TMI Blog2020 (4) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 27 of the GVAT Act permits the Commissioner to cancel the certificate of registration even with retrospective effect. This court is of the considered view that in case of non-payment of tax dues, the registration may be cancelled prospectively from the date of the order or at best from the date of violation; but not ab initio from the date of grant of registration or any date prior to the violation of the statutory provision. The registration of a dealer cannot be cancelled retrospectively to even include the period where the transactions were legal and valid and there was no violation in terms of any of the clauses contained in sub-section (5) of section 27 of the GVAT Act. While cancelling the registration of a dealer, the authority should consider the nature of the violation as well as the effect that the cancellation of the registration has, not only on the dealer but on all other dealers who have dealt with him. In case of mere non-payment of assessed tax dues, there is no illegality in the transactions entered into by the parties, and hence, the concerned authority should exercise discretion accordingly, and if it finds on facts that a case for cancellation is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditional material, which was not relevant to the grounds stated in the show cause notice. The Tribunal, in the impugned order, has failed to consider the scope of the proceedings before it and has upheld the order passed by the first appellate authority on the grounds which were extraneous to the show cause notice. Moreover, as discussed hereinabove, the Tribunal has thoroughly misunderstood the facts of the case while holding that appellant had accepted that the purchases were not genuine. The Tribunal was, therefore, not justified in upholding the order passed by the first appellate authority whereby it had confirmed the order of cancellation of the registration certificate of the appellant - Answered in favour of the appellant and against the revenue. Appeal allowed - decided in favor of appellant. - R/TAX APPEAL NO. 952 of 2017 - - - Dated:- 11-12-2019 - MS. HARSHA DEVANI AND MS. SANGEETA K. VISHEN JJ. Appearance: UCHIT N SHETH(7336) for the Appellant(s) No. 1 MS MAITHILI MEHTA, ASSISTANT GOVERNMENT PLEADER/PP(99) for the Opponent(s) No. 1 ORAL JUDGMENT (PER : HONOURABLE MS.JUSTICE HARSHA DEVANI) 1. By this appeal under section 78 of the G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said orders, the Commercial Tax Officer observed that he was imposing maximum penalty under the GVAT Act as a deterrent against any future tax evasion by the appellant. 5. Against the said order, the appellant preferred first appeals. Insofar as the first appeal for the year 2011-12 is concerned, while tax and interest liability were confirmed by the first appellate authority, the rate of penalty was reduced from 150% to 75%. The appellant carried the matter in second appeal before the Tribunal. In the meanwhile, the Commercial Tax Officer issued notice to the appellant on 3.7.2015 requiring it to deposit the outstanding dues for the years 2010-11 and 2011-12. Since the second appeal of the appellant for the year 2010-11 was pending before the Tribunal and the first appeal for the year 2011-12 was pending before the first appellate authority, the appellant requested the Commercial Tax Officer to wait for the outcome of the appeals. 6. The second appeal for the year 2010-11 came to be disposed of by the Tribunal by order dated 7.10.2015, whereby the Tribunal, without entering into the sustainability of the tax and interest, deleted the penalty, as confirmed by the first a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om ship breakers and reputed companies in order to avoid issues arising because of defaults and frauds committed by selling traders. However, by an order dated 3.8.2016, the first appellate authority dismissed the appeal. 9. The appellant carried the matter in further appeal before the Tribunal, being Second Appeal No.13 of 2017. By the impugned order dated 16.8.2017, the Tribunal has dismissed the appeal. 10. Mr. Uchit Sheth, learned advocate for the appellant invited the attention of the court to section 21 of the GVAT Act, which provides for registration. Reference was made to subsection (1) thereof, which lays down that no dealer shall, while being liable to pay tax under the Act carry on business as a dealer unless he possesses a valid certificate of registration, as provided by the Act. It was pointed that sub-section (6) thereof provides for mandatory grant of registration to a dealer; and sub-section (7) thereof provides for cancellation of registration on an application by the dealer. Reference was also made to section 22 of the GVAT Act, which provides for voluntary registration. Adverting to section 27 of the GVAT Act, which provides for suspension or cancellation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the registering authority is satisfied that the goods of the applicant are reasonably identifiable in case of godown or warehouse shared with one or more dealers, the registering authority shall issue a certification of registration in Form 102. It was submitted that while the grant of registration is not discretionary, the cancellation thereof is discretionary. It was submitted that cancellation is warranted in case of gross evasion of tax, for recovery of tax, in case where the dealer deals with a vendor after notice of evasions; however, in such cases the registration can be cancelled prospectively. 