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GST Update No 279 on cancellation of registration on arbitrary basis

GST Update No 279 on cancellation of registration on arbitrary basis

Opinion

Time and again the revenue authorities are bashed by the Hon’ble High Courts on acting frivolously and negligently. There had been various cases in the erstwhile indirect tax regime wherein the cost was imposed on the revenue department for acting arbitrarily as it is often observed that the departmental authorities do not consider the submissions of the taxpayers. Recently, one case was reported on similar issue before the hon’ble ALLAHABAD HIGH COURT in the case of DRS WOOD PRODUCTS V/S STATE OF U.P. wherein the departmental authorities have cancelled the GST registration arbitrarily. The decision imparted in this case is subject matter of discussion of our present update.
The petitioner filed the appeal as on 18.01.2021 against the order wherein the application for revocation of cancellation of registration was rejected. The petitioner is engaged in the business of manufacturing and trading of Veneer and was granted GST registration. A show cause notice was issued alleging that registration is liable to be cancelled since the taxpayer is non-functioning and non-existing at the principal place of business. Subsequently, order for cancellation of registration was also passed. The petitioner when tried to upload the E-way bill, came to know that the registration of the firm was cancelled and hence applied for revocation of cancellation of registration. It was submitted that the said application is filed within time as prescribed under Section 30 of the Act. However, the application filed was objected by way of issuance of show cause notice. The petitioner further moved an application seeking extension of 15 days for filing reply to the show cause notice due to marriage of daughter of the petitioner. However, no attention was paid to the request of the petitioner and the application for revocation of registration was also rejected alleging that no satisfactory explanation was provided by the petitioner. The petitioner, therefore, filed an appeal and submitted that the business was running from the premises under
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consideration. The Appellate Authority dismissed the appeal stating that upon investigation by the departmental officers, it was concluded that no business or activity was undertaken on the property. Further one of the partners was on the phone and did not gave any clear reply. Furthermore, there were no stocks or commercial activity found on the business premises. Moreover, it was recorded in the inspection report that another firm in another name and GSTN was found working from the same spot. Hence, it is an outright example of tax evasion.
The Counsel of the petitioner contended that the initial SCN based on which registration was cancelled was never served upon the petitioner. It was submitted that the appellate authority has erred in dismissing the appeal since the inspection report is of 2020 and inquiry was conducted in 2018 which were neither supplied to the petitioner and nor petitioner was confronted to respond to them. It was argued that none of the grounds as provided under Section 29 of the Act were established against the petitioner. Reference was drawn on to the decision of Apex Court in the case of Oryx Fisheries Private Limited V/s Union of India and Ors. and on Commissioner of Central Excise, Bangalore V/s Brindavan Beverages (P) Ltd and Ors. Further reference was drawn to various rulings of this Court i.e. Apparent Marketing Private Limited V/s State of U.P. & Ors. M/s Ansari Construction V/s Additional Commissioner Central Goods and Service Tax (Appeals) and M/s S.S traders V/s State of U.P. & Ors.
The Counsel of respondent argued that on the grounds of investigation being carried on, it can be stated that on the place of business of firm, no business activity was undertaken and another business firm was working on the same business site as well. The partner of the firm even did not cooperate during the investigation and no reply was submitted by the petitioner. Further, it was argued that the petitioner might have kept the goods at any other place.
The Court held that the show cause notice issued depicts the opaqueness of allegation raised against the petitioner. The show cause notice does not indicate any date as to when the investigation was carried out. Therefore, the vaguely issued SCN is violative of principles of administrative justice. Cancellation of registration is a serious consequence which thereby affects the fundamental
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rights of carrying business. The casually issued notice demonstrates that the departmental authorities were not judicially trained since the same is lacking in terms of quasi-judicial fervor since no reasoning is mentioned. The order rejecting the revocation application has taken the matter to the height of arbitrariness since no reasons were recoded in the same. Further, the adjournment request of the petitioner was also not adhered to. The investigation report on which the Appellate Authority relied on was never communicated to the petitioner. Thus, highlighting the arbitrary manner in which quasi-judicial and appellate authorities are working under GST Act. The manner of disposal can neither be appreciated nor accepted. Therefore, the authorities have failed to act in the light and spirit of the GST Act. Furthermore, it was stated that arbitrary exercise of power of cancellation of registration not only affects the business of the petitioner adversely but also the flow of revenue that could have flowed to the department. The action of the authorities is not in line with the principle of ease of doing business. It was therefor held that the registration of the petitioner shall be renewed and directed to State Government to pay the cost to the petitioner of Rs. 50,000/-.
The above decision has proved to be a silver lining for the trade and industry. It is high time that these Judicial Rulings should be taken into consideration by the department before initiating proceedings for cancellation of GST registration which adversely effects the business and revenue flow to the government.

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