Arshil Enterprise vs State Of Gujarat
2021 Latest Caselaw 1793 Guj

     C/SCA/133/2021                                JUDGMENT DATED: 08/02/2021


             IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

               R/SPECIAL CIVIL APPLICATION NO. 133 of 2021


FOR APPROVAL AND SIGNATURE:

HONOURABLE MR. JUSTICE J.B.PARDIWALA                                   Sd/-
and
HONOURABLE MR. JUSTICE ILESH J. VORA                                   Sd/-
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1    Whether Reporters of Local Papers may be allowed                    NO
     to see the judgment ?

2    To be referred to the Reporter or not ?                             NO

3    Whether their Lordships wish to see the fair copy                   NO
     of the judgment ?

4    Whether this case involves a substantial question                   NO
     of law as to the interpretation of the Constitution
     of India or any order made thereunder ?


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                            ARSHIL ENTERPRISE
                                  Versus
                            STATE OF GUJARAT
================================================================
Appearance:
MR UCHIT N. SHETH, ADVOCATE for the Petitioner(s) No. 1,2
MR CHINTAN DAVE, AGP for the Respondent(s) No. 1,2
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 CORAM: HONOURABLE MR. JUSTICE J.B.PARDIWALA
        and
        HONOURABLE MR. JUSTICE ILESH J. VORA

                              Date : 08/02/2021

                           ORAL JUDGMENT

(PER : HONOURABLE MR. JUSTICE J.B.PARDIWALA)

1. By this writ-application under Article 226 of the Constitution of India, the writ-applicants have prayed for the following reliefs :

"A. This Hon'ble Court may be pleased to issue a writ of certiorari or writ in the nature of certiorari or any other

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appropriate writ or order quashing and setting aside impugned order dated 19.10.2020 (annexed at Annexure-A) as being wholly without jurisdiction, arbitrary and illegal;

B. This Hon'ble Court may be pleased to issue a writ of mandamus or writ in the nature of mandamus or any other appropriate writ or order directing the Respondents to forthwith restore the registration certificate of the Petitioners;

C. Pending notice, admission and final hearing of this petition, this Hon'ble Court may be pleased to stay the retrospective operation of the impugned order dated 19.10.2020 (annexed at Annexure-A);

D. Ex-parte ad-interim relief in terms of prayer-C may kindly be granted;

E. This Hon'ble Court may be pleased to direct the Respondents to pay cost of this petition to the Petitioners;

F. Such further relief(s) as deemed fit in the facts and circumstances of the case may kindly be granted in the interest of justice for which act of kindness your petitioners shall forever pray."

2. The writ-applicants were engaged in the business of trading in old machinery and parts and they were registered under the Gujarat Value Added Tax Act, 2003 (hereinafter referred to as, the "VAT Act").

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3. On the basis of the search proceedings conducted at the premises of the writ-applicants on 3.10.2013, the provisional assessment was made for the years 2010-11 and 2011-12, wherein certain input tax credits were disallowed on the ground that some purchases were not genuine.

4. The writ-applicants had filed first appeals challenging the provisional assessment orders. While deciding the first appeal for the year 2010-11, the disallowance of the input tax credit was confirmed though the amount of the penalty which was imposed was reduced.

5. The writ-applicants filed second appeal before the Gujarat Value Added Tax Tribunal challenging the order passed in the first appeal. The disallowance of the input tax credit along with the interest and penalty were challenged in the second appeal. The writ-applicants were advised that it was a routine practice of the Tribunal to delete the penalty in the cases of disallowance of the input tax credit if the tax and interest were paid. To buy peace of mind, the writ-applicants chose to pay the tax and interest on the basis of which the Tribunal deleted the penalty amount.

6. In the meantime, the Commercial Tax Officer issued notice dated 17.12.2015 in the Form 104 proposing to cancel the registration certificate of the writ-applicants on the ground that the tax dues for the years 2010-11 and 2011-12 respectively were outstanding. Before the writ-applicants could respond to such notice, the officer proceeded to cancel the registration

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certificate of the writ-applicants under Section 27(5) of the VAT Act on the ground that some tax dues were outstanding and also that the transactions of the writ-applicants were suspicious.

7. The writ-applicants filed first appeal challenging such cancellation order. The first appellate authority, however, dismissed the first appeal on the ground that the writ-applicants had admitted their liability of tax and interest before the Tribunal for the year 2010-11 and, therefore, the writ-applicants could be said to have admitted being involved in the bogus purchases. Further, the first appellate authority disputed certain sales and purchase transactions of the writ-applicants on the ground that the vendors/customers of the writ-applicants had been entering into transactions with certain dealers who were engaged in the billing activity. Such first appeal order was confirmed by the Gujarat Value Added Tax Tribunal.

