2021 (6) TMI 720 - HC - VAT and Sales Tax

Cancellation of registration certificate of dealer with retrospective effect - disallowance of input tax credit - Provisional assessment of goods - denial on the ground that some purchases were not genuine - HELD THAT - The impugned order passed by the respondent no.2 authority is liable to be quashed and set aside as being wholly without jurisdiction and contrary to the judgement in ARSHIL ENTERPRISE VERSUS STATE OF GUJARAT 2020 (4) TMI 306 - GUJARAT HIGH COURT passed by this Court inthe first round of litigation - This Court clearly ruled that the retrospective cancellation of registration certificate was not justified in a case wherein the allegations of non-genuineness was only in respect of some transactions and that the retrospective cancellation would also adversely impact the valid and genuine transactions. It was clearly observed that if some past transactions are proved to be invalid, then they can be dealt with in the assessment and action can also be taken against those parties who have entered such invalid transactions. However, all transactions cannot be invalidated by retrospectively cancelling the registration certificate of the dealer. In the present case, even in the second round of litigation, the respondent no.2 authority has alleged non-genuineness only in respect of some transactions as is apparent from the table at page 3 of the impugned order. Thus, the retrospective cancellation is absolutely contrary to the binding decision of this Court in the first round of litigation. The stance of the respondents in the affidavit-in-reply that the judgement of this Court was only on the basis that the respondent - authority had travelled beyond the scope of the show-cause notice is completely misconceived - the respondent - authorities are not remediless in respect of the alleged non-genuine transactions. They can be dealt with in accordance with law in the assessment proceedings. The impugned order retrospectively cancelling the registration certificate of the writ-applicants thereby invalidating even the transactions which are not disputed by the respondents and, therefore, the impugned order deserves to be quashed and set aside - Application allowed.

Issues Involved:
1. Jurisdiction and validity of the order dated 19.10.2020.
2. Applicability of the principle of res judicata.
3. Retrospective cancellation of the registration certificate.
4. Alleged non-genuine transactions and their impact on valid transactions.
5. Compliance with the previous court judgment dated 11.12.2019.

Issue-wise Detailed Analysis:

1. Jurisdiction and Validity of the Order Dated 19.10.2020:
The writ-applicants challenged the order dated 19.10.2020, arguing it was "wholly without jurisdiction, arbitrary and illegal." The court observed that the respondent authority's decision to retrospectively cancel the registration certificate was contrary to the previous judgment dated 11.12.2019. The court had already ruled that retrospective cancellation was not justified based on allegations of non-genuineness in some transactions, as it would adversely affect valid transactions.

2. Applicability of the Principle of Res Judicata:
The writ-applicants contended that the issue had already been examined and decided by the court in the previous round of litigation. The court agreed, noting that once a judgment is rendered, the same issue cannot be re-litigated. The respondent authority's action to pass a new order on the same grounds was deemed "completely without jurisdiction, contemptuous and illegal."

3. Retrospective Cancellation of the Registration Certificate:
The court reiterated its previous stance that retrospective cancellation of the registration certificate was not permissible merely on the basis of some suspicious transactions. The court emphasized that such cancellation would invalidate valid transactions and have a cascading effect, penalizing innocent parties. The court ruled that the respondent authority had "misunderstood the judgment" and that the retrospective cancellation was "absolutely contrary to the binding decision."

4. Alleged Non-Genuine Transactions and Their Impact on Valid Transactions:
The court noted that the allegations of non-genuineness were only in respect of some transactions. It held that if some past transactions are proved to be invalid, they can be dealt with in the assessment, and action can be taken against those parties involved in such transactions. However, all transactions cannot be invalidated by retrospectively canceling the registration certificate. The court found the respondent authority's stance to be "completely misconceived."

5. Compliance with the Previous Court Judgment Dated 11.12.2019:
The court observed that the respondent authority had failed to comply with the previous judgment, which clearly ruled against the retrospective cancellation of the registration certificate. The court emphasized that the respondents were not remediless and could address non-genuine transactions through assessment proceedings. The court concluded that the impugned order dated 19.10.2020 "flies in the face of the judgment dated 11.12.2019" and deserved to be quashed and set aside.

Conclusion:
The writ-application was allowed, and the impugned order dated 19.10.2020 was quashed and set aside. The respondents were directed to restore the registration certificate of the writ-applicants. The court noted that the respondent authority's lack of understanding of the law led to unnecessary litigation, causing undue hardship to the writ-applicants.

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