2021 (2) TMI 1046 - HC - VAT and Sales Tax

Scope of SCN - Cancellation of assessee's registration on grounds different from those disclosed in the show cause notice - cancellation of registration of the assessee with retrospective effect - U.P. Value Added Tax Act, 2008 - HELD THAT - There can be no dispute that before cancellation of registration, a reasonable opportunity of hearing has to be afforded to the affected dealer. In the present case, the notice does not disclose the exact nature of the charge leveled against the assessee inasmuch as it does not disclose the names of the other dealers with whom the assessee is alleged to have entered into fake and bogus transitions. Neither the show cause notice disclosed the exact nature of such transactions, nor the volume of such transactions nor the name of the dealer with whom asseessee is alleged to have traded in goods after cancellation of the registration of the other dealers or after closure of business by the other dealer. In absence of such disclosure contained in the show cause notice dated 24.10.2016, it is difficult to contemplate how a person in the shoes of present assessee could have responded to the show cause notice and defended the proceedings for cancellation of his registration. Unless the assessee had been confronted with the names of the dealers with whom it was alleged to have entered into bogus transactions and unless the details of such transactions had been disclosed in the notice itself and unless similar details of other dealers, who are alleged to have closed their business been disclosed the assessee could never have effectively responded to the charge/s leveled against him of having engaged in bogus transactions only for the purpose of availing I.T.C. Cancellation of registration is a very serious proceeding. It takes away the right of an assessee to do business. Therefore such a proceeding should be approached with that much more seriousness and case by the assessing authority. At present the assessing authority appears to have passed a wholly ex parte order inasmuch as in first place it had not disclosed to the assessee the exact nature of the charge leveled against him or the facts and circumstances in which his registration was being cancelled and in any case material that formed the basis of the charge was completely concealed from the assessee - appellate authority and the Tribunal have erred in not correcting the mistake thus committed by the assessing authority - answered in the negative i.e. in favour of the asseessee and against the revenue. The question relating to retrospective cancellation of registration, need not be answered - At the same time, keeping in mind the nature of allegation leveled against the assessee, the proceeding cannot be allowed rest here. It is then provided that the assessing authority shall issue a fresh notice in terms of the order dated 18.11.2016 and proceed in accordance with law. Revision allowed in part.

Summary

Issues:
1. Whether the order of cancellation of registration could have been made and sustained on grounds different from those disclosed in the show cause notice?
2. Whether the registration could have been cancelled with retrospective effect?

Analysis:
1. The case involved a challenge to the cancellation of registration under the U.P. Value Added Tax Act, 2008. The assessing authority issued a show cause notice to the assessee, alleging engagement in bogus sales and transactions with closed firms. The notice did not disclose specific details of transactions or names of other dealers involved. The registration was cancelled without providing adequate opportunity for the assessee to respond to the charges. The High Court held that cancellation of registration is a serious matter affecting the right to do business, requiring adherence to principles of natural justice. The Court found the notice lacked essential details for the assessee to defend against the allegations, rendering the cancellation unlawful. The appellate authority and Tribunal were criticized for not correcting the assessing authority's errors. The first question of law was answered in favor of the assessee, emphasizing the importance of disclosing charges and adverse material to the affected party.

2. Regarding the second issue of retrospective cancellation of registration, the Court did not delve into this aspect as the primary issue of inadequate notice and opportunity for the assessee to respond had already been established. However, considering the seriousness of the allegations and the impact on the assessee's business, the Court directed the assessing authority to issue a fresh notice and proceed lawfully. The judgment partly allowed the revision, emphasizing the necessity of fair procedures and disclosure of relevant details in cancellation proceedings to safeguard the rights of the affected party.