10.3 Referring to the order dated 12.1.2016 passed by the Commercial Tax Officer, it was pointed out that the reason for cancellation of registration in this case was non-payment of tax dues. It was submitted that non-payment of tax dues cannot result in retrospective cancellation of registration. It was pointed out that the second ground for cancellation in the original order is suspicion, to submit that there is no power to cancel registration on the ground of suspicion. On facts, it was pointed out that only 15% to 20% of the transactions made by the appellant are doubted, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of the list relied upon by the first appellate authority, were cancelled long thereafter. It was submitted that therefore, at the time when the petitioner entered into the transactions, the concerned parties were duly registered under the GVAT Act. 10.6 Next, it was argued that the original order cannot go beyond the notice and, therefore, the appellate order also cannot go beyond the original order, whereas in the facts of the present case, the first appellate order has re-adjudicated the entire case. It was submitted that in the first appeal, the first appellate authority has enhanced the original order, which is not permissible in law. It was urged that in the appellant s appeal, the first appellate authority could not have gone beyond the original order. 10.7 It was further pointed out that the Tribunal, in the impugned order, has recorded that the appellant has paid tax and interest accepting indirectly that the purchases were not genuine and has applied the decision of this court in the case of State of Gujarat v. Nageshi Enterprise, (2017) 104 VST 204 (Guj.). It was submitted that the Tribunal has not appreciated the facts of the present case in proper pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or cancellation of registration certificate, has been set at rest by a Bench decision of this Court in S.J.C. Nos. 101 and 102 of 1975 disposed of on 14th September, 1977, wherein it has been held that the provision in rule 16 B(1) authorising the Sales Tax Officer to specify a date in the order would not permit him to fix a date retrospectively and would always mean that a date which may be the date of making of the order or a date at any point in future could only be indicated. 10.10 Reference was also made to the decision of the Kerala High Court in the case of Deputy Commissioner of Sales Tax (Law), Board of Revenue (Taxes), Ernakulam v. Debi Prasad Shyam Sunder Sons, (1991) 82 STC 305 (Ker.), wherein the court held thus:- 5. It should be remembered that a certificate is granted by the prescribed authority only after making such enquiries as he may consider necessary and only if he is satisfied that the application is in order and that the particulars furnished therein are correct, etc. It is not as if the certificate is granted mechanically. An enquiry is contemplated, on the basis of which the concerned officer should be satisfied that the person who has applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, they are not separately recorded. We clarify that that we are taking up the issue only of interim protection to the petitioner pending revision petition before the Tribunal. We would therefore be slow in making any observation which might prejudice one side or other in pending litigation at any rate. It is provided that no such observation would handicap either side in the revision petition pending before the Tribunal. 8. With this preamble, we may recall that the petitioner's registration as a dealer continued right from the year 2008 till it was recently cancelled with retrospective effect. Even if the cancellation of registration was to be upheld, the question is, should the same has been ordered with retrospective effect providing for cancellation of registration from inception. Even if such registration is cancelled, the purchasing dealers in their assessments can always argue that their transactions with the petitioner were genuine and that therefore they cannot be deprived of the input tax credit concerning such transactions. On the other hand, even if such registration is not cancelled with retrospective effect and the department has material to believe that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the record. In fact the said purchases have also been shown by the said firm in its return submitted to the Department as is evident from annexure No.13 to the revision. Moreover, the ground that the purchases are bogus has not been dealt with by the Tribunal. The Tribunal only records that the said firm from which the revisionist had made purchases was found to be involved in evasion of tax. Involvement of the said firm in tax evasion may not be attributed to the revisionist as there is no finding that the revisionist was in any way linked with the affairs of the said firm and was instrumental in such tax evasion. 