2022 (3) TMI 493 - HC - GST

Revocation of cancellation of Registration - bogus firm or not - failure to appear for personal hearing on the appointed date and time - violation of principle of natural justice - HELD THAT - In the first place, cancellation of registration has serious consequences. It takes away the fundamental right of a citizen etc. to engage in a lawful business activity. In the present case, undisputedly, the registration claimed by the assessee had been granted by the respondent authority. Therefore, a presumption does exist as to such registration having been granted upon due verification of necessary facts. If the respondent proposed to cancel the registration thus granted, a heavy burden lay on the respondent authority to establish the existence of facts as may allow for such cancellation of registration. Therefore, the registration once granted could be cancelled only if one of the five statutory conditions was found present. Per se , no registration may be cancelled by merely describing the firm that had obtained it, was bogus . The word bogus has not been used by the statute. The only contingency to which such expression may relate may be one appearing under Clauses (c) and (d) of Section 29(2) of the Act being where a registered firm does not commence its business within six months of its registration. Other than that, the term bogus may also refer to a satisfaction contemplated by Section 29(2)(c) of the Act where registration may be cancelled if the registered firm has not furnished its return for continuous period of six months. Those conditions have not been shown to exist in this case - Registration having been granted earlier, the obligation existed on the authority to specify the exact reason/charge on which it proposed to cancel the registration. In the present case, unless the respondent authority had first specified the reason why it proposed to cancel the registration and unless the authority had specified the reason why it was attempting to treat the assessee firm bogus i.e. whether reference was being made to Section 29(2)(c) or Section 29(2)(d) of the Act, by specifically stating the facts as may give rise to that charge and unless the supporting material giving rise to that charge had been referred to in that notice, the notice itself remained defective in material aspect. In the present case, by merely describing the assessee firm bogus , the respondent authority did not make known to the assessee the exact charge that was being levelled against the assessee. Correspondingly, the respondent authority deprived the assessee of the necessary opportunity to rebut the charge - It is equally remarkable to note that the Appeal Authority also chose to consider the matter on merits. Though the appeal is a continuation of original proceedings and it may have been open to the Appeal Authority to hear and decide the matter on merits, however, in absence of any legally permissible reason given by the original authority, the only proper course the Appeal Authority may have adopted, may have been to set aside the orders dated 13.08.2020 and 21.08.2020. Petition allowed.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Validity of the cancellation of GST registration.
3. Adequacy and specificity of the show cause notice.
4. Proper procedure for revocation of cancellation of registration.
5. Role and decision of the Appeal Authority.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner argued that there was a gross violation of principles of natural justice. Despite the petitioner’s failure to respond to the initial notice dated 22.07.2020, no date for a hearing was fixed or communicated before the cancellation order dated 13.08.2020 was passed. Additionally, during the revocation process, although the notice dated 21.08.2020 mentioned the need for a hearing, no specific date or time was provided, and the order was passed without a personal hearing. The court emphasized that the principles of natural justice were not adhered to, as the petitioner was deprived of a fair opportunity to present their case.

2. Validity of the Cancellation of GST Registration:
The court noted that the cancellation of GST registration has serious consequences, affecting the fundamental right to engage in lawful business. The registration, once granted, carries a presumption of validity. The burden of proof lies on the authority to establish grounds for cancellation under Section 29(2) of the Act. The court observed that the term “bogus” used to describe the firm was not specified in the statutory conditions under Section 29(2), and thus, the cancellation lacked a valid legal basis.

3. Adequacy and Specificity of the Show Cause Notice:
The court found that the show cause notice dated 22.07.2020 was vague and did not specify any of the statutory conditions under Section 29(2) of the Act. The notice merely described the firm as “bogus” without providing specific reasons or evidence. The court held that the notice must clearly state the grounds for cancellation, allowing the assessee to understand and rebut the charges. The lack of specificity in the notice rendered it defective and insufficient to justify the cancellation.

4. Proper Procedure for Revocation of Cancellation of Registration:
The court highlighted procedural lapses in the revocation process. The notice dated 21.08.2020 required the petitioner to respond within seven days and appear for a hearing, but no specific date or time was provided. The order rejecting the revocation application was passed on the same date without a personal hearing. The court noted that the order was as vague as the initial notice, failing to address the petitioner’s reply or provide reasons for rejecting the revocation. The procedural deficiencies further invalidated the cancellation process.

5. Role and Decision of the Appeal Authority:
The Appeal Authority considered the matter on merits but failed to correct the procedural errors of the original authority. The court held that the Appeal Authority should have set aside the defective orders dated 13.08.2020 and 21.08.2020. By not addressing the procedural lapses, the Appeal Authority perpetuated the mistakes, affecting the petitioner’s rights. The court emphasized that the Appeal Authority’s role includes ensuring procedural fairness, which was not upheld in this case.

Conclusion:
The court set aside the orders dated 12.02.2021, 21.08.2020, and 13.08.2020, allowing the writ petition. It left open the possibility for the respondent authority to issue a fresh notice with specific grounds under Section 29(2) of the Act. The court directed that any new proceedings should be decided on their own merits, without prejudice from this judgment. Additionally, the court ordered the communication of this judgment to the Commissioner, State Tax, U.P., to prevent similar issues in the future.