of Central Goods and Services Tax Act Rules, 2017 (“the CGST Rules”).
Whereas the Petitioner contended that the show cause notice reveals no details as to whether any survey had actually taken place or not and that what was the date and time fixed for a personal hearing. It is contended that the show cause notice, which is imperative compliance of the principles of natural justice was mandatorily required to furnish basic details regarding the date and time of the personal hearing.
The Hon’ble Allahabad High Court held that the denial of opportunity of hearing to the Petitioner as is mandated in the first proviso to Section 29(2) of the CGST Act vitiates the proceedings as well as the orders cancelling the registration of the Petitioner. Resultantly, the order of cancellation of registration dated May 28, 2021 as well as order passed in the appeal dated July 17, 2021 are quashed. And the petition is allowed.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
Heard Sri Praveen Kumar, learned counsel for the petitioner and Sri Jagdish Mishra, learned Standing Counsel, appearing for the respondents.
By means of this petition, the order dated 17.7.2021, passed by respondent No.3, Additional Commissioner, Grade-2 (Appeal), Commercial Tax, Muzaffarnagar has been challenged, whereby the order passed by the Registering Authority/Competent Authority cancelling registration of the petitioner under Section 29 of the U.P. GST Act, 2017 (hereinafter referred to as the Act of 2017) has been upheld. The order of cancellation dated 28.5.2021 passed by respondent no. 4, Assistant Commissioner has also been challenged.
It appears from the writ petition that the petitioner, which is a proprietorship concern was engaged in the business of purchase and sale of Iron and Steel Goods. It was registered under the provisions of the Act of 2017 on 15.2.2021. By means of a show cause notice dated 12.5.2021, the petitioner was directed to show cause within seven working days from the date of service of the notice why its registration should not be cancelled. The petitioner submitted its reply on 24.5.2021 but, by means of an order dated 28.5.2021, the registration of the petitioner was cancelled for the reason that no one was found at the place of the business and neither any business activity nor any bill book were found at the time of survey and the landlord of the premises had informed the survey team that no one came there to start a business and no business activity takes place there. The order further observes that after scrutinizing the return, it was found that the petitioner had purchased goods worth Rs. 29,50,000/-from non-existing dealers and availed bogus input tax credit with mala fide intention. It was also found that after granting registration, the petitioner did not furnish bank account details in due time in terms of Rule 10A. The appeal filed by the petitioner before respondent no.3 was also dismissed, citing the very same reasons as in the order of cancellation.
The contention of the learned counsel for the petitioner is that the show cause notice reveals no details as to whether any survey had actually taken place or not and that what was the date and time fixed for personal hearing. It is contended that the show cause notice which is an imperative compliance of the principles of natural justice, was mandatorily required to furnish basic details regarding the date and time of personal hearing. Learned counsel has drawn attention of the Court to paragraph No.11 of the writ petition, in which a categorical averment has been made that after issuance of show cause notice, no opportunity of hearing was granted to the petitioner by the respondent no. 4 and neither any date was fixed for hearing nor the petitioner was called to place its case before the respondent no.4. It is contended that this paragraph has not been replied by the respondents in the counter affidavit. It is, therefore, contended that the order impugned cancelling registration of the petitioner having been passed without affording an opportunity of hearing to the petitioner in violation of first proviso to sub-section (2) of Section 29 of the Act of 2017 is a nullity in the eyes of law and deserves to be set aside. It is contended that the order passed in the appeal having failed to notice the averments made on behalf of the petitioner, is also liable to be set aside.
Learned Standing Counsel has taken pains to justify the order of cancellation of registration and the order passed in the appeal. It is contended that the proceedings were initiated under sub-section (1) of Section 29 of the Act of 2017, which do not provide for opportunity of hearing. It is stated that the show cause notice is auto-generated, it provides seven working days time to submit a reply and, therefore, it does not lie in the mouth of the petitioner to contend that he was not afforded an opportunity of hearing.
Having considered the rival submissions and on perusal of the record, it appears that the submission of the learned counsel for the petitioner has substance. The show cause notice dated 12.5.2021 that has been enclosed as Annexure-3 to the writ petition reads as follows:
“Form GST REG-17/31
(See Rule 22(1)/sub-rule (2A) of rule 21A)
Reference Number: ZA090521025026Y
Date: 12/05/2021
To
SACHIN SANGAL 6,NEAR KIRAN FARMS HOUSE WALI GALI, BAMANHERI, ROORKEE ROAD, MUZAFFARNAGAR, Muzaffarnagar, Uttar Pradesh-251001.
Show cause notice for Cancellation of Registration
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. Taxpayer found Non-Functioning/Not Existing at the Principal Place of Business.
You are hereby directed to furnish a reply to the notice within Severn working days from the date of service of this notice.
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 exparte on the basis of available records and on merits.
Please note that your registration stands suspended with effect from 12.5.2021.
Place: Uttar Pradesh.
Date: 12.5.2021
Vinod Mitra
Assistant Commissioner,
Muzaffar Nagar Sector-3, Muzaffarnagar,Saharanpur Uttar Pradesh”.
