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King Enterprise Vs Deputy State Tax Officer (Telangana High Court)
In a ruling with implications for tax administration, the Telangana High Court has set aside a show-cause notice and immediate suspension of registration issued to King Enterprise by the Deputy State Tax Officer. The court found the notice to be excessively brief and lacking essential information, thereby preventing the petitioner from formulating an adequate response.
The case, King Enterprise Versus Deputy State Tax Officer, hinged on a challenge to a show-cause notice dated April 23, 2024. The notice also resulted in the immediate suspension of the petitioner’s registration.
Counsel for King Enterprise argued that the impugned show-cause notice was “cryptic in nature” and failed to provide the minimum necessary factual details. This deficiency, it was contended, made it impossible for the petitioner to file an effective reply, rendering the notice invalid in the eyes of the law. Reliance was placed on a previous order of the same court in W.P.No.17400 of 2024, dated July 8, 2024, where a similar issue was addressed.
The Assistant Government Pleader representing the State Tax department supported the issuance of the show-cause notice but conceded that the legal principle involved in the present case was identical to that in W.P.No.17400 of 2024.
The High Court, in its judgment, extensively referred to its earlier observations in W.P.No.17400 of 2024. In that case, the court had noted that the show-cause notice provided only a single reason for proposing action: “Section 29(2)(e)-registration obtained by means of fraud, willful misrepresentation or suppression of facts.” The court had found this statement to be a “bald statement” devoid of any details regarding the nature of the alleged fraud, willful misrepresentation, or suppression of facts.
Citing its earlier ruling, the High Court reiterated that a show-cause notice must spell out the “factual backdrop of breach” upon which the department bases its conclusions. Without the minimum factual details and the nature of the alleged breach specified with accuracy and precision, the recipient is unable to file a proper reply.
The court in W.P.No.17400 of 2024 had also drawn upon significant judicial precedents emphasizing the importance of a clear and unambiguous notice as a fundamental principle of natural justice. It referred to the Supreme Court case of Canara Bank vs. Debasis Das [2003] 4 SCC 557, where it was held that a notice must be “precise and unambiguous” and should “apprise the party determinatively of the case he has to meet.” The Supreme Court had underscored that in the absence of such a notice and a reasonable opportunity to respond, any order passed becomes “wholly vitiated.”
Another Supreme Court judgment cited was Rajesh Kumar vs. CIT [2006] 157 Taxman 168 / 287 ITR 91 / [2007] 2 SCC 181, which, while stating that reasons in a notice need not be overly detailed, still emphasized the necessity of complying with the principles of natural justice.
The Telangana High Court in W.P.No.17400 of 2024 had also referenced its own previous decisions in Sri Avanthika Sai Venkata vs. Deputy State Tax Officer [2024] 159 taxmann.com 235 / 83 GSTL 311 (Telangana) / W.P. No. 1596 of 2024, dated 23-1-2024 and S.B. Traders vs. The Superintendent [2022] 145 taxmann.com 556 / [2023] 96 GST 13 / 69 GSTL 175 (Telangana) / W.P. Nos. 39498 and 39502 of 2022, dated 28-10-2022. In these cases as well, the court had intervened because the reasons for initiating proceedings were not adequately mentioned.
The earlier judgment in W.P.No.17400 of 2024 had criticized the practice of issuing cryptic notices and mechanically suspending registrations without providing adequate reasons. The court had observed that such actions have a severe adverse impact on the livelihood of taxpayers and infringe upon the right to life under Article 21 of the Constitution. It had urged authorities to be more sensitive, noting that every file relates to someone’s “life” or liberty and that orders should not be passed in a mechanical manner.
Applying these principles to the King Enterprise case, the High Court noted that the allegation against the petitioner in the show-cause notice was a single line stating: “THE TAX PAYER RECEIVED ITC FROM CANCELLED AND NON EXISTENT TAX PAYERS”. The court found this allegation to be lacking in essential details, specifically the identities of the cancelled or non-existent taxpayers from whom the Input Tax Credit (ITC) was allegedly received. The absence of this crucial information, the court held, deprived King Enterprise of its right to file an effective reply.
Consequently, the Telangana High Court found substance in the petitioner’s argument and set aside both the impugned show-cause notice dated April 23, 2024, and the order suspending the petitioner’s registration. The court, however, granted liberty to the respondents (the tax authorities) to initiate fresh proceedings against the petitioner in accordance with the law.
The writ petition was allowed to the extent indicated, with no order as to costs. Pending interlocutory applications were closed.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Sri Shaik Jeelani Basha, learned counsel for the petitioner. Sri T. Chaitanya Kiran, learned Assistant Government Pleader representing Sri Swaroop Oorilla, learned Special Government Pleader for State Tax, for respondent Nos.1 to 3 and Sri B. Mukherjee, learned counsel representing Sri Gadi Praveen Kumar, learned Deputy Solicitor General of India, for respondent No.4.
2. The challenge is mounted in this petition to show-cause notice dated 23.04.2024. By the said notice, the registration of the petitioner was also suspended with immediate effect.
3. Learned counsel for the petitioner submits that the impugned show-cause notice is cryptic in nature and does not provide minimum essential factual details to enable the petitioner to file effective reply. Thus, the impugned show-cause notice is no notice in the eyes of law. Reliance is placed on the order of this Court passed in W.P.No.17400 of 2024, dated 08.07.2024.
