SEPTEMBER 06, 2023

By Vijay Kumar

THIS is the story of a petitioner who had to approach the High Court in a GST registration matter. Bureaucratic chaos and nonsensical procedures found the petitioner in the midst of a cancellation drama.

The petitioner was happily registered under the Central Goods and Services Tax Act, 2017 effective from 17.12.2021. Little did he know that an impending storm was brewing.On a fateful day, 22.09.2022, the GST authorities, in their infinite wisdom, decided to issue a show cause notice to our innocent petitioner, proposing to cancel his registration. The petitioner was called upon to submit a reply and also appear before the authority on 26.09.2022.

A plain reading of the show cause notice indicates that the reason for the proposed action was stated to be "Non-compliance of any specified provisions in the GST Act or the Rules made thereunder as may be prescribed".

How does anyone reply to such a Show Cause Notice? Even the High Court was at a loss to understand as to how any person could respond to the said allegation and observed;

1. Clearly, the show cause notice does not specify any allegation, which is capable of being responded to.

2. It is settled law that the purpose of the show cause notice is to enable the noticee to meet the allegations on the basis of which an adverse action is proposed.

3. Tested on the said anvil, it is clear that the impugned show cause notice is bereft of any reasons and is issued in a mechanical manner without any application of mind.

4. We are of the view that the impugned show cause notice cannot be considered as a show cause notice at all.

What happened after the Show Cause Notice?

The petitioner's registration was unceremoniously cancelled by an order dated 11.10.2022. The petitioner, understandably, did not respond to the show cause notice. After all, what could be his response, when he did not even know what his violation was! His registration was cancelled on the ground that the petitioner had neither appeared for a personal hearing nor submitted any reply.

Aggrieved by the order dated 11.10.2022, the petitioner filed an application seeking revocation of the order of cancellation, which is pending. The petitioner has been pursuing for disposal of its application for revocation of the cancellation order dated 11.10.2022, but in vain.

In response to his letter dated 20.01.2023, he received a letter from the GST Division as follows:

Please refer to your Letter dated 20.01.2023.

On the subject "status in respect of Reg-21 dated 15.10.2022 filed for revocation of cancellation of registration vide ARN AA071022035800"

In this regard it is submitted that the cancellation of registration has been directed by Anti-Evasion Head-quarter. A proper NOC (No Objection Certificate) from Anti-Evasion Head-Quarter may be obtain in order to enable this office to proceed for the with your revocation application.

Regards,

Don't find fault with the language and grammar. After all people who have no respect for LAW cannot be expected to have any respect for LANGUAGE.

Nobody knows the sanctity of the illegal procedure followed.

1. How can the Anti -Evasion wing direct cancellation of registration to another GST Officer?

2. Is the direction binding on the other officer?

3. Where is it laid down that the Anti-Evasion wing can give a No Objection Certificate ?

4. And what is a proper NOC (No Objection Certificate)?

5. Can there be a NOC issued by the Department which is not proper?

6. Who decides whether the NOC issued is proper or improper?

7. How does a taxpayer apply for a NOC (No Objection Certificate)? Is there a form? Is it online? Which officer in Anti-Evasion should be approached for this mysterious NOC (No Objection Certificate)?

8. Who will answer all these questions?

The frustrated taxpayer had no option except to knock at the doors of the High Court. When officers don't do the work assigned to them or do things which they ought not to do, fortunately, we still have courts which understand the laws and the agony of the victims of the lawless. In the olden days, the kings used to have a bell outside the fort; now we have the High Courts.

The High Court observed,

1. Concededly, there is no statutory provision that requires a taxpayer to seek an NOC from any authority for moving an application for revocation of cancellation of its registration.

2. We find that the procedure adopted by the respondents for cancellation of the registration is flawed.

3. The impugned show cause notice cannot be considered as a show cause notice at all and therefore, the impugned order dated 11.10.2022, cancelling the petitioner's registration, has been passed in violation of principles of natural justice and is liable to be set aside.

4. The impugned show cause notice dated 22.09.2022 as well as the impugned order dated 11.10.2022, cancelling the petitioner's GSTIN Registration, are set aside. (2023-TIOL-273-HC-DEL-GST)

When the taxmen do not know how to issue a Show Cause Notice; demand for compliance of illegal and unheard-of procedures and cancel the registration for perfectly unsound reasons, the only option available is to approach the High Courts. Is it fair for a government department to cause such huge wastage of the precious time of the High Courts. A High Court is empowered to strike down a law passed by over 700 members of Parliament and approved by the President of India. Should such a court be spending its time to correct the silly mistakes of lower functionaries of the tax department? There is something terribly wrong and we should all realise that something is terribly wrong – sooner the better.

It is not as if this is a rarest of rare cases. With routine regularity, we come across hapless taxpayers approaching already over-burdened High Courts for restoration of their cancelled registrations.

In the case of Ram Krishna Garg in Writ Tax No. - 1064 of 2021, the Gujarat High Court observed,

Cancellation of registration has most serious civil consequences. While Section 29(1) of the Act provides for specific grounds for cancellation with effect from the date of occurrence of certain events, sub-section (2) provides for harsher consequences including cancellation of registration with retrospective date. However, a registration may not be cancelled on mere whims and fancies of the Proper Officer. It may be cancelled under subsection (2) of Section 29 of the Act, if the registered person contravenes any provision of the Act or Rule as may have been prescribed for that purpose or if such person does not furnish returns for three tax periods consecutively or does not furnish returns for six months continuously or he does not commence business within six months of grant of registration or he is found to have obtained registration by means of fraud, wilful misstatement or suppression of facts.

A person who may be visited with the notice proposing such a harsh civil consequence had a perfect right to be informed of the exact allegations levelled against him. In a way, the harshest penalty contemplated is cancellation or registration of the assessee. The cancellation of the registration has the consequence of bringing the business of an assessee to a complete stand still. It's a death of his business. It has adverse impact on his fundamental right to do business.

In Suguna CutpieceCenter - 2022-TIOL-261-HC-MAD-GST, the Madras High Court observed,

The provisions of the GST enactments cannot be interpreted so as to deny the right to carry on Trade and Commerce to a citizen and subjects. The constitutional guarantee is unconditional and unequivocal and must be enforced regardless of the defect in the scheme of the GST enactments. The right to carry on trade or profession also cannot be curtailed. Only reasonable restriction can be imposed. To deny such rights would militate against their rights under Article 14, read with Article 19 (1)(g) and Article 21 of the Constitution of India.

Why should registration be cancelled at all? Why should you throttle business? You can take all the actions you want without cancelling the registration and a registered person is likely to pay some tax. Why should you deny that to the State? Cancellation of a registration does not mean that taxes are cancelled. Even if a registration is cancelled, it does not mean that the liability to tax ceases. Then why cancel at all? Did anyone ever get a notice proposing to cancel his PAN? And all PAN holders don't pay Income Tax.

Giving ignorant and arrogant officers huge powers like cancellation of registration will cause irreparable damage not only to the tax system but also general governance.

But why cancel registrations? An illustrious advocate commented once in our message box:

Frankly, I think the motive behind the cancellation of GST registration is the rent seeking behaviour. Someone discovered this as an avenue for making money, for restoring the cancelled registrations. Unfortunately, some assessees went to courts instead of genuflecting before the GST officers.

Until Next week