2007 (3) TMI 683 - HC - VAT and Sales Tax

Summary

Issues Involved
1. Scope and extent of powers of the statutory authority for passing orders of "suspension" and "cancellation" of registration certificate under the Orissa Value Added Tax Act, 2004 (OVAT Act).
2. Compliance with statutory requirements and principles of natural justice in the suspension and cancellation process.
3. Legality of the order of cancellation without disposing of the application for restoration of the registration certificate.

Issue-wise Detailed Analysis

Scope and Extent of Powers of Statutory Authority
The petitioner challenged the suspension and subsequent cancellation of their registration certificate under the OVAT Act. The Assistant Commissioner of Sales Tax (ACST) suspended the certificate on November 23, 2005, and cancelled it on December 16, 2005. The ACST's actions were based on findings that the dealer's purchases and sales did not commensurate, leading to suspicion of tax evasion. The petitioner argued that the statutory authority must strictly comply with the statutory requirements and principles of natural justice when exercising such wide powers.

Compliance with Statutory Requirements and Principles of Natural Justice
The court scrutinized sections 30 and 31(5) of the OVAT Act, which outline the procedures for suspension and cancellation of registration certificates. Section 30(2) mandates that the dealer must be given a notice to produce records within thirty days from the date of suspension. Section 30(3) allows the dealer to apply for restoration of the certificate. The court found that the ACST failed to comply with these provisions. The petitioner had produced the required documents and applied for restoration on November 28, 2005, but the ACST did not dispose of this application before cancelling the certificate.

The court emphasized that the statutory authority must provide an opportunity for the dealer to be heard and must conduct an inquiry before cancelling the registration certificate, as per section 31(5). The ACST's failure to provide a copy of the "preliminary report" used as a basis for cancellation violated the principles of natural justice.

Legality of the Order of Cancellation
The court noted that the order of cancellation was passed without issuing a show-cause notice to the petitioner and without disposing of the application for restoration. The court held that the ACST acted in a "most cavalier manner" and misused their authority. The court cited the case of Smt. Maneka Gandhi v. Union of India, emphasizing that natural justice must be observed in administrative actions involving civil consequences.

The court found that the ACST's actions were illegal and unlawful, as they did not follow the statutory procedure and denied the petitioner an opportunity to be heard. The court quashed the order of cancellation dated December 16, 2005, and directed the opposite party to dispose of the petitioner's application for restoration within two weeks.

Conclusion
The court allowed the writ application, quashed the order of cancellation, and directed the statutory authority to deal with the petitioner's application for restoration expeditiously. The judgment underscores the importance of adhering to statutory requirements and principles of natural justice in administrative actions involving suspension and cancellation of registration certificates.