NON MAINTENANCE OF STOCK AT THE REGISTERED PREMISES - GROUND FOR CANCELLATION OF REGISTRATION?

[Mr. M. GOVINDARAJAN]

Section 29(2) of the Central Goods and Services Tax Act, 2017 provides the grounds for cancellation of registration certificate by the Proper Officer.  Section 29(2) provides that the proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,

1. a registered person has contravened such provisions of the Act or the rules made there under as may be prescribed; or
2. a person paying tax under section 10 has not furnished returns for three consecutive tax periods; or
3. any registered person, other than a person specified in clause (b), has not furnished returns for a continuous period of six months; or
4. any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or
5. registration has been obtained by means of fraud, wilful misstatement or suppression of facts.

The proper officer shall not cancel the registration without giving the person an opportunity of being heard. During pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.

From the above for cancellation of registration certificate the Proper Officer has to satisfy that any one of the grounds under Section 29(2) has been fulfilled.  One question arises as to whether NIL stock in the premises of the registered person will lead to cancellation of certificate.  The answer is NO. 

The same is upheld by Allahabad High Court in M/S SHREE RAM GLASS BACHAULI KUFTABAD BEEKAPUR THRU. PARTNER SHREE AMAN JAISWAL VERSUS STATE OF U.P. THRU. SECY. STATE TAX U.P GOVT. LKO. AND 2 OTHERS - 2024 (2) TMI 1006 - ALLAHABAD HIGH COURT  In this case the petitioner is a partnership firm registered under UP GST Act, 2017.  The petitioner was doing their business and also filing the returns regularly.  The petitioner filed the returns up to 2022 - 2023.   The Authorities inspected the premises of the petitioner and found that the petitioner did not conduct business at the declared place.  A show cause notice was issued to the petitioner.  The petitioner did not respond to the said show cause notice.  In the absence of reply by the petitioner to the show cause notice the Authority cancelled the registration certificate vide their order dated 01.06.2023.

The petitioner, thereafter, filed an application for revocation of the cancellation of registration certificate.  The petitioner further applied with the said application to conduct inspection by the Authorities afresh.  The Authority inspected the premises of the petitioner, at its request on 21.07.2023.  At that time the Authority did not find any stock in the place of business.  The signatures of the landlord and other identifications papers were taken by the inspecting team.  The landlord has submitted lease agreement dated 23.6.2011 entered into between the petitioner and the landlord.

The Authority rejected the application for revocation of the cancelled registration certificate on 30.11.2023.  In the said order it was stated that no goods were found in the business premises of the petitioner and also that signature of the landlord did not match from two rent agreements entered into between the petitioner and the landlord.

The petitioner, being aggrieved against the orders - cancellation of registration certificate and rejection of the application for revocation of cancellation, filed appeal before the Appellate Authority.  Before the High Court, the petitioner submitted the following-

• The findings returned by both the authorities were perverse and arbitrary in as much as the petitioner has duly filed his returns i.e. GSTR 3B and GSTR-1 of financial year 2021- 22 where a sale of Rs. 47,01,234/- was recorded as well as return for financial year 2022-23 where sale of Rs. 1,41,79,965/- was recorded.
• The returns were duly accepted by the authorities concerned and there was no material to demonstrate that the firm was bogus or that no business was conducted by the petitioner. 

The Appellate Authority considered the submissions of the petitioner.  The Appellate Authority observed that the business premises where the petitioner is alleged to have conducted his business no material or business activity was found.  Further the signatures of the landlord did not tally.  The Appellate Authority considered the registration as shame.  The Appellate Authority dismissed the appeal filed by the petitioner.

The petitioner filed a writ petition before the High Court challenging the order Appellate Authority upholding the findings of the Adjudicating Authority in cancellation of registration of certificate and rejecting the application for revocation of the registration certificate.  The petitioner submitted the following before the High Court-

• The orders on the face of its is illegal and arbitrary. 
• Fresh evidence to disclose that business activities were undertaken by him from the place of business which has clearly demonstrated by the return for the financial years 2021-22 and 2022-23. 
• Cancellation of registration can taken place where only condition provided under Section 29 sub clause 2 of the Act of 2017 are fulfilled. 
• None of the conditions prescribed under Section 29 (2) of the Act of 2017 are existing in the present case.
• Therefore the impugned order is without jurisdiction, illegal and arbitrary and deserves to be interfered by this court in exercise of its powers under Article 226/227 of the Constitution.

The Revenue submitted the following before the High Court-

• The orders have been passed by the authorities totally in accordance with law.
• There was a drive to curb bogus firms which have been created only to claim the benefit of Input Tax Credit 
•  The petitioner does not conduct any business activity that the place of business provided under the registration nor did he respond to the notice issued by the concerned authority consequently his rejection was cancelled.

The High Court considered the submissions made by the parties to the present writ petition.  From the facts of the case the High Court was of the opinion that there is no denial of the fact by the Authority  that the petitioner has, in fact, conducted business from the said address in as much as returns have been filed for the financial years 2021-22 and 2022-23.    Both the authorities should have taken into consideration the returns filed by the petitioner who had disclosed substantial business activities conducted by him for two financial years.

The High Court considered the serious consequences of cancellation of certificate.  It takes away the fundamental right of a citizen etc. to engage in a lawful business activity.  The registration has been granted after observing all the formalities as contained in the law.  If the respondents propose to cancel the registration thus granted, a heavy burden lay on the respondent authority to see that statutory provisions contained under Section 29 (2) of the Act of 2017 are fulfilled.  For cancellation of registration any one of the five conditions are placed to the assessee for cancellation.  There is no allegation that the petitioner had contravened any provisions of this Act or rules made therein and admittedly provision of contained from (b) to (e) are not applicable to the facts of the present case.