10.14 Reliance was placed upon the decision of the Supreme Court in the case of M.A. Rahman and others v. the State of Andhra Pradesh and others, (1961) 12 STC 392, wherein it was contended on behalf of the petitioners that the effect of cancellation was that a person whose registration is cancelled cannot carry on business in motor spirit as he was doing before the cancellation. It was submitted that cancellation results in the total extinction of the business of the person whose registration is cancelled and thus the provision as to cancellation is an u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assistant Government Pleader placed reliance upon the decision of this court in the case of State of Gujarat v. Jain Marbo India (P.) Ltd., (2018) 67 GST 495 (Gujarat), for the proposition that as a matter of first principle there is no reason for the court to restrict, by a process of construction, the legislative intent in regard to the imposition of a penalty by holding that the discretion would extend only to the imposition of a penalty and not with regard to the extent of the penalty. The legislature is undoubtedly empowered in its plenary jurisdiction to determine whether a penalty is or is not mandatory. It was submitted that, therefore, the provisions of sub-section (7) of section 27 of the GVAT Act may not be construed to limit the power of the Commissioner to cancel the registration only prospectively. 11.2 Reliance was also placed upon the decision of the Supreme Court in the case of State of T.N. v. Arooran Sugars Limited, (1997) 1 SCC 326, wherein it has been held thus:- 13. The legislature by different deeming clauses and through statutory fiction requires the Court to treat that amendments so introduced by Act 7 of 1974 had never been introduced in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to a situation that obtained twenty years ago and ignore the march of events and the constitutional rights accrued in the course of the twenty years. That would be most arbitrary, unreasonable and a negation of history. In same terms this Court expressed the opinion in the cases of T.R. Kapur v. State of Haryana (supra) and Union of India v. Tushar Ranjan Mohanty (supra) in respect of alterations in rules framed under Article 309 of the Constitution retrospectively regarding conditions of service. 11.3 The learned Assistant Government Pleader produced the original file of the first appellate authority for the perusal of the court and pointed out that a print out of all the on-line details of transactions of the appellant with the firms, both registered as well as those whose registrations were cancelled, was placed reliance upon. Reference was made to a statement showing dealings with firms whose registrations had not been cancelled. It was submitted that the show cause notice was issued for the years 2010-11 and 2011-12. At the time of passing the original order transactions with two parties were proved to be doubtful. It was submitted that the order of the firs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration of the appellant on two grounds; firstly on the ground that evidence of payment of tax/interest/penalty was not produced; and secondly, on the ground that the transactions of sale and purchases were suspicious; and, therefore, in the interest of the revenue, the registration was required to be cancelled. 14. The appellant carried the matter in appeal before the first appellate authority. Before the first appellate authority, the appellant had put forth two grounds of appeal: (i) the order cancelling the registration is not clear and though the outstanding recovery was fully paid, the same was not taken into consideration, and hence, registration is required to be restored; and (ii) cancellation of registration by stating that the transactions are suspicious is unjust. On facts, it was pointed out that no amount was outstanding for 2010-11 and whatever amount was due towards tax, interest or penalty for 2011-12 has been fully paid. Thus, no amount was outstanding for other than the two years and in this regard, a communication dated 6.2.2016 had been addressed to the Commercial Tax Officer. It was further contended that by the order dated 12.1.2016, the registra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings the appellant had remained present for scrutiny on five occasions; 4. During the course of appellate proceedings, the evidence relied upon has been communicated to the appellant. 15.1 The appellate authority has further recorded that the appellant has submitted that that they have paid the amount in respect of the bogus purchases made by them. The appellant has contended that the decision of the Tribunal against the demand that has arisen for the years 2010-11 and 2011-12 and on account of the search at the premises has not been taken into account. The appellate authority has held that however, the appellant being involved in evasion of tax, this contention is not tenable at the stage of appeal. The appellate authority was of the view that that itself was an admission of involvement in bogus billing. The appellate authority has observed that the dealer whose purchases are bogus, he must naturally have also made bogus sales and the mutual transactions are reflected in the statements; and has accordingly, held that considering the matter in its entirety, the dealer is a bead in the necklace of bogus billing; on a perusal of the bills and other details produc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h paper book. The appellant has mentioned vehicle in the column but does not mention the number of vehicle in which particular goods was transported. This in our view does not amount to evidence of transportation. Therefore, in our view the decision of learned cancelling authority was justified in holding that the appellant had not produce evidences . 