FAYIZ NANGAPARAMBIL vs UNION OF INDIA & ANR.

$~15
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Judgment delivered on: 05.03.2024
+ W.P.(C) 570/2024& RCM APPL.2540/2024

FAYIZ NANGAPARAMBIL ….. Petitioner

versus

UNION OF INDIA & ANR. ….. Respondents
Advocates who appeared in this case:

For the Petitioner Mr. Sameer Gupta, Advocates
For the Respondents: Mr. Manoj Kumar Tyagi, SPC for R-1
Mr. Arun Khatri, Senior Standing Counsel for R-2
Mr. Harpreet Singh, SSC
Mr. Rajeev Agarwal, ASC
CORAM:-
HON’BLE MR. JUSTICE SANJEEV SACHDEVA
HON’BLE MR. JUSTICE RAVINDER DUDEJA
JUDGMENT
SANJEEV SACHDEVA, J. (ORAL)

1. Petitioner impugns Show Cause Notice dated 22.06.2023 issued by the Respondent, whereby the GST registration of the Petitioner was suspended from dated 22.06.2023, and he was called upon to show cause as to why said registration be not cancelled for the reason, following reason:
“1. No business activity found in the premises, no documents and stock was available at business premises at the time of visit dated 16.06.2023. The premises is a residential floor and no additional place of business mentioned in the GST Registration.”
2. Petitioner is a proprietorship firm engaged in trading of goods and is registered under the Central Goods and Service Tax Act, 2017. Petitioner applied for the amendment in registration details through Form REG-14 i.e., for addition of additional place of business in his GST certificate, pursuant to which a Show Cause Notice, dated 04.01.2023, was issued seeking further details. However, as per the petitioner no order has been passed on the application seeking addition of a place of business.
3. As per the Petitioner earlier a Show Cause Notice dated 20.05.2023 was issued calling upon the Petitioner to show cause as to why the registration be cancelled, on the ground of “1. Section 29(2)(e)-registration obtained by means of fraud, wilful misstatement or suppression of facts”. Such notice was challenged before the High Court in W.P.(C) 7477/2023 and this Court vide order dated 26.05.2023 set aside the said show cause notice on the ground that it did not contain any specific allegation that could be addresses with a meaningful response.
4. As per the Petitioner, despite the order dated 26.05.2023, the GST-Registration of the Petitioner’s firm remained suspended for a month, and, the proceeding of cancellation of registration were then dropped and suspension was revoked only w.e.f. 21.06.2023, vide order dated 21.06.2023.
5. However, on the very next day i.e. on 22.06.2023Petitioner was issued with the subject Show Cause Notice, whereby petitioner has been called upon to show cause as to why the registration be not cancelled on the ground “1 No business activity found in the premises, no documents and stock was available at business premises at thetime of visit dated 16.06.2023. The premises is a residential floor and no additional place of businessmentioned in the GST Registration.”
6. On 27.06.2023, Petitioner filed a detailed reply to the said show cause notice, alongwith proof of additional place of business stating that the impugned notice was issued based on ex-parte physical verification of the business place, which is contrary to Rule 25 of the Central Goods and Service Tax Rules, 2017 (hereinafter referred to as the Rules).
7. It is submitted by learned counsel for the Petitioner that till dated the Show Cause Notice that was issued on 22.06.2023 has not been adjudicated. He submits that as per Rule 22 (3) of the Rules, the Show Cause Notice is deemed to have lapsed and cannot be adjudicated upon.
8. Per contra, the stand of the Respondent in their counter affidavit is that a physical verification of the premises of the Petitioner was carried out, and the Field Visit Report which also provides the location details including longitude and latitude of the premises, and also the photographs, show that the registered address of the Petitioner was a residential premises on the third floor and no business activity was being carried out at the subject property. This it is stated was also confirmed by the landlord of the said premises.
9. To ascertain the merits of the submission of learned counsel for the petitioner that the Show Cause Notice cannot be adjudicated as it has lapsed, we may refer to the Show Cause Notice. It states that it has been issued under “Rule 22 (1)/Sub Rule (2A) of Rule 21A”.
10. Reference may be had to the relevant portions of 21A and 22 of the Rules, which read as hereunder:
“Rule 21A. Suspension of registration. –
(1) Where a registered person has applied for cancellation of registration under rule 20, the registration shall be deemed to be suspended from the date of submission of the application or the date from which the cancellation is sought, whichever is later, pending the completion of proceedings for cancellation of registration under rule 22.
(2) Where the proper officer has reasons to believe that the registration of a person is liable to be cancelled under section 29 or under rule 21, he may,  suspend the registration of such person with effect from a date to be determined by him, pending the completion of the proceedings for cancellation of registration under rule 22.
(2A) Where, a comparison of the returns furnished by a registered person under section 39 with
(a) the details of outward supplies furnished in FORM GSTR-1; or
(b) the details of inward supplies derived based on the details of outward supplies furnished by his suppliers in their FORM GSTR-1,
or such other analysis, as may be carried out on the recommendations of the Council, show that there are significant differences or anomalies indicating contravention of the provisions of the Act or the rules made thereunder, leading to cancellation of registration of the said person, his registration shall be suspended and the said person shall be intimated in FORM GST REG-31, electronically, on the common portal, or by sending a communication to his e-mail address provided at the time of registration or as amended from time to time, highlighting the said differences and anomalies and asking him to explain, within a period of thirty days, as to why his registration shall not be cancelled.
(3) A registered person, whose registration has been suspended under sub-rule (1) or sub-rule (2) 3[or sub-rule (2A)], shall not make any taxable supply during the period of suspension and shall not be required to furnish any return under section 39.
Explanation. – For the purposes of this sub-rule, the expression “shall not make any taxable supply” shall mean that the registered person shall not issue a tax invoice and, accordingly, not charge tax on supplies made by him during the period of suspension.
(3A) A registered person, whose registration has been suspended under sub-rule (2) or sub-rule (2A),shall not be granted any refund under section 54, during the period of suspension of his registration.
(4) The suspension of registration under sub-rule (1) or sub-rule (2) or sub-rule (2A) shall be deemed to be revoked upon completion of the proceedings by the proper officer under rule 22 and such revocation shall be effective from the date on which the suspension had come into effect.]
Provided that the suspension of registration under this rule may be revoked by the proper officer, anytime during the pendency of the proceedings for cancellation, if he deems fit.
Provided further   that   where   the   registration   has   been   suspended   under   sub-rule   (2A)   for contravention of the provisions contained in clause (b) or clause (c) of sub-section (2) of section 29 and  the  registration  has  not  already  been  cancelled  by  theproper  officer  underrule 22thesuspension  of   registration shall be deemed  to  be  revoked  upon  furnishing  of  all  the  pending returns.
(5) Where any order having the effect of revocation of suspension of registration has been passed, the provisions of clause (a) of sub-section (3) of section 31 and section 40 in respect of the supplies made during the period of suspension and the procedure specified therein shall apply.”
Rule 22. Cancellation of registration. –
(1) Where the proper officer has reasons to believe that the registration of a person is liable to be cancelled under section 29, he shall issue a notice to such person in FORM GST REG-17, requiring him to show cause, within a period of seven working days from the date of the service of such notice, as to why his registration shall not be cancelled.
(2) The reply to the show cause notice issued under sub-rule (1) shall be furnished in FORM REG-18 within the period specified in the said sub-rule.
(3) Where a person who has submitted an application for cancellation of his registration is no longer liable to be registered or his registration is liable to be cancelled, the proper officer shall issue an order in FORM GST REG-19, within a period of thirty days from the date of application submitted under rule 20 or, as the case may be, the date of the reply to the show cause issued under sub-rule (1), cancel the registration, with effect from a date to be determined by him and notify the taxable person, directing him to pay arrears of any tax, interest or penalty including the amount liable to be paid under sub-section (5) of section 29.
(4) Where the reply furnished under sub-rule (2) is found to be satisfactory, the proper officer shall drop the proceedings and pass an order in FORM GST REG -20:
Provided that where the person instead of replying to the notice served under sub-rule (1) for contravention of the provisions contained in clause (b) or clause (c) of sub-section (2) of section 29, furnishes all the pending returns and makes full payment of the tax dues along with applicable interest and late fee, the proper officer shall drop the proceedings and pass an order in FORM GST-REG 20
(5) The provisions of sub-rule (3) shall, mutatis mutandis, apply to the legal heirs of a deceased proprietor, as if the application had been submitted by the proprietor himself.”
(underlining supplied)

