Cancellation of Registration-Facts of the Case

Cancellation of Registration-The petitioner/Assessee Apparent Marketing Private Limited applied for registration under the UP GST Act, 2017 for trading in Pan Masala and Tobacco.
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.

Cancellation of Registration-Argument before the Court

Cancellation of Registration-The Assessee Apparent Marketing submitted before the High Court that no reason permitted by the statute was mentioned or specified in the SCN 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 SCN and the order issued 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 Revenue Department submitted that Assessee had not conducted any business as disclosed.
The registration had been obtained only for the purposes of creating a false paper trail of invoices.

Held by the Court

Cancellation of Registration-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.
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 it in the SCN, 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 held that unless the revenue authority had specified the reason 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 in material aspect.
Unless the essential ingredients necessary for issuance of such notice had been specified therein at the initial stage itself, the authorities cannot be permitted to have margin or option to specify and/or improve the charge later.
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.