8. The writ-applicants challenged the judgement of the Tribunal by filing the Tax Appeal No.952 of 2017 before this Court. The Tax Appeal was admitted for considering the following three substantial questions of law:

"(1) Whether on the facts and in the circumstances of the case, the Gujarat Value Added Tax Tribunal was justified in confirming ab-initio cancellation of the registration certificate of the Petitioners?

(2) Whether the Gujarat Value Added Tax Tribunal was justified in holding that the judgment of this Court in the

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case of State of Gujarat v. Nageshi Enterprise, (2017) 104 VST 204 (Guj.) would be applicable to the facts of the Petitioners?

(3) 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 Petitioners on the basis of the allegations and grounds neither made out nor established in the original order cancelling the registration certificate?"

9. This Court allowed the Tax Appeal filed by the writ- applicants by a detailed judgement dated 11.12.2019. The entire record of the writ-applicants was examined. It was, thereafter, held inter-alia by this Court that the registration certificate ought not to be retrospectively cancelled merely on the basis of some allegation of discrepancy in few transactions. The relevant observations made by Court read thus :

"24. In the case of the Petitioners, even if the order of the first appellate authority were to be accepted, at best, on the basis thereof it could be said that the Petitioners had indulged in certain transactions which were doubtful in nature, whereas majority of the transactions were valid transactions. In such a case when registration is cancelled retrospectively, it has the effect of invalidating valid transactions and the consequence thereof is that the persons who had entered into valid transactions with the dealer are penalized for no fault of their own on account of cancellation of the registration of the dealer with

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retrospective effect. Thus, retrospective cancellation has a cascading effect and innocent parties have to bear the brunt of such cancellation; and as experience shows, once the registration of a dealer is cancelled ab-initio, the Department treats even those transactions which were valid at the time when they were made, to be invalid and initiates proceedings against all those dealers who have made transactions in the past with such dealer whose registration is cancelled retrospectively. However, if the registration of such a dealer is cancelled prospectively, it affects only the dealer concerned, and in respect of those past transactions that are proved to be invalid they can be dealt with in the assessment and action can also be taken against those parties who have entered such invalid transactions. When the registration of a dealer is cancelled in accordance with law and such cancellation is published by the Commissioner in the manner provided under sub-section (11) of section 27 of the GVAT Act, those who deal with such dealer knowing full well that his registration has been cancelled, deal with him at their own peril. However, a person who deals with a dealer having a valid registration and the transaction entered into with the dealer is a legal and valid transaction, on account of retrospective cancellation of the registration of the said dealer, he should not be visited with severe consequences by considering the transaction which was valid at the time when it was made, to be invalid, merely because the registration of the dealer has been retrospectively cancelled covering the period during which such transaction was made.

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25. Question No.1 is answered accordingly, namely that on the facts and in the circumstances of the case, the Tribunal was not justified in confirming ab-initio cancellation of the registration certificate of the Petitioners."

10. On the basis of the aforesaid judgement of this Court, the registration of the writ-applicants under the VAT Act was restored by the respondent - authorities.

11. The respondent No.2, however, once again issued a show cause notice to the writ-applicant dated 19.9.2020 proposing to retrospectively cancel their registration certificate under the VAT Act on similar ground that some of the transactions of the writ- applicants were allegedly suspicious/not genuine.

12. The writ-applicants responded by stating that the issue had already been examined by this Court and it had been held that the registration certificate of the writ-applicants could not have been retrospectively cancelled on the basis that some transactions were suspicious or non-genuine as this would adversely affect the genuine transactions which were not disputed.

13. The respondent no.2 - authority, however, proceeded to pass the impugned order dated 19.10.2020 to once again retrospectively cancelling the registration certificate of the writ- applicants on the ground that some transactions of the writ- applicants were suspicious and not genuine. The authority has proceeded on the footing that the Tax Appeal was allowed only

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on the ground that the first appeal order confirming the registration cancellation was beyond the grounds mentioned in the show cause notice.

14. Mr.Uchit Sheth, the learned counsel appearing for the writ- applicants, submitted that the impugned order dated 19.10.2020 is wholly without jurisdiction, barred by the principle of res judicata, arbitrary and illegal. This Court, by a detailed judgement dated 11.12.2019, allowed the Tax Appeal filed by the writ-applicants, and after examining the materials available on record, it was held by this Court that the registration certificate of the writ-applicants ought not to have been retrospectively cancelled. Once such judgement is rendered by this Court and the registration certificate of the writ-applicants is ordered to be restored, thereafter passing the impugned order again retrospectively cancelling the registration certificate of the writ- applicants on the basis of same materials and on the same grounds is completely without jurisdiction, contemptuous and illegal.