16.3 The Tribunal has thereafter referred to the proceedings taken pursuant to the search whereby the adjudicating authority had disallowed input tax credit and raised demands for the period 2010-11 and 2011-12 and the appellant had paid the tax and interest involved in the said demand for the tax period 2010-11, and ultimately, the demand for penalty for the tax period 2010-11 was deleted by the Tribunal in Second Appeal No. 732 of 2015 decided on 7.10.2015. The Tribunal further noted that the appellant had pleaded before the first appellate authority that the cancellation of registration under section 27(5) of the Act on the ground of non-payment of tax was not justified. The Tribunal then referred to the findings recorded by the first appellate authority and held that the appellant did not produce sufficient evidence before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be specified by him. On a plain reading of the sub-section, it appears that it is permissible for the Commissioner to cancel the registration even with retrospective effect. 20. At this juncture, reference may be made to sub-section (5A) of section 27 of the GVAT Act, which to the extent the same is relevant for the present purpose, reads as under:- (5A) (1) If a dealer,- (a) has failed to inform changes as required under sub-section (1) of section 26; (b) has failed to furnish return under section 29; (c) has failed to pay tax under section 30; (d) has failed to file declaration or intimate the changes as required under section 65 or 66; or (e) has failed to produce the books of accounts required under section 67, the Commissioner may, at any time, for reasons to be recorded in writing and after giving the dealer an opportunity of being heard, suspend his certificate of registration from such date not earlier than the date of order of suspension, as may be specified by him in the order. 21. Thus under sub-section (5) of section 27 of the GVAT Act, the Commissioner is empowered to cancel the certificate of registration from such date as may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod where the transactions were legal and valid and there was no violation in terms of any of the clauses contained in sub-section (5) of section 27 of the GVAT Act. While cancelling the registration of a dealer, the authority should consider the nature of the violation as well as the effect that the cancellation of the registration has, not only on the dealer but on all other dealers who have dealt with him. In case of mere non-payment of assessed tax dues, there is no illegality in the transactions entered into by the parties, and hence, the concerned authority should exercise discretion accordingly, and if it finds on facts that a case for cancellation is made out, it may cancel the registration prospectively. In cases involving evasion of payment of taxes or furnishing a false particulars etc., the registration may be cancelled from the date of such transactions or from the date when false particulars are filed; whereas in case where registration has been obtained fraudulently and no valid transactions have been made right from the inception, the authority would be justified in cancelling the registration ab initio. 24. In the case of the appellant, even if the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the registration certificate of the appellant. 26. Moving on to the second question viz. whether the Gujarat Value Added Tax Tribunal was justified in holding that the judgment of this court in the case of State of Gujarat v. Nageshi Enterprise, (2017) 104 VST 204 (Guj.), would be applicable to the facts of the appellant. 27. In this regard, a perusal of the impugned order reveals that such finding of the Tribunal is based on the fact that the appellant by paying the tax and interest has indirectly accepted that the purchases were not genuine. Reference may be made at this stage to the order dated 7.10.2015 passed by the Tribunal in Second Appeal No.732 of 2015, a perusal whereof shows that being aggrieved by the order of the first appellate authority confirming tax and interest and upholding penalty to the extent of ₹ 74,574/-, the appellant had preferred the appeal. From the said order, it also appears that the appellant had paid the entire tax demand of ₹ 99,432/- and interest of ₹ 46,236/- prior to the assessment order and had also paid an amount of ₹ 12,430/- at the first appellate stage, and hence, the entire tax and interest was paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly, its registration was required to be cancelled and as such was rightly cancelled by the first revisional authority. Thus, the decision of this court in State of Gujarat v. Nageshi Enterprise (supra) has been rendered in the peculiar facts of the said case wherein the dealer had specifically admitted that he was not entitled to input tax credit, whereas in the facts of the present case, the appellant has challenged the tax, interest and penalty till the stage of second appeal, and there is no admission on its part that the transactions in question were invalid. Question No.2 is also, therefore, required to be answered in favour of the appellant and against the respondent, namely, that the Tribunal was not justified in holding that the decision of this court in the case of State of Gujarat v. Nageshi Enterprise (supra) would be applicable to the facts of the appellant. 