Allahabad HC Orders to Reinstate Petitioner’s GST Registration, Only Possible U/S 29, Read with Rule 21

The Allahabad High Court has reaffirmed that the cancellation of GST registration can solely occur under the provisions of Section 29 of the Goods and Service Tax Act, 2017 in conjunction with Rule 21 of the GST Rules, 2017. When it comes to the process of cancelling GST registration, no assistance or guidance should be sought from any other legal statute.

The bench, presided over by Justice Piyush Agrawal, took note of the Supreme Court’s ruling in the case of Union of India and others Vs. Ind-swift Laboratories Limited, and made the following observation.

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“The Hon’ble Apex Court in the case of Ind-Swift Laboratories Limited (supra) has categorically held that a taxing statute must be interpreted in the light of what is clearly expressed therein meaning thereby when Section 29 read with rule 21 specifically provides a complete mechanism statute under which the registration can be cancelled and no aid can be taken by any other statute.”

The court ruled that any cancellation of the GST registration directed via the Taj Trapezium Zone Pollution (Prevention and Control) Authority (TTZ Authority) formed under the Environment (Protection) Act, 1986 will stay subject to Section 29 of the GST Act read with Rule 21 of the GST Rules, 2017.

Factual Background:

The petitioner’s firm operates as a registered retail business involved in the purchase and sale of coal. With a business turnover exceeding Rs. 50 lakhs, the petitioner opted for the compounding scheme under Section 9(1) of the UPGST Act.

Subsequently, a show cause notice was issued to the petitioner, proposing the cancellation of its GST registration, along with directives from the TTZ authority and a written instruction from JC (SIB)-B Agra to cancel the registration of all coal depots. Despite the petitioner’s response, their GST registration was cancelled retroactively, and an appeal filed by the petitioner against this cancellation was also dismissed.

The petitioner’s counsel argued that the GST Act is a comprehensive legal framework in itself. To cancel a registration, one must adhere to the requirements outlined in Section 29 of the UPGST Act, in conjunction with Rule 21 of the rules established under it. Since the petitioner had not violated any provisions of the GST Act, the cancellation was legally flawed.

Additionally, copies of the directives issued by JC (SIB)-B, Agra, and the TTZ authority for the petitioner’s registration cancellation were never served to the petitioner. It was further contended that the cancellation order lacked a reasoned explanation and was issued without proper consideration.

In reliance on a precedent set by the Allahabad High Court in the case of M/S Videocon D2h Ltd. Vs. State of U.P. and 3 Ors., the petitioner’s counsel pointed out that, firstly, the impugned order could not stand as it was not issued on the date set for the petitioner to respond. Secondly, if the petitioner did not appear on the subsequent date, an ex-parte order should not have been issued.

Furthermore, it was argued that Section 5 of the Act of 1986 is applicable only to industries or individuals involved in such operations. The petitioner, being solely a coal dealer engaged in the business of purchasing and selling, which does not have an adverse impact on the environment, should not fall under the scope of this directive. Finally, the jurisdiction of the TTZ Authority was challenged, as it was believed to have expired, and therefore, it could not have issued any orders.

In contrast, the respondents’ counsel contended that the petitioner failed to comply with the directions issued under the Act of 1986 and by the TTZ Authorities. Allegations were made that the petitioner had not maintained a detailed sales register for coal and had not obtained a no-objection certificate from the Pollution Control Board and other relevant authorities.

Failure to maintain a proper sales register was seen as a violation of the GST Act, and the petitioner’s failure to maintain a coal register was considered a breach of the TTZ Authorities’ mandate. These alleged violations were cited in defence of the cancellation order.

High Court Verdict:

The Taj Trapezium Zone Pollution (Prevention and Control) Authority (TTZ Authority) was established by the Ministry of Environment and Forest, Government of India, by the authority vested in it by sub-clauses 1 and 3 of Section 3 of the Environment (Protection) Act, 1986.

The court took note that according to Section 5 of the 1986 Act, any authority or officer under this legislation is obligated to adhere to the directives issued by the Central Government, but these directives pertain solely to the industrial sector.

Furthermore, the court emphasized that Section 24 of the 1986 Act stipulates that if an offence is punishable under both the 1986 Act and any other legislation, the offender will be subject to prosecution under the other statute, not under the 1986 Act.

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“In other words, if any other enactment is in operation, then the Environment Act has an overriding effect, but for punishing and such punishment will be under that Act. Any direction given by the TTZ Authorities for cancellation of registration has to be in accordance with Section 29 read with rule 21 of GST Act and Rules therein. The GST authorities cannot blindly follow said direction of TTZ Authorities,” observed the Court.

In support of this interpretation, the court referred to the Supreme Court’s decision in the case of Union of India and others Vs. Ind-swift Laboratories Limited, highlighting that the provisions of a tax statute must be interpreted in a strict and literal manner.

The court firmly maintained that, when it comes to the cancellation of GST registration, reliance can only be placed on Section 29 of the GST Act, in conjunction with Rule 21 of the GST Rules, and no reference to any other statute should be sought for guidance or assistance.

The Court placed reliance on Agra Coal Suppliers Vs. State of U.P., Thru’ Principal Secry., Instt. Finance & Anr., wherein the Allahabad High Court had ruled that for the case of the judgment of the Supreme Court in M.C. Mehtra (Taj Trapaziam Matters) Vs. Union of India & Another (1997) registration of coal dealers cannot be cancelled as the judgment refers only to “industries operating within Taj Corridor and the pollution resulting therefrom along with the air pollutant is affecting the quality of life including Taj Mahal.

Regarding the tax authorities action against coal dealers, the Court followed that “the taxing authorities (GST) in the State of U.P on the zeal to pleasing the TTZ authorities have issued two letters dated 18.8.2022 and 19.09.202, copy of which have been annexed and Annexure Nos. 17 & 18 directing for cancel the registration of all coal dealer of Agra, which was neither intend nor the direction by the TTZ authorities.”

The court drew upon the precedent set by the Supreme Court in the case of Mohinder Singh Gill Vs. The Chief Election Commissioner, New Delhi dismissed the supplementary appendix order, which was introduced for the first time when the cancellation order was presented before the High Court. The Supreme Court’s ruling had established that a “State authority cannot be allowed to introduce new reasons through an affidavit.”

Consequently, as the respondent’s counsel couldn’t confirm if the appendix order had been included in the record at the appellate stage, the court determined that such an order could not provide any support to the authorities.

In a final observation, the court noted that the cancellation order did not contain any findings regarding the petitioner’s failure to maintain proper books. As a result, the order cancelling the petitioner’s GST registration was invalidated. The authorities were instructed to promptly reinstate the petitioner’s registration certificate with retroactive effect, along with all associated benefits.