Case Law Details
Virani Metal Industries v. State of Gujarat (Gujarat High Court)
The Gujarat High Court in M/S Virani Metal Industries v. State of Gujarat (SCA No.13233 of 2022 decided on 30.11.2022) held that the SCN issued without reasons and vague is bad in law and liable to be set aside.
FACTS
M/s. Virani Metal Industries (hereinafter referred to as the “Petitioner”) is engaged in the manufacturing of copper wire from the copper scrap and was registered under the State Goods and Services Tax Act, 2017 (hereinafter referred to as the “SGST Act”) on 09.08.2018.
On 19.08.2021, a search was conducted at the premises of the Petitioner under Section 67(2) of the SGST Act. Panchnama was drawn and documents were seized.
On 06.09.2021, once again the spot verification was carried out and the Petitioner received a SMS regarding the blocking of its Input Tax Credit (hereinafter referred as “ITC”). The Petitioner requested the Assistant Commissioner (State Tax), Surat to provide reasons for blocking of ITC by communication dated 28.09.2021.
On 01.11.2021, summons were issued to the Petitioner by the Directorate General of GST Intelligence (hereinafter referred as the “DGGI”), Vadodara Regional Unit to appear in person on 11.10.2021.
During the pendency of the investigation by DGGI, a Show Cause Notice (hereinafter referred to as the “SCN”) was issued by the Assistant Commissioner (State Tax), Surat proposing to cancel the registration of the Petitioner.
The Petitioner filed a reply to the SCN on 08.10.2021 and further filed an application seeking revocation of suspension of registration.
The Assistant Commissioner (State Tax), Surat vide Order dated 26.10.2021 cancelled the registration of the Petitioner effective from 01.10.2021. The Petitioner further filed an application dated 27.10.2021 seeking revocation of cancellation. The Assistant Commissioner (State Tax), Surat issued a communication dated 24.11.2021 asking the
Petitioner to appear in person on 26.11.2021.
Subsequently, the Petitioner filed an appeal under Section 107 of the SGST Act, challenging the Order dated 26.10.2021 before the Commissioner (Appeals). The Commissioner (Appeals) vide Order dated 09.05.2022 directed the Assistant Commissioner (State Tax), Surat to activate the registration of the Petitioner, which was restored on 12.05.2022.
Another show-cause notice dated 17.05.2022, was served upon the Petitioner proposing cancellation of registration. The Petitioner replied on 25.05.2022, requesting the Department to decide the show-cause notice within two weeks.
The Petitioner was served with a Letter dated 29.07.2022 to appear physically with the documents i.e. bills, e-way bills, transport receipts, VAT receipts, inward and outward entries etc. In the response, the Petitioner informed that all the documents were with the DGGI due to the pending investigation. Despite the reply dated 01.08.2022 of the Petitioner, a suo-moto order dated 03.08.2022 (hereinafter referred to as the “Impugned Order”) was served cancelling the registration with effect from 17.05.2022 and directing the Petitioner to pay the amount within 10 days from the date of the Impugned Order.
Hence, aggrieved by the Impugned Order and the actions of the Assistant Commissioner (State Tax), Surat, the Petitioner approached the High Court of Gujarat by way of a Writ Petition.
ISSUES BEFORE THE HIGH COURT
1. Whether the SCN dated 17.05.2022 is valid as per the provisions of the GST law?
2. Whether the suo moto initiation of proceedings for cancellation of registration is according to the provisions of GST law?
Contention of the Parties
Mr. Anandodaya Mishra on behalf of the Petitioner contended that no provision of the GST law permitted the Respondents to initiate proceedings for cancellation of registration and hence, the Order dated 03.08.2022 is ex-facie illegal and without jurisdiction.
The Petitioner relied upon Aggarwal Dyeing and Printing Works v. State of Gujarat & Ors. (SCA No.18860 of 2021) and argued that the SCN dated 17.05.2022 proposing the cancellation of registration is bereft of any reasons, and is in clear violations of principles of natural justice.
It was submitted that the documents were lying with DGGI in furtherance of pending investigation and the Respondent had cancelled the registration without the application of mind under Rule 22(3) vide order dated 03.08.2022.
