The Allahabad High Court has in its recent ruling in the case of Apparent Marketing Private Limited has held that the GST registration cannot be cancelled merely for the reason that a firm is described as “bogus” and without levelling the exact charge against the firm under the provisions of the Central Goods and Services Tax Act, 2017.
Facts of the Case:
- The assessee applied for GST registration for trading in Pan Masala and Tobacco. The assessee claims to have filed its return on time and it also claims to have deposited the due tax. A survey was conducted at the assessee’s business premises on 15.12.2017. Those premises were found closed. Another survey was conducted at the assessee’s business premises on 16.02.2018. However, no adverse material is claimed to have been discovered during that survey proceedings. Besides the above two survey, the assessee claims to have cooperated in certain proceedings against a third party where under it had been summoned under Section 70 of the Act.
- In the above background, the assessee received a notice through eportal of the revenue department on 22.07.2020 issued under Section 29 of the Act whereby the registration granted to the assessee under the Act was proposed to be cancelled for the firm being found bogus. The assessee was required to furnish its reply within seven working days and to appear before that authority of which compliance was not made by the assessee. However, no order was passed. Also, no further notice was issued to the assessee in that proceeding. On 13.08.2020, the respondent authority cancelled the assessee’s registration without disclosing any further reason.
- Being aggrieved, the assessee filed an application for revocation of the aforesaid order (under Section 30 of the Act). In response to the above, the assessee received a notice dated 21.08.2020 expressing the tentative opinion of the authority against the grant of revocation. Remarkably, no date or time was fixed for personal appearance/hearing. The assessee uploaded its written reply on 21.08.2020 itself. Without issuing any further communication and without fixing any date for personal hearing, on 21.08.2020 itself, the respondent authority passed the order, rejecting the application for revocation of cancellation of registration.
Order of HC: Deliberations and Ruling
- The HC noted that the 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
- 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.
- 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.
In view of the above deliberations Justice Saumitra Dayal Singh writ was allowed and Departmental orders for cancellation of registration were set aside. However the Court adjudged that it is left open to the respondent authority to issue a fresh notice on any specified ground mentioned under Section 29(2) of the Act. That proceeding, if initiated, may be decided on its own merit, without being prejudiced by any observation made in this order
Relevant Statutory Provision:
Section 29(2)
(2) The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,-
(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or
(b) a person paying tax under section 10 has not furnished the return for a financial year beyond three months from the due date of furnishing the said return; or
(c) any registered person, other than a person specified in clause (b), has not furnished returns for a such continuous tax period as may be prescribed; or
(d) 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
(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:
Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard:
Provided further that 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.
READ / DOWNLOAD ORDER:
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Frah Saeed is a law graduate specializing in the core field of indirect taxes and is the Co-founder of taxwallah.com. She has authored many publications on GST and is into full-time consultancy on GST to big corporates. She as a part of taxwallah.com heads a team comprising of Chartered Accountants and Advocates and plays a key role in our mission to disseminate GST knowledge to all.