29. Proceeding to the last question, namely, whether the Gujarat Value Added Tax Tribunal was justified in confirming the order of the first appellate authority confirming the cancellation of registration certificate of the appellant on the basis of the allegations and grounds neither made out nor estab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (5) or sub-section (5A) of section 27 of the GVAT Act, he shall give a notice to the dealer in Form 104. 32. Form 104 provides for the format for notice for suspension/cancellation of certificate of registration under subsection (5) of section 27 of the GVAT Act. While sub-section (5) of section 27 of the GVAT Act provides for cancellation of registration only in the contingencies referred to in clauses (a) to (j), in paragraph 2 of Form 104, two more contingencies are provided viz. (k) failed to produce books of accounts when called to do so, and (l) failed to intimate the changes as required in sections 26, 65 and 66, which are contingencies provided for suspension of registration under sub-section (5A) of section 27 of the GVAT Act. Thus, while the heading of the form refers to suspension/cancellation of certificate of registration under sub-section (5) of section 27, the form in fact also includes the grounds for suspension of registration under sub-section (5A) thereof. Thus, in the notice issued in Form 104, while one ground relates to cancellation of registration, the other relates to suspension of registration. In the opinion of this court while a certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Appellate Assistant Commissioner under sub section (3) of section 34 and any person objecting to an order passed by the Deputy Commissioner under subsection (1) of section 35, and any person objecting to an order passed by the inspecting Assistant Commissioner under clause (c) of sub-section (4) of section 28 may, within a period of sixty days from the date on which the order was served on him in the manner prescribed, appeal against such order to the Appellate Tribunal; Provided that the Appellate Tribunal may admit an appeal presented after the expiration of the said period if it is satisfied that the appellant had sufficient cause for not presenting the appeal within the said period. (2) The officer authorised under sub-section (1) or the person against whom an appeal has been preferred, as the case may be on receipt of notice that an appeal against the order of the Appellate Assistant Commissioner has been preferred under sub-section (1) by the other party, may, notwithstanding that he has not appealed against such order or any part thereof, file, within thirty days of the receipt of the notice, a memo random of cross-objections, verified in the prescribed man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjections are to be disposed of by Appellate Tribunal as if it were an appeal. Then comes sub-section (4) which enumerates the various powers conferred upon the Appellate Tribunal while disposing of such appeals (including cross-objections) and the power conferred upon the Appellate Tribunal under section 4(a)(i) is to confirm, reduce, enhance or annul the assessment ; the power to enhance the assessment must be appropriately read as relatable to an appeal or cross-objections filed by the Department. The normal rule that a party not appealing from a decision must be deemed to be satisfied with the decision, must be taken to have acquiesced therein and be bound by it, and, therefore, cannot seek relief against a rival party in an appeal preferred by the latter, has not been deviated from in sub-section (4)(a)(i) above. In other words, in the absence of an appeal or cross-objections by the Department against the Appellate Assistant Commissioner's order the Appellate Tribunal will have no jurisdiction or power to enhance the assessment. Further, to accept the construction placed by the counsel for the appellant on sub-section (4)(a)(i) would be really rendering sub-section (2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion that the demand is required to be enhanced or the penalty is not proportionate to the default. In a case of cancellation of registration pursuant to a show cause notice, the appellate authority cannot travel beyond the grounds stated in the show cause notice and expand the scope of the proceedings by placing reliance upon additional material, which was not relevant to the grounds stated in the show cause notice. 40. The Tribunal, in the impugned order, has failed to consider the scope of the proceedings before it and has upheld the order passed by the first appellate authority on the grounds which were extraneous to the show cause notice. Moreover, as discussed hereinabove, the Tribunal has thoroughly misunderstood the facts of the case while holding that appellant had accepted that the purchases were not genuine. The Tribunal was, therefore, not justified in upholding the order passed by the first appellate authority whereby it had confirmed the order of cancellation of the registration certificate of the appellant. 41. Question No.3 stands answered accordingly, that is, in favour of the appellant and against the revenue. 42. For the foregoing reasons, the appeal suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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