The Respondents asserted that the Petitioner was served a SCN dated 17.05.2022 again and a personal hearing was also provided and thereafter the registration was cancelled, hence, there is no illegality in the action of the Respondents.
It was contended that the Petitioner failed to provide the documents and hence, the registration was cancelled. Moreover, ITC was wrongly availed by the Petitioner on the basis of purchases made from bogus firms whose registration have been cancelled ab-initio.
DECISION AND FINDINGS
The High Court observed that the SCN dated 28.09.2021 provided only one day time to the Petitioner to file the reply. Moreover, in the cancellation of registration order dated 26.10.2021, the demand payable by the Petitioner is nil.
The Court opined that the suo-moto initiation of proceedings for cancellation of registration is bad in law as no such liberty was granted by the Commissioner(Appeals). Moreover, there was no specific reason for the initiation of cancellation of registration proceedings and the SCN dated 17.05.2022 does not state any reasons and is vague.
The Court relied on Aggarwal Dyeing and Printing Works v. State of Gujarat & Ors. (SCA No.18860 of 2021) and held that the SCN dated 17.05.2022 is vague and without reasons and was quashed and set aside and the Impugned Order was also quashed and set aside.
The Court provided the liberty to the Assistant Commissioner (State Tax), Surat to issue any fresh SCN with reasons and after providing the opportunity of being heard to the Petitioner and to decide the case on merits and disposed of the petition.
AMLEGALS REMARKS
The Gujarat High Court has upheld that the SCN must have reasons and should be clear and unambiguous. The cancellation of registration Order was set aside. The observation of the principles of nature justice is an essential feature in every judicial, quasi-judicial or administrative proceedings. The reasons for initiation of proceedings are an essential feature for any proceedings.
The present case, was originally argued by Mr. Anandaday Mishra, Founder & Managing Partner, AMLEGALS, who represented the Petitioner in the matter.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. By invoking extraordinary jurisdiction under Article 226 of the Constitution of India, this petition is filed seeking directions to quash and set aside the order dated 03.08.2022, by which the GST Registration of the petitioner is cancelled and to restore the GST Registration forthwith. It is also prayed that the respondents herein be restrained to carry out investigations since the investigation by Directorate General of GST Intelligence (for short “DGGI”) is already pending .
2. The facts in brief are as under:
1. The petitioner is engaged in manufacturing of copper wire from the copper scrap and was registered under the State Goods and Services Tax, 2017 (hereinafter referred to as “the Act, 2017”) on 09.08.2018.
2. Pursuant to issuance of registration certificate, the petitioner was regularly filing monthly and quarterly returns and following the provisions of GST Act.
3. A search at the premises of the assessee was carried out on 19.08.2021, under Section 67(2) of the Act. Panchnama was drawn and documents were seized.
4. Spot verification of the premises was once again carried out on 06.09.2021. The petitioner received SMS that its Input Tax Credit (ITC) has been blocked. Through communication dated 28.09.2021, the petitioner requested the respondent No.3 to provide reasons for blocking of ITC.
5. A summon dated 01.10.2021, was issued by DGGI, Vadodara Regional Unit calling upon the assessee to appear in person on 11.10.2021.
6. During pendency of the said DGGI investigation, a show-cause notice dated 28.09.2021, was issued by respondent No 3, proposing to cancel the registration.
7. The petitioner filed reply dated 08.10.2021, to the show-cause notice and also filed an application dated 18.10.2021 seeking revocation of suspension of registration.
8. The respondent No.3 passed an order dated 26.10.2021, for cancellation of registration. In the order dated 26.10.2021, it is stated that the effective date of cancellation is 01.10.2021. The petitioner made an application dated 27.10.2021, seeking revocation of cancellation of registration.
9. In the meanwhile, the petitioner informed to the respondent about change in address w.e.f. 01.11.2021.
10. In response to the application seeking revocation of cancellation of registration, the respondent issued a communication dated 24.11.2021, calling upon the petitioner to appear in-person on 26.11.2021. As the petitioner was unavailable, request was made for an adjournment.
