Registration Under GST ACT Cannot Be Cancelled By Merely Describing The Firm As 'Bogus': Allahabad High Court
The Allahabad High Court has ruled that registration under GST Act cannot be cancelled by merely describing the firm as 'bogus'. The Single Bench of Justice Saumitra Dayal Singh held that cancellation of GST registration has serious consequences since it takes away the fundamental right of a citizen to engage in business, adding that the revenue authorities have a heavy burden...
The Allahabad High Court has ruled that registration under GST Act cannot be cancelled by merely describing the firm as 'bogus'.
The Single Bench of Justice Saumitra Dayal Singh held that cancellation of GST registration has serious consequences since it takes away the fundamental right of a citizen to engage in business, adding that the revenue authorities have a heavy burden to establish the existence of facts that may allow for cancellation of registration under the GST Act.
The petitioner/Assessee Apparent Marketing Private Limited applied for registration under the UP GST Act, 2017 for trading in Pan Masala and Tobacco. The Assessee was granted registration. Thereafter, a survey was conducted at Assessee's business premises. The Assessee received a notice under Section 29 of the UP GST Act, whereby the registration granted to it was proposed to be cancelled on the ground that the Assessee firm was found to be bogus on the inspection carried out by the authorities. The Assistant Commissioner, State Tax thereafter cancelled the Assessee's GST registration without disclosing any further reason. The Assessee filed an application for revoking the cancellation of GST registration, which was rejected by the Assistant Commissioner. The Assessee filed an appeal against the order of the Assistant Commissioner, which was dismissed by the Appellant Authority. The Assessee thereafter filed a writ petition before the High Court against the order of the Appellant Authority.
The Assessee Apparent Marketing submitted before the High Court that no reason permitted by the statute was mentioned or specified in the show cause notice issued to it nor was the Assessee confronted with any adverse material by the authority to cancel its GST registration. The Assessee averred that a mechanical exercise had been done by the authority and the registration of the Assessee was cancelled by merely describing the firm as 'bogus'. The Assessee contended that the original show cause notice and the order issued by the authority cancelling its registration were non-speaking, therefore there was a violation of the principles of natural justice. The Assessee submitted that the GST registration could be cancelled only in the event of existence of any of the five statutory conditions mentioned under Section 29(2) of the UP GST Act and that a firm being 'bogus' is not one of the conditions on which a registration may be cancelled. The Revenue Department submitted that there was enough adverse material against the Assessee to establish that it was a completely 'bogus' firm and there was no error in the order passed by the Appellant Authority.
The High Court ruled that cancellation of GST registration has serious consequences and it takes away the fundamental right of a citizen to engage in a lawful business activity. The Court ruled that since registration under GST Act had been granted by the revenue authorities, a presumption existed that such registration had been granted to the Assessee upon due verification. Therefore, the revenue authorities had a heavy burden to establish the existence of facts that may allow for cancellation of registration under the Act.
The Court added that registration once granted could be cancelled under GST Act only if one of the five statutory conditions mentioned under Section 29(2) of the Act were found to be present. Since the word 'bogus' has not been used by the statute, the Court ruled that registration under the Act cannot be cancelled by merely describing the firm as 'bogus'.
"Yet, in case the authority wanted to cancel the existing registration, it ought to have mentioned (in the show cause notice), if it proposed to cancel the registration for violation of Section 29(2)(c) of the Act or for violation of Section 29(2)(d) of the Act. It cannot be a matter of contemplation or option either with the authority or the assessee to find out for itself by any guesswork or exploratory exercise, if the case fell in any of the conditions of Section 29(2) of the Act."
The Court ruled that an obligation existed on the revenue authorities to specify the exact reason or charge on which it proposed to cancel Assessee's registration. The Court held that unless the revenue authority had specified the reason why it was attempting to treat the Assessee firm as 'bogus' and on which ground under Section 29(2) was the authority seeking to cancel the registration, the notice seeking to cancel Assessee's GST registration remained defective.
"The statute contemplates issuance of the notice in specified circumstances for specific grounds. Those could not be diluted or muddled or made vague by describing the assessee firm as "bogus". In absence of any specific charge, the respondent authority could not be permitted to proceed to cancel the assessee's registration. Though it may remain open to the Assessing Authority to issue a fresh notice with exact charge specification, the proceedings arising from the impugned notice is inherently defective."
The High Court therefore allowed the petition filed by the Assessee and set aside the order passed by the Assistant Commissioner, State Tax cancelling Assesseee's registration under UP GST Act, 2017.
Case Title: Apparent Marketing Private Limited versus State of U.P. and Others
Dated: 05.03.2022 (Allahabad High Court)
Counsel for the Petitioner: Praveen Kumar
Counsel for the Respondent: Jagdish Mishra, Standing Counsel for Revenue Department