The order for cancellation of registration that has been enclosed as Annexure No.4 refers to the reply dated 24.5.2021 submitted by the petitioner in response to the show cause notice dated 12.5.2021 and states that the respondent no.4 had examined the reply of the petitioner and submissions made at the time of hearing and is of the opinion that his registration is liable to be cancelled for following reasons:-
“1. NO ONE FOUND AT THE BUSINESS PLACE NEITHER ANY BUSINESS ACTIVITY FOUND NOR ANY BILL BOOK AT THE TIME OF SURVEY. LANDLORD SHRI YATENDRA PUNDIR TOLD NO ONE CAME HERE TO START A BUSINESS NOR ANY BUSINESS ACTIVITY TAKES PLACE HERE. AFTER SCRUTINIZING THE RETURN IT WAS FOUND THAT YOU HAVE PURCHASED OF RS. 2950000/ FROM NON EXISTING DEALER I.E. M/S NISHTHA EXIM GSTIN; 07AYKPM9933GIZY AND AVAILED BOGUS ITC WITH MALAFIDE INTENTION. IT IS ALSO FOUND THAT AFTER GRANTING REGISTRATION YOU HAVE NOT FURNISHED BANK ACCOUNT DETAILS IN DUE TIME AS RULE 10A”.
The appellate order only refers to the grounds raised in the appeal, but, it does not address the same and merely reiterates the findings of the order of the respondent no.4 cancelling the registration.
Sub-Section (2) of Section 29 of the Act of 2017 reads as follows:
“(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 there under 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 subsection (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.”
Rule 21 of the U.P. GST Rules, 2017 provides that 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 in violation of the provisions of the Act, or the rules made thereunder; or (c) violates the provisions of section 171 of the Act or the rules made thereunder.
Sub-rule (1) of Rules 22 of the UP. GST Rules, 2017 reads as follows:
“(1) Where the proper officer has reasons to believe that the registration of a person is liable to be cancelled under section 29, he shall issue a notice to such person in FORM GST REG-17, requiring him to show cause, within a period of seven working days from the date of the service of such notice, as to why his registration shall not be cancelled.”
Form GST REG-17 that is prescribed under Rule 22 (1) of the UP GST Rules, 2017 is as follows:
Form GST REG-17
[See rule 22(1)]
Reference No.
Date
To
Registration Number (GSTIN/UIN)
(Name)
(Address)
Show Cause Notice for Cancellation of Registration
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.
2.
3.
You are hereby directed to furnish a reply to this notice within seven working days from the date of service of this notice.
You are hereby directed to appear before the undersigned on DD/MM/YYYY at HH/MM. 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.
Place:
Date:
Signature
(Name of the Officer) Designation Jurisdiction.
[Note: Your registration stands suspended with effect from—– (date).]
A bare perusal of the show cause notice format prescribed under Rule 22(1) shows that there is a difference in the show cause notice dated 12.5.2021 issued to the petitioner and in the form of the show cause notice quoted aforesaid. The specific date and time is necessarily required to be mentioned in the notice for showing cause which is conspicuous by its absence in the notice to the petitioner. Moreover, the proviso to subsection (2) of Section 29 mandates opportunity of hearing being provided to the person whose registration is proposed to be cancelled before cancelling the registration.
Paragraph 11 of the writ petition categorically mentions that after issuance of the show cause notice, no opportunity of hearing was granted to the petitioner by the respondent no.4 and that neither any date was fixed for hearing nor the petitioner was even called to “place the case” before the respondent no.4.
In the counter affidavit, the aforesaid paragraph-11 of the writ petition has not been replied. This Court, therefore, cannot but observe that the factum of not giving an opportunity of hearing, and not mentioning the date and time fixed for hearing in the show cause notice has been admitted by the respondents. Though, the learned Standing
Counsel has referred to the contents of paragraph-10 of the counter affidavit, which is in fact a reply to paragraph no. 7 of the writ petition, to contend that the opportunity of personal hearing mentioned in the show cause notice is by way of an alternative arrangement where the petitioner has not made any written submission, in the opinion of the Court that contention is fallacious. Where the statute provides for a procedure then the procedure is to be followed in the letter and spirit of the statute or not at all.
In the considered view of this Court, the denial of opportunity of hearing to the petitioner as is mandated in the first proviso to sub-section (2) of Section 29 of the Act of 2017 vitiates the proceedings as well as the orders cancelling the registration of the petitioner.
The reference made by the learned Standing Counsel to sub-section (1) of Section 29 of the Act of 2017, in the opinion of the Court is not correct. The provisions of sub-section (1) of Section 29 would come into play where (a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or (b) there is any change in the constitution of the business; or (c) the taxable person, other than the person registered under sub-section (3) of section 25, is no longer liable to be registered under section 22 or section 24. The learned Standing Counsel has not been able to demonstrate that the case of the petitioner is liable to be covered under any of the three clauses as aforesaid. Sub-Section (1) of Section 29 would come into play only in the given set of circumstances that are mentioned in sub-section (1) and for no other reasons.
In view of the facts and circumstances narrated above, the order of cancellation of registration dated 28.5.2021 as well as order passed in the appeal dated 17.7.2021 are quashed.
This petition is, accordingly, allowed.
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