11. The petitioner filed detailed reply dated 03.12.2021, and also preferred an appeal under Section 107 of the Act before Commissioner (Appeals), challenging the order dated 26.10.2021.
12. The Commissioner (Appeals) vide order dated 09.05.2022, allowed the appeal with directions to respondents to activate the Registration Number of the petitioner.
13. Pursuant to the order of Commissioner (Appeals) dated 09.05.2022, an order dated 12.05.2022 was passed by respondent No.3, restoring registration.
14. Another show-cause notice dated 17.05.2022, was served upon the petitioner proposing cancellation of registration, which reads as under:
“Noncompliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed.”
15. The petitioner filed detailed reply dated 25.05.2022, requesting the Department to decide the show-cause notice within two weeks.
16. It is case of the petitioner that despite the same, the petitioner was served with letter dated 29.07.2022 calling upon to remain personally present with the documents i.e. bills, e-way bills, transport receipts, VAT receipts, in-ward and out-ward entries etc. To which the petitioner responded on 01.08.2022 and informed that in view of pending investigation by DGGI, all the documents are with the office of DGGI.
17. It is case of the petitioner that despite reply dated 01.08.2022, Suo- moto order dated 03.08.2022 was served cancelling registration. In the order dated 03.08.2022, it is stated that the registration of the petitioner stands canceled from 17.05.2022. It is also stated that the petitioner is to pay the amount within 10 days from 03.08.2022.
18. Aggrieved by the aforestated actions of respondent, present petition is filed.
3. Heard learned advocate Mr. Anandodaya S. Mishra with learned advocate Mr. Rohit G. Lalwani for the petitioner and learned Asst. Government Pleader Mr. Trupesh Kathiriya for the respondents. Notice in this case was issued on 17.11.2022. Considering the issue involved and with the consent of the learned advocates for the respective parties, present petition is taken up for final hearing.
4. Appearing for the petitioner, learned advocate Mr. A.S. Mishra made following submissions:
4.1 There is no provision under the GST Act which permits respondents to initiate proceedings for cancellation of registration second time and therefore, the order dated 03.08.2022 is ex-facie illegal and without jurisdiction.
4.2 The show-cause notice dated 17.05.2022 proposing to cancel the registration is bereft of any reasons, and therefore, it is in clear violations of principles of natural justice. In support of his submissions, he relied upon the decision of this Court in case of Aggarwal Dyeing and Printing Works Vs. State of Gujarat & Ors. in SCA No.18860 of 2021.
4.3 Referring to the order of cancellation of registration dated 03.08.2022, he submitted that in the said order, the effective
date of cancellation of registration is mentioned as 17.05.2022, and the reason for cancellation reads as under:
“Dealer has purchased from ab-initio canceled dealer and canceled dealer in the year 2021-22. You had not submitted related documents related sheet is attached here”
The petitioners had already replied to the authority that all the documents are lying with DGGI as the investigation is pending. Thus, respondents without application of mind had canceled the registration under Rule 22(3) vide order dated 03.08.2022.
5. On the other hand, learned Asst. Government Pleader Mr. Trupesh Kathiriya submitted that pursuant to the order of Commissioner (Appeals) dated 09.05.2022, the petitioner was once again served a show-cause notice dated 17.05.2022, and thereafter, the registration was canceled, and therefore, there is no illegality in the action of the respondents. Referring to the affidavit filed on behalf of respondent No.3, he submitted that the show-cause notice dated 17.05.2022 was served upon the petitioner calling for certain documents. Personal hearing was also provided to the petitioner however, as the petitioner failed in producing the documents, the order dated 03.08.2022 was passed canceling the registration, and therefore, there is no illegality as alleged. In relation to merits, he submitted that the petitioner has availed Input Tax Credit (ITC) wrongfully on the basis of purchases made from bogus firms whose registration have been canceled ab-initio, and therefore, as petitioner failed in providing the details as called for, the order dated 03.08.2022 was passed and there is no illegality. He, submitted that no interference in the order is required and the petition deserves to be dismissed.
6. Having heard learned advocates for the respective parties, we would like to reiterate certain facts. The first show-cause notice dated 28.09.2021, proposing cancellation of registration reads as under:
“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. Issues any invoice or bill without supply of goods and/or services in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilization of input tax credit or refund of tax.
