Telangana High Court
M/S Dnc Infrastructure Private Limited vs The Superintendent on 22 July, 2024
THE HONOURABLE SRI JUSTICE SUJOY PAUL
AND
THE HONOURABLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
WRIT PETITION No.18143 of 2024
ORDER (per Hon'ble Sri Justice Sujoy Paul)
Sri V.Bhaskar Reddy, learned Senior Counsel representing Sri V.Siddharth Reddy, learned counsel appears for the petitioner, Sri Dominic Fernandes, learned Standing Counsel for C.B.I.C. appears for respondent Nos.1 and 2 and Sri B. Mukherjee, learned counsel representing Sri Gadi Praveen Kumar, learned Deputy Solicitor General of India, appears for respondent No.3.
2. With consent, the matter is finally heard.
3. The challenge is mounted in this petition to the order, dated 02.07.2024 (Annexure P.1), whereby, GST registration of the petitioner has been cancelled.
4. The admitted facts between the parties are that petitioner was served with a show-cause notice for cancellation of registration, dated 19.06.2024 (Annexure P2). His registration stood suspended with effect from 19.06.2024. Since show-cause notice was founded upon certain documents/communications, petitioner filed his reply dated 20.06.2024 (Annexure P3) and requested the authority to furnish the material received from Directorate General of GST Intelligence (DGGI) and referred in the show-cause notice to enable the 2 petitioner to file an effective reply. The respondents by communication, dated 21.06.2024, expressed their inability to furnish said communication by treating it to be "internal communication"
meant for the Department only. Petitioner filed yet another reply without receiving the aforesaid documents on the strength of which, the show cause notice aforesaid was issued. The respondents passed the order of cancellation dated 02.07.2024 (Annexure P.1).
5. Learned Senior Counsel for the petitioner submits that the impugned action is illegal mainly for twin reasons. "Firstly", the show-cause notice is based upon various communications mentioned therein, but, none of them were supplied to the petitioner. Thus, petitioner was deprived to prefer adequate representations, which is violation of principles of natural justice. Secondly, the competent authority to take a decision of cancellation of registration is respondent No.1. He has to take decision on the basis of independent application of mind and cannot be guided by any other authority, in the manner he passed impugned order mechanically, it is liable to be set aside. Learned Senior Counsel in support of his submission, placed reliance on the judgment of Kerala High Court passed in W.P.(C).No.25716 of 2023, dated 13.09.2023.
6. Learned Standing Counsel supported the impugned notice and order and contended that material/documents mentioned in the show-cause notice were internal correspondence and therefore, 3 authorities have rightly not supplied the same. The impugned order nowhere shows that respondent No.1 has not passed the order by independent application of mind. He placed reliance on the order passed by Division Bench of this Court in W.P.No.3521 of 2024, dated 12.02.2024.
7. No other point is pressed by learned counsel for the parties.
8. Parties confined their arguments to the extent indicated above.
9. We heard the parties and perused the record.
10. Relevant portion of show-cause notice dated 19.06.2024 reads thus:
" Show cause Notice for Cancellation of Registration Whereas on the basis of information which has come to my notice, it appears that your registration liable to be cancelled for the following reasons:
1. On receipt of letter F.No.INV/DGGI/HZU/GST/146/2018-19, PF.IV/13577, dated 30.01.2024 and F.No.INV/DGGI/HZU/GST/146/2018-19, PF.V/481, dated 02.04.2024 from DGGI, HZU informing that the taxpayer is indulged in passing on of fake credit from fictitious/dubious entities and they are continued to avail and passing on fake ITC in F.Y.2023-24. Further, a letter is received letter C.No.IV/16/02/2023-Tech Misc., dtd.03.04.2024 from the Deputy Commissioner of Central Tax, Gachibowli Division to take appropriate action on the taxpayer basing on the letters issued by DGGI, HZU. Therefore, cancellation of GST registration initiated in the interest of revenue in terms of Section 29(2) (a) of CGST Act, 2017 read with Rule 21 & 22 of CGST Rules, 2022.
You are hereby directed to furnish a reply to the notice within seven working days from the date of service of this notice.
You are hereby directed to appear before the undersigned on 26.06.2024 at 12.30.
4
If you fail to furnish a reply within the stipulated date or fail to appear for personal hearing on the appointed date and time, the case will be decided ex parte on the basis of available records and on merits.
Please note that your registration stands suspended with effect from 19.06.2024."
11. Petitioner in the reply dated 20.06.2024 (Annexure P-3) stated as under:
" In this connection, we would request the learned authority to furnish us the material received from the DGCI and the concerned authorities which are referred to in the show cause notice to enable us to file our reply and appear for personal hearing within the stipulated/appointed date and time, in the interest of justice. We are handicapped of non-availability of the said material with us and we need to cross verify as to how we were declared as indulged in availing/passing on the input tax credit. We reserve our right to file the objections upon receipt of the information/communication, as it is serious case of cancellation of the GST registration."
