2015 (4) TMI 778 - HC - VAT and Sales Tax

Cancellation of registration - exercise of the powers under section 27 - no show cause notice had been issued - held that - Even, section 27(5)(i) of the Act provides that before cancelling the registration certificate ab initio, an opportunity of hearing is required to be given to the concerned person whose registration certificate is sought to be cancelled ab initio. Under the circumstances, the order passed by the first authority cancelling the registration certificate ab initio can be said to be in breach of principles of natural justice and even in breach of section 27(5)(i) of the VAT Act. - Matter remanded back - Decided in favour of assessee.

Issues Involved:
1. Interpretation of section 27(5)(i) of the VAT Act.
2. Jurisdiction and power of the Authority or DCCT to cancel the registration of the purchaser (dealer) under section 27(5)(i) of the Act.
3. Applicability of section 27(5) of the Act to the dealer who purchases the goods.
4. Intention to defraud government revenue.
5. Genuineness of the transactions and supporting documentary evidence.
6. Burden of proof for proving the genuineness of the documentary evidence.
7. Reliance on inferences and conjectures in the impugned order.

Detailed Analysis:

1. Interpretation of section 27(5)(i) of the VAT Act:
The appellant contended that the Tribunal erred in interpreting and construing the provisions of section 27(5)(i) of the VAT Act. The court noted that the Deputy Commissioner of Commercial Tax had canceled the registration certificate of the appellant ab initio without issuing a show cause notice as required under section 27(5)(i). The court emphasized that it is a cardinal principle of law to provide an opportunity of hearing before passing any adverse order having civil consequences. The court found that the appellant was not informed that their registration could be canceled based on the inquiry or discrepancies found, which constituted a breach of principles of natural justice and section 27(5)(i) of the VAT Act.

2. Jurisdiction and power of the Authority or DCCT to cancel the registration:
The appellant argued that the DCCT had no power or jurisdiction to cancel the registration of the purchaser under section 27(5)(i) of the Act. The court did not specifically address this issue in isolation but implied that the jurisdictional exercise was flawed due to the lack of adherence to procedural requirements, particularly the issuance of a show cause notice.

3. Applicability of section 27(5) of the Act to the dealer who purchases the goods:
The appellant argued that section 27(5) of the Act is not applicable to the dealer who purchases the goods. The court did not delve deeply into this argument, focusing instead on the procedural lapses and the necessity of a show cause notice before canceling the registration.

4. Intention to defraud government revenue:
The first appellate authority had concluded that the appellant intended to defraud the government revenue by issuing bills without actual transactions. The court noted that the appellant was not given an opportunity to confront the allegations and discrepancies, such as mismatched returns with Sheth Metal Private Limited, thereby denying the appellant a fair chance to refute the charges.

5. Genuineness of the transactions and supporting documentary evidence:
The appellant contended that their transactions were genuine and supported by various documentary evidence. The court observed that the appellant was required to be confronted with the returns filed by Sheth Metal Private Limited to tally the transactions and provide an opportunity to explain the discrepancies. The Tribunal failed to consider this aspect.

6. Burden of proof for proving the genuineness of the documentary evidence:
The appellant argued that the burden of proof for proving the genuineness of the documentary evidence should not shift to them without any challenge to the authenticity of the documents. The court implicitly supported this view by emphasizing the necessity of due process and the opportunity to address the discrepancies and allegations.

7. Reliance on inferences and conjectures in the impugned order:
The appellant contended that the Tribunal's order was based on inferences and conjectures. The court agreed that the Tribunal and the first appellate authority relied on observations and discrepancies without providing the appellant an opportunity to respond, thereby making the cancellation order procedurally flawed.

Conclusion:
The court quashed and set aside the impugned common judgment and order of the Tribunal, the order of the first appellate authority, and the order of the Deputy Commissioner of Commercial Tax canceling the registration certificate ab initio. The matter was remanded to the Deputy Commissioner of Commercial Tax to pass an appropriate order in accordance with law and on merits after giving the appellant an opportunity to show cause. The court directed that the earlier orders be considered as show cause notices and required the appellant to reply within four weeks, with the appropriate authority to complete the process within three months. The tax appeals were allowed to the extent mentioned, and the civil applications were disposed of accordingly.

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