4. Learned Assistant Government Pleader for State Tax supported the impugned show-cause notice, but did not dispute that the legal point involved in the covered order in W.P.No.17400 of 2024, dated 08.07.2024 and in the present Writ Petition is one and the same.
5. In W.P.No.17400 of 2024, this Court at relevant paragraphs opined as under:
“6. The singular reason assigned in the impugned notice dated 29.02.2024 reads asunder:
“1. Section 29(2)(e)-registration obtained by means of fraud, willful misrepresentation or suppression of facts”.
Apart from this bald statement, there exists nothing in the show cause notice which can throw light as to what is the nature of ‘fraud’ or ‘willful misrepresentation’ or ‘suppression of fact’ by the petitioner. Thus, show cause notice is cryptic and an example of non application of mind. in absence of factual basis and necessary details, notice becomes vulnerable.
7. This Court, recently, considered this aspect in T S R Exports (supra) and held as under:
“9. We find subsistence in the argument of the learned counsel for the petitioner that the factual backdrop or the reason on the strength of which, conclusion of fraud or misstatement or suppression of facts was drawn is totally absent in the show cause notice. The show cause notice, in our considered opinion, should spell out the factual backdrop of breach, on the strength of which the department has rejected and concluded that Section 29 (2) (e) of the Act, can be invoked. If minimum factual backdrop and nature of breath is not mentioned with accuracy and precision, the petitioner was not in a position to file reply.
10. The Apex Court expressed the need of issuance of such notice in Canara Bank vs. Debasis Das [2003] 4 SCC 557, at para No.15, which reads as under as under:
”75. …Notice is the first limb of this principle. It must be precise and unambiguous. It should apprise the party determinatively of the arse he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the ease before any adverse order is passed against him. This is one of the most important principles of natural justice. It is after all an approved rule of fair play. The concept has gained significance and shades with time…”
11. In the Rajesh Kumar vs. CIT (2006] 157 Taxman 168/ 287 ITR 91/[2007] 2 SCC 181, the Apex Court at para No.61, held as under
”61. …The notice issued may only contain briefly the issues which the assessing officer thinks to be necessary. The reasons assigned therefor need not be detailed ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law…”
12. This Court in Sri Avanthika Sai Venkata vs. Deputy State Tax Officer [2024] 159 com 235/83 GSTL 311 (Telangana)/W.P. No. 1596 of 2024, dated 23-1-2024] and S.B. Traders vs. The Superintendent [2022] 145 taxmann.com 556 /[2023] 96 GST 13/ 69 GSTL 175 (Telangana)/ [W.P.Nos. 39498 and 39502 of 2022, dated 28-10-2022], interfered with the impugned proceedings and order therein because the reasons were not mentioned while initiating proceedings against the petitioners therein.
13. Needless to mention that the show cause notice dated 09.11.2023 became the foundation for issuance of orders dated 29.11.2023 and 23.02.2024, since the foundation cannot sustain judicial scrutiny, the entire edifice of orders passed thereupon are liable to be jettisoned”.
(Emphasis Supplied)
8. Since the show-cause notice and suspension of registration is founded upon a cryptic notice dated 29.02.2024, both are set aside. On regular basis, we are painfully noticing this kind of notices, whereby, without assigning adequate reasons, the business of taxpayer is suddenly suspended. In absence of basic reasons available in the show-cause notice, the party aggrieved by it cannot even prefer an effective representation. We wonder how in such an insensitive and mechanical manner, the registrations are being suspended by issuing defective show-cause notices. Such orders certainly have an adverse impact on the livelihood of taxpayer and hits Article 21 of the Constitution. The authorities must remind themselves that the words ‘LIFE’ and ‘FILE’ contain same letters. Every file has a nexus with somebody’s ‘life’ or liberty. Thus, the authorities should sensitize themselves and should not pass order/notice in the mechanical manner it is passed in the present case. We hope and trust that, henceforth, the authorities will take care of this aspect. Learned counsel for the petitioner insisted for imposition of costs. Faced with this, Sri P.Sri Harsha, learned Assistant Government Pleader, submits that he will appraise the authorities about observation of this Court so that henceforth such mistakes do not occur. In view of this assurance, in the instant case, we are not imposing any costs on the respondents.
9. Resultantly, the impugned show-cause notice dated 29.02.2024 and the order suspending the registration are set aside. Liberty is reserved to the respondents to proceed against the petitioner in accordance with law.”
6. In the instant case, the single line allegation against the petitioner reads – THE TAX PAYER RECEIVED ITC FROM CANCELLED AND NON EXISTENT TAX PAYERS’.
7. We find substance in the argument of the learned counsel for the petitioner. The details of such cancelled or non-existent tax payers are not mentioned. In absence thereof, the petitioner’s right to file effective reply was taken away. Thus, the impugned show-cause notice dated 23.04.2024 and order of suspension of registration of the petitioner are set aside. The respondents are given liberty to proceed against the petitioner in accordance with law.
8. The Writ Petition is allowed to the extent indicated above. There shall be no order as to costs. Interlocutory applications, if any pending, shall stand closed.
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