2009 (10) TMI 838 - HC - VAT and Sales Tax

Registration of the petitioner granted under the KVAT Act and the CST Act cancelled - whether the ingredients of section 16(10) read with rule 17(18)(vii) was established, justifying cancellation of registration? Held that - Since no action as enumerated in rule 28 was resorted to in any of these cases on the dishonour of any one of the cheques, on any earlier occasion, and also because of the fact that the action is initiated specifically on the basis of reasons contemplated under section 16(10), and not under section 16(9). There was no independent application of mind rendered by the competent authority while issuing the proposals and while finalizing the proceedings. It is evident that the entire proceedings were pursued in an attempt to give effect to the instructions issued by the Commissioner of Commercial Taxes. The cryptic nature of the conclusions narrated in the impugned orders, itself reveals non-application of mind and non-advertence to the objections. Writ petitions are allowed quashing the impugned orders in all the three cases, wherein registration of the petitioners under KVAT Act and CST Act is cancelled.

Issues Involved:
1. Permitting inter-State consignment of dressed chicken and poultry feeds.
2. Cancellation of registration under the KVAT Act and CST Act.
3. Requirement to furnish additional security.
4. Allegations of dishonoured cheques and fraud.
5. Principles of natural justice and sufficiency of notice.
6. Availability and adequacy of alternative remedies.

Detailed Analysis:

1. Permitting Inter-State Consignment:
The petitioner initially sought a direction to permit inter-State consignment of dressed chicken and poultry feeds supported by documents under section 46 of the KVAT Act, upon payment of advance tax as per circular No. 50/06.

2. Cancellation of Registration:
The main issue revolves around the cancellation of the petitioners' registration under the KVAT Act and CST Act. The cancellation was based on allegations that the petitioners had submitted dishonoured cheques as advance tax payments, which constituted "good and sufficient reason" under section 16(10) of the KVAT Act and rule 17(18)(vii) of the KVAT Rules.

3. Requirement to Furnish Additional Security:
The petitioner was required to furnish additional security amounting to Rs. 89,33,177 under section 17(1) of the KVAT Act. This demand was contested on the grounds of insufficient notice and unreasonable time to comply.

4. Allegations of Dishonoured Cheques and Fraud:
The allegations included presenting cheques as pay orders, which were dishonoured upon presentation. The authorities claimed this act was a deliberate attempt to evade tax, amounting to fraud and forgery, thus justifying the cancellation of registration.

5. Principles of Natural Justice and Sufficiency of Notice:
The petitioners contended that the cancellation orders violated principles of natural justice due to insufficient notice and lack of reasonable opportunity to respond. They argued that the procedure under rule 28 of the KVAT Rules for dealing with dishonoured cheques was not followed, and the cancellation was based on instructions from the Commissioner of Commercial Taxes without independent application of mind by the assessing authority.

6. Availability and Adequacy of Alternative Remedies:
The respondents argued that the writ petitions were not maintainable due to the availability of alternative remedies such as appeals or revisions under the KVAT Act. However, the court considered the special circumstances and the nature of the grounds raised, deciding to entertain the writ petitions.

Court's Findings:

On Cancellation of Registration:
The court found that the mere dishonour of cheques could not be considered "good and sufficient reason" under section 16(10) or as an "act or omission" under rule 17(18)(vii) of the KVAT Rules. The specific procedure for dishonoured cheques under rule 28 was not followed, and no prior actions were taken for earlier dishonoured cheques.

On Allegations of Fraud and Forgery:
The court noted that while allegations of fraud and forgery could constitute "good and sufficient reason" for cancellation, the principles of natural justice required specific notices and adequate opportunity for the petitioners to defend themselves. The court found that the notices and orders lacked specific allegations and independent application of mind by the authority.

On Principles of Natural Justice:
The court held that the petitioners were not given reasonable opportunities to respond to the allegations, and the orders were issued in haste, violating principles of natural justice. The court emphasized the need for independent assessment and consideration of the petitioners' objections.

On Alternative Remedies:
The court acknowledged the availability of alternative remedies but decided to entertain the writ petitions due to the special circumstances, including the perishable nature of the goods and the potential prejudice to the petitioners.

Conclusion:
The court quashed the impugned orders of cancellation but clarified that this would not prevent the authorities from initiating fresh proceedings under section 16(9) or section 16(10) of the KVAT Act, provided they follow the proper procedures, including issuing fresh notices and affording reasonable opportunities for the petitioners to respond. The court also stated that this decision would not affect any other proceedings for penalties, additional security deposits, or tax payments due with interest.

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