Blog No. 58: Registration cannot be cancelled merely by saying that party is Bogus

If the department proposed to cancel the registration granted, a heavy burden lay on the assessing authority to establish the existence of facts as may allow for such cancellation of registration. The registration once granted could be cancelled only if one of the five statutory conditions was found present. Per se, no registration may be cancelled by merely describing the firm that had obtained it, was “bogus”. Cancellation of registration has serious consequences. It takes away the fundamental right of a citizen to do business.

Read in detail about the case Apparent Marketing Pvt Ltd Versus State of U.P. and 3 Others reported as 2022 (3) TMI 493 below:

Facts of the Case

1. A survey was conducted at the assessee’s business premises on 15.12.2017. Those premises were found closed. 
2. Another survey was conducted at the assessee’s business premises on 16.02.2018. However, no adverse material is claimed to have been discovered during that survey proceeding.
3. The assessee received a notice through e-portal of the revenue department on 22.07.2020 whereby the registration was proposed to be cancelled for the following solitary reason:

“Your firm was found bogus in inspection of SIB. Information received from headquarter.”

4. Reply was not filed by the Assessee.
5. On 13.08.2020, the respondent authority cancelled the assessee’s registration without disclosing any further reason.
6. The assessee filed an application for revocation of the aforesaid order. 
7. The assessee received a notice dated 21.08.2020 expressing the tentative opinion of the authority against the grant of revocation.
8. The assessee uploaded its written reply on 21.08.2020.
9. Without issuing any further communication and without fixing any date for personal hearing, on 21.08.2020 itself, the respondent authority passed the order, rejecting the application for revocation of cancellation of registration. 
10. Assessee filed the appeal and that appeal has also been dismissed.
11. Hence, a writ petition is filed before Hon’ble High Court.

Submissions of the Assessee

12. There is gross violation of principles of natural justice on more than one count.

1. No date was fixed in the proceedings and no date (of personal hearing) was communicated to the assessee.
2. The original show cause notice dated 22.07.2020; the order dated 13.08.2020; notice dated 21.08.2020 and; the further order dated 20.08.2020 are, non-speaking.

13. Firm being “bogus” is not one of the conditions on which such notice may arise.

Observations of the Court

14. Cancellation of registration has serious consequences. It takes away the fundamental right of a citizen etc. to engage in a lawful business activity.
15. If the respondent proposed to cancel the registration thus granted, a heavy burden lay on the respondent authority to establish the existence of facts as may allow for such cancellation of registration.
16. The word “bogus” has not been used by the statute. The only contingency to which such expression may relate may be one appearing under Clauses (c) and (d) of Section 29(2) of the Act being where a registered firm does not commence its business within six months of its registration. Other than that, the term “bogus” may also refer to a satisfaction contemplated by Section 29(2)(c) of the Act where registration may be cancelled if the registered firm has not furnished its return for continuous period of six months. Those conditions have not been shown to exist in this case.

Decision of the Court

17. 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.
18. Let a copy of this order be communicated to the Commissioner, State Tax, U.P. Lucknow by the learned Standing Counsel for effective communication and appropriate action so that such cases do not arise in future.