The Gujarat High Court in M/S Virani Metal Industries v. State of Gujarat (SCA No.13233 of 2022 decided on 30.11.2022) held that the SCN issued without reasons and vague is bad in law and liable to be set aside.
M/s. Virani Metal Industries (hereinafter referred to as the “Petitioner”) is engaged in the manufacturing of copper wire from the copper scrap and was registered under the State Goods and Services Tax Act, 2017 (hereinafter referred to as the “SGST Act”) on 09.08.2018.
On 19.08.2021, a search was conducted at the premises of the Petitioner under Section 67(2) of the SGST Act. Panchnama was drawn and documents were seized.
On 06.09.2021, once again the spot verification was carried out and the Petitioner received a SMS regarding the blocking of its Input Tax Credit (hereinafter referred as “ITC”). The Petitioner requested the Assistant Commissioner (State Tax), Surat to provide reasons for blocking of ITC by communication dated 28.09.2021.
On 01.11.2021, summons were issued to the Petitioner by the Directorate General of GST Intelligence (hereinafter referred as the “DGGI”), Vadodara Regional Unit to appear in person on 11.10.2021.
During the pendency of the investigation by DGGI, a Show Cause Notice (hereinafter referred to as the “SCN”) was issued by the Assistant Commissioner (State Tax), Surat proposing to cancel the registration of the Petitioner.
The Petitioner filed a reply to the SCN on 08.10.2021 and further filed an application seeking revocation of suspension of registration.
The Assistant Commissioner (State Tax), Surat vide Order dated 26.10.2021 cancelled the registration of the Petitioner effective from 01.10.2021. The Petitioner further filed an application dated 27.10.2021 seeking revocation of cancellation. The Assistant Commissioner (State Tax), Surat issued a communication dated 24.11.2021 asking the Petitioner to appear in person on 26.11.2021.
Subsequently, the Petitioner filed an appeal under Section 107 of the SGST Act, challenging the Order dated 26.10.2021 before the Commissioner (Appeals). The Commissioner (Appeals) vide Order dated 09.05.2022 directed the Assistant Commissioner (State Tax), Surat to activate the registration of the Petitioner, which was restored on 12.05.2022.
Another show-cause notice dated 17.05.2022, was served upon the Petitioner proposing cancellation of registration. The Petitioner replied on 25.05.2022, requesting the Department to decide the show-cause notice within two weeks.
The Petitioner was served with a Letter dated 29.07.2022 to appear physically with the documents i.e. bills, e-way bills, transport receipts, VAT receipts, inward and outward entries etc. In the response, the Petitioner informed that all the documents were with the DGGI due to the pending investigation. Despite the reply dated 01.08.2022 of the Petitioner, a suo-moto order dated 03.08.2022 (hereinafter referred to as the “Impugned Order”) was served cancelling the registration with effect from 17.05.2022 and directing the Petitioner to pay the amount within 10 days from the date of the Impugned Order.
Hence, aggrieved by the Impugned Order and the actions of the Assistant Commissioner (State Tax), Surat, the Petitioner approached the High Court of Gujarat by way of a Writ Petition.
ISSUES BEFORE THE HIGH COURT
CONTENTIONS OF THE PARTIES
Mr. Anandodaya Mishra on behalf of the Petitioner contended that no provision of the GST law permitted the Respondents to initiate proceedings for cancellation of registration and hence, the Order dated 03.08.2022 is ex-facie illegal and without jurisdiction.
The Petitioner relied upon Aggarwal Dyeing and Printing Works v. State of Gujarat & Ors. (SCA No.18860 of 2021) and argued that the SCN dated 17.05.2022 proposing the cancellation of registration is bereft of any reasons, and is in clear violations of principles of natural justice.
It was submitted that the documents were lying with DGGI in furtherance of pending investigation and the Respondent had cancelled the registration without the application of mind under Rule 22(3) vide order dated 03.08.2022.
The Respondents asserted that the Petitioner was served a SCN dated 17.05.2022 again and a personal hearing was also provided and thereafter the registration was cancelled, hence, there is no illegality in the action of the Respondents.
It was contended that the Petitioner failed to provide the documents and hence, the registration was cancelled. Moreover, ITC was wrongly availed by the Petitioner on the basis of purchases made from bogus firms whose registration have been cancelled ab-initio.
DECISION AND FINDINGS
The High Court observed that the SCN dated 28.09.2021 provided only one day time to the Petitioner to file the reply. Moreover, in the cancellation of registration order dated 26.10.2021, the demand payable by the Petitioner is nil.
The Court opined that the suo-moto initiation of proceedings for cancellation of registration is bad in law as no such liberty was granted by the Commissioner(Appeals). Moreover, there was no specific reason for the initiation of cancellation of registration proceedings and the SCN dated 17.05.2022 does not state any reasons and is vague.
The Court relied on Aggarwal Dyeing and Printing Works vs. State of Gujarat &Ors. (SCA No.18860 of 2021) and held that the SCN dated 17.05.2022 is vague and without reasons and was quashed and set aside and the Impugned Order was also quashed and set aside.
The Court provided the liberty to the Assistant Commissioner (State Tax), Surat to issue any fresh SCN with reasons and after providing the opportunity of being heard to the Petitioner and to decide the case on merits and disposed of the petition.
The Gujarat High Court has upheld that the SCN must have reasons and should be clear and unambiguous. The cancellation of registration Order was set aside. The observation of the principles of nature justice is an essential feature in every judicial, quasi-judicial or administrative proceedings. The reasons for initiation of proceedings are an essential feature for any proceedings.
The present case, was originally argued by Mr. Anandaday Mishra, Founder & Managing Partner, AMLEGALS, who represented the Petitioner in the matter.
-Team AMLEGALS assisted by Ms. Rishita Agarwal (Intern)
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