15. It is further submitted that the authority has completely misunderstood the judgement of this Court. The authority has proceeded on the footing that the Tax Appeal was allowed only on the ground that the first appeal order confirming the registration cancellation was beyond the grounds mentioned in the show cause notice. The authority has failed to appreciate that this was the third question of law framed and decided by this Court. The first question was, whether the retrospective cancellation of registration certificate was justified in the facts and circumstances of the case, and in this regard, after an

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elaborate analysis of the materials on record, this Court had come to the conclusion that the retrospective cancellation of the registration certificate was not justified on the basis of the allegations in respect of some transactions and that if the other transactions were genuine, then they could not be invalidated on the basis of other allegedly suspicious/ non-genuine transactions.

16. Mr.Sheth further pointed out that the allegation that the writ-applicants failed to remain present and furnish the necessary evidences in support of their transactions is absolutely misconceived and incorrect. The notice dated 19.9.2020 was first in point of time on the issue after the delivery of the judgement by this Court, to which the writ- applicants duly responded by a letter dated 12.10.2020, wherein the writ-applicants relied upon a judgement of this Court. Even, in so far as the evidences in support of the transactions of the writ applicants are concerned, the writ-applicants indicated in their reply to the show-cause notice that such documents were already lying with the authority. This is apparent from the seizure order dated 19.5.2018 (annexed at Annexure L). Thus, the allegation of non-cooperation in the impugned order is contrary to facts on record.

17. Mr.Chintan Dave, the learned AGP appearing for the respondents, would submit that none of the contentions canvassed on behalf of the writ-applicants are tenable as the Tax Appeal of the writ-applicants was allowed solely on the ground that the respondent - authority had travelled beyond the scope of the show-cause notice. Mr.Dave very fairly submitted that this

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is the only contention available to the respondents.

18. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is, whether the impugned order dated 19.10.2020 passed by the respondent no.2 authority is liable to be quashed and set-aside.

19. The impugned order dated 19.10.2020 passed by the respondent no.2 authority is liable to be quashed and set aside as being wholly without jurisdiction and contrary to the judgement dated 11.12.2019 passed by this Court in the Tax Appeal No. 952 of 2017, i.e. the first round of litigation. This Court clearly ruled that the retrospective cancellation of registration certificate was not justified in a case wherein the allegations of non-genuineness was only in respect of some transactions and that the retrospective cancellation would also adversely impact the valid and genuine transactions. It was clearly observed that if some past transactions are proved to be invalid, then they can be dealt with in the assessment and action can also be taken against those parties who have entered such invalid transactions. However, all transactions cannot be invalidated by retrospectively cancelling the registration certificate of the dealer.

20. In the present case, even in the second round of litigation, the respondent no.2 authority has alleged non-genuineness only in respect of some transactions as is apparent from the table at page 3 of the impugned order. Thus, the retrospective cancellation is absolutely contrary to the binding decision of this

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Court in the first round of litigation. The stance of the respondents in the affidavit-in-reply that the judgement of this Court was only on the basis that the respondent - authority had travelled beyond the scope of the show-cause notice is completely misconceived. The paragraphs nos.36, 37, 38, 39 and 40 respectively of the judgement which are referred to in the paragraph-6 of the affidavit-in-reply are in the context of the third question of law which was framed by the Court. All the three questions framed by the Court were independent, and while answering the first question, it was clearly held by the Court that the retrospective cancellation of registration certificate on the basis of some doubtful transactions was not permissible.

21. In any case, as already held by this Court in the judgement dated 11.12.2019, the respondent - authorities are not remediless in respect of the alleged non-genuine transactions. They can be dealt with in accordance with law in the assessment proceedings. In case where the assessments are already concluded on the basis of the retrospective cancellation of registration certificate and the matters are pending at the appellate stage, then it is open for the appellate authority to confirm imposition of tax/disallowance of the input tax credit, as the case may be, in respect of the transactions proved to be non- genuine. However, the impugned order dated 19.10.2020 retrospectively cancelling the registration certificate of the writ- applicants thereby invalidating even the transactions which are not disputed by the respondents, flies in the face of the judgement dated 11.12.2019 and, therefore, the impugned order deserves to be quashed and set aside.

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22. In the result, this writ-application succeeds and is hereby allowed. The impugned order dated 19.10.2020 (Annexure-A) is hereby quashed and set-aside. The respondents are directed to forthwith restore the registration certificate of the writ- applicants.

23. We are constrained to observe that is the lack of understanding of the position of law on the part of the respondent no.2 - authority that had led to this unnecessary litigation. For no good reason, the writ-applicants have been once again dragged into this litigation.

(J. B. PARDIWALA, J.)

(ILESH J. VORA, J.) /MOINUDDIN