You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.
You are hereby directed to appear before the undersigned on 30/09/2021 at 11:00”
Thus from the tenure of the show-cause notice dated 28.09.2021, it is clear that the petitioner was given only a day’s time to respond to the show-cause notice.
7. The petitioner replied to the above notice vide email dated 08.10.2021 and also filed an application seeking revocation of suspension. However, order dated 26.10.2021 was passed canceling the registration which reads as under:
“This has reference to your reply dated 08/10/2021 in response to the notice to show cause dated 28/09/2021
Whereas no reply to notice to show cause has been submitted;
The effective date of cancellation of your registration is 01/10/2021”
It is further to be noted that in the said order, the demand payable is assessed as nil.
8. As noticed earlier against the order of cancellation of registration dated 26.10.2021, the petitioner preferred an appeal under Section 107 of the Act before Commissioner (Appeals) and Commissioner (Appeals) allowed the appeal directing the respondents to activate the Registration Number of the petitioner. The contention of the respondents that since the Commissioner (Appeals) in the order dated 09.05.2022, has observed that in the interest of justice, the petitioner has to been given one chance, the respondents initiated suo-moto proceedings for cancellation of registration, to which we could not see any justification particularly when no such liberty was granted by the Commissioner(Appeals), and the order of cancellation of registration dated 26.10.2012, merges with the order of Commissioner (Appeals).
In our opinion, it would be very apt to reproduce the show-cause notice dated 17.05.2022 under which the proceedings for cancellation of registration has been initiated for the second time. The tenure of the show-cause notice dated 17.05.2022, in our opinion, is very relevant, which reads as under:
“Whereas on the basis of information which has come to my notice, it appears that your registration is liable to be canceled for the following reasons:
1. Non compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed.
You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.
You are hereby directed to appear before the undersigned on 25/05/2022 at 12:00”
9. We could not find the specific reason for which proceedings for cancellation of registration has been initiated for the second time. Language of the show-cause notice dated 17.05.2022, in our opinion, does not communicate the reasons and the reasons are so general, therefore vague in nature. We are also mindful of the fact that the petitioner earlier also in response to the notice, dated 28.09.2021, had replied intimating the respondent authorities that pending DGGI investigation, all the documents are lying with the Office of DGGI and for the second time in response to the notice dated 17.05.2022, he had shown his inability to produce the documents for the very same reason. Further, in the affidavit too, no explanation was provided that under which provision respondent had initiated proceedings proposing cancellation of registration.
Be that as it may, however, in our opinion, the show-cause notice dated 17.05.2022 is bereft of any reasons, and therefore, the same is vague. This Court in case of Aggarwal Dyeing (Supra) and thereafter, in series of decisions has reiterated that the reasons are heart and soul of the order and non-communication of the same itself amounts to denial of reasonable opportunity of hearing resulting into miscarriage of justice. Applying the same principle, in our opinion, the show-cause notice dated 17.05.2022 being without any reason, the same is bad in law and deserves to be quashed and set aside and hereby quashed and set aside accordingly. The order dated 03.08.2022, of cancellation of registration is also quashed and set- aside. The respondents are directed to restore the registration of the petitioner forthwith.
10. However, we give liberty to the respondent No 3, to issue fresh notice to the petitioner, if the reasons if any, other then the reasons mentioned in the show- cause dated 28.09.2021, are available to the respondents. This is because pursuant to the show-cause notice dated 28.09.2021, the order dated 26.10.2021, cancelling registration was passed. The order dated 26.10.2021, was subject matter of appeal and vide order dated 09.05.2022, the Commissioner (Appeals), allowed the appeal of the petitioner.
11. Needless to mention that if fresh notice is issued with particulars of reasons incorporated with details, the Petitioner be provided reasonable opportunity of hearing and thereafter appropriate speaking orders be passed on merits. It is open for the petitioner to respond to such notice by filing reply with necessary documents, if relied upon. We clarify that we have not gone into the merits of the matter. The petition stands disposed of with no order as to costs.
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