2022 (1) TMI 446 - HC - VAT and Sales Tax

Seeking restoration of cancelled registration of petitioner - blocking of input tax credit - except the show-cause notice, nothing else was furnished or nothing was attached to such show-cause notice. - HELD THAT - The whole object of issuing a show-cause notice is to make the recipient of the notice understand what the authority is trying to convey and what are the nature of the allegations. In the case on hand, when there are allegations of bogus billing, it was expected of the authority to at least furnish some information about such bogus billing. At this stage, Mr. Sharma submitted that along with the show-cause notice, there is always few documents attached which would indicate what the authority wants to convey about the bogus billing. It has been stated on oath not only in the memorandum of the writ application but even in the reply to the show-cause notice that except the show-cause notice, nothing else was furnished or nothing was attached to such show-cause notice. A show cause notice has great significance in the adjudication proceedings for the mandatory compliance of the principles of natural justice . Show cause notice is a mandatory requirement for raising any demand under the Act, 2017 except payment of interest u/s 50 and assessment of non filer of returns u/s 62 of the act. The SCN is the foundation on which the adjudicating authority has to build up its case. It is the document served on the taxable person asking him to explain with reason as to why a particular course of action should not be taken against him. It must be a speaking and well reasoned document - The allegations and findings in the SCN should be supported by some documentary evidences. The impugned order, cancelling the registration is hereby quashed and set aside - as the order, cancelling the registration on the ground of vague show-cause notice bereft of any material particulars, is set aside, it is left open to the authority to issue a fresh show-cause notice, if it intends to - Application allowed.

Summary

Issues Involved:
1. Validity of the show-cause notice for cancellation of GST registration.
2. Legality of the final order cancelling the GST registration.
3. Blocking of input tax credit under Rule 86A of the GST Rules.

Issue-wise Detailed Analysis:

1. Validity of the Show-Cause Notice for Cancellation of GST Registration:

The writ applicant challenged the show-cause notice dated 11.10.2021 issued by the Commercial Tax Officer, which alleged that the applicant was engaged in issuing invoices without actual supply of goods, leading to wrongful availment or utilization of input tax credit. The applicant contended that the notice was vague and lacked specific details about the allegations, such as the names of suppliers or the period in question. The Court observed that the show-cause notice merely incorporated the provisions of Rule 21(b) of the GST Rules without providing any factual basis or specific details, thus failing to meet the requirements of a valid show-cause notice. The Court emphasized that a show-cause notice must be clear, specific, and must provide sufficient details to enable the recipient to respond effectively.

2. Legality of the Final Order Cancelling the GST Registration:

The final order dated 15.11.2021, cancelling the applicant’s GST registration, was also challenged. The order stated that the applicant was engaged in "bogus billing" without providing any detailed reasoning or evidence. The Court criticized the Commercial Tax Officer for issuing a one-line order without any substantive explanation or evidence to support the allegations. The Court highlighted the importance of a well-reasoned order that explains the basis for the decision, ensuring compliance with the principles of natural justice. The Court found that the final order was arbitrary and lacked the necessary particulars to justify the cancellation of registration.

3. Blocking of Input Tax Credit under Rule 86A of the GST Rules:

The applicant also contested the blocking of input tax credit amounting to ?32,75,288/-, which was done without any formal order or detailed reasoning. The Court noted that the blocking of input tax credit under Rule 86A is permissible but must be substantiated with proper evidence and reasoning. The Court observed that the blocking order had outlived its statutory period of one year, and thus, the blocking of input tax credit should come to an end. The Court directed the authorities to unblock the input tax credit, as the initial blocking was not supported by any detailed order or evidence.

Conclusion:

The Court allowed the writ application, quashing and setting aside the impugned order cancelling the GST registration due to the vague and unsupported show-cause notice. The Court emphasized the need for detailed and specific show-cause notices and orders to ensure compliance with the principles of natural justice. The authorities were given the liberty to issue a fresh show-cause notice with all necessary details if they still intended to pursue the matter. Additionally, the Court directed the unblocking of the input tax credit as the blocking order had outlived its statutory period and was not supported by any formal order.