12. The respondents by communication dated 21.06.2024 (Annexure P.4) opined that the letters desired by petitioner are internal communication meant for Department only. Thus, admittedly without supplying the incriminating and adverse material, which became foundation for issuance of show-cause notice, dated 19.06.2024, the Department proceeded ahead. This is trite if show-cause notice is founded upon some adverse material, which is sought to be used against the petitioner and adverse consequences may ensue, same must be supplied. The Apex Court, in this regard, in the case of Deepak Ananda Patil v. State of Maharashtra 1 held as under:
"18. It is a well-established principle of Administrative Law that an adjudicatory body cannot base its decision on any material unless the person against whom it is sought to be utilised has been apprised of it and given an opportunity to respond to it. Surveying 1 (2023) 11 SCC 130 5 the precedents extensively, M.P. Jain and S.N. Jain's treatise on Principles of Administrative Law [M.P. Jain & S.N. Jain, Principles of Administrative Law (LexisNexis, 8th Edn.) at pp. 490-91.] notes that:
"If the adjudicatory body is going to rely on any material, evidence or document for its decision against a party, then the same must be brought to his notice and he be given an opportunity to rebut it or comment thereon. It is regarded as a fundamental principle of natural justice that no material ought to be relied on against a party without giving him an opportunity to respond to the same. The right of being heard may be of little value if the individual is kept in the dark as to the evidence against him and is not given an opportunity to deal with it. The right to know the material on which the authority is going to base its decision is an element of the right to defend oneself. If without disclosing any evidence to the party, the authority takes it into its consideration, and decides the matter against the party, then the decision is vitiated for it amounts to denial of a real and effective opportunity to the party to meet the case against him. The principle can be seen operating in several judicial pronouncements where non-disclosure of materials to the affected party has been held fatal to the validity of the hearing proceedings."
(emphasis supplied)
19. In T. Takano v. SEBI, (2022) 8 SCC 162 , a two-Judge Bench of this Court, of which one of us was a part (D.Y. Chandrachud, J.), discussed the line of cases of this Court on the duty to disclose investigative material. The Court analysed the ratio in Natwar Singh v. Enforcement Directorate, (2010) 13 SCC 255 , Krishna Chandra Tandon v. Union of India, (1974) 4 SCC 374, Khudiram Das v. State of W.B., (1975) 2 SCC 81, Union of India v. Mohd. Ramzan Khan, (1991) 1 SCC 588 , ECIL v. B. Karunakar, (1993) 4 SCC 727, State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364, State of U.P.v. Ramesh Chandra Mangalik, (2002) 3 SCC 443 , Kothari Filaments v. Commr. of Customs, (2009) 2 SCC 192, and noted that : T. Takano v. SEBI, (2022) 8 SCC 162 "50. The following principles emerge from the above discussion:
50.1. A quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication; and 50.2. An ipse dixit of the authority that it has not relied on certain material would not exempt it of its liability to disclose such material if it is relevant to and has a nexus to the action that is taken by the authority. In all reasonable probability, such material would have influenced the decision reached by the authority.
50.3. Thus, the actual test is whether the material that is required to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural justice require its due disclosure."
(emphasis supplied)
13. If material on the strength of which show-cause notice is issued and founded upon, is not supplied to the petitioner and petitioner was 6 directed to file reply, it will be a hallow public relation exercise and will be in utter violation of principles of natural justice. The minimum expectation, while issuing the show-cause notice to confront the person with all the adverse material, which formed basis for issuance of show-cause notice. Thus, we find substance in the argument of learned Senior Counsel for the petitioner that the impugned order dated 02.07.2024 is liable to be set aside solely on the ground that it was passed without following the principles of natural justice and without disclosing the adverse material to the petitioner enabling him to file an effective reply.
14. In this view of the matter, order of cancellation dated 02.07.2024 is set aside. Since this order is already interfered with by us, at this stage, we are not inclined to deal with second submission of learned Senior Counsel. However, it is trite that if law provides the power to act in a particular manner to a particular authority, that authority has to act in the same manner by independent application of mind. The impugned order is set aside and petitioner's registration is restored. By following the order of Co-ordinate Bench in W.P.No.3521 of 2024, it is ordered that despite restoration of registration, if any Input Tax Credit (ITC) remains unutilized, petitioner shall not be permitted to utilize the same till the finalization of show-cause proceedings. Liberty is reserved to the Department to proceed against the petitioner afresh, 7 in accordanc with law, by issuing appropriate show-cause notice disclosing the relevant material.
15. This writ petition is disposed of. No costs. Interlocutory applications, if any pending, shall also stand closed.
______________ Sujoy Paul, J _______________________________ Namavarapu Rajeshwar Rao, J 22nd July, 2024 nvl/ns