11. Rule 21A (1) deals with a situation where the registered person applies for cancellation of the registration in which case the registration is deemed to be suspended from the date of submission of the application or the date from which cancellation is sought whichever is later.
12. Rule 21A (2) deals with a case where a Proper Officer has reasons to believe that the registration of the person is liable to be cancelled under Section 29 or under Rule 21, in which case the suspension is to take effect from the date determined by the said officer.
13. Rule 22 (3) stipulates that where a person who has submitted an application for cancellation of his registration or the registration is liable to be cancelled, the Proper Officer shall issue an order in Form GST REG-19 within a period of 30 days from the date of the application, submitted under Rule 20, or as the case may be, the date of reply to Show Cause Notice issued under sub-rule 1 or under sub-rule 2A of Rule 21A.
14. Since the impugned Show Cause Notice dated 22.06.2023 clearly states that the notice has been issued under Rule 22 (1) and sub-rule (2A) of rule 21A, the provisions of rule 22 (3) would clearly apply to the said Show Cause Notice.
15. The question, however, that arises for determination is whether the expression used ‘shall issue an order within a period of 30 days’ is mandatory or directory.
16. For determining the said issue, we may note that there is no consequences provided in the said rule with regard to non-passing of an order within 30 days, which is an indicated factor as to the intention of the Legislature.
17. If the Legislature had intended that on lapse of a period of 30 days from the contingency stipulated in Rule 22 (3), the order is not passed, the authority would forfeit the right to pass an order then the Legislature would have specifically provided so.
18. Reference may be made to the judgment of the Supreme Court in Manickam v. Vasantha, 2022 SCC OnLine SC 2096, wherein the Supreme Court has held as under:
“27. A three-Judge Bench of this Court in a judgment reported as Salem Advocate Bar Association, T.N. v. Union of India while interpreting the word “shall” in Order VIII Rule 1 of the Civil Procedure Code, 1908 held as under:
“20. The use of the word “shall” in Order 8 Rule 1 by itself is not conclusive to determine whether the provision is mandatory or directory. We have to ascertain the object which is required to be served by this provision and its design and context in which it is enacted. The use of the word “shall” is ordinarily indicative of mandatory nature of the provision but having regard to the context in which it is used or having regard to the intention of the legislation, the same can be construed as directory. The rule in question has to advance the cause of justice and not to defeat it. The rules of procedure are made to advance the cause of justice and not to defeat it. Construction of the rule or procedure which promotes justice and prevents miscarriage has to be preferred. The rules of procedure are the handmaid of justice and not its mistress. In the present context, the strict interpretation would defeat justice.”
28.  A three-Judge Bench of this Court in a judgment reported as C. Bright v. District Collector (2021) 2 SCC 392  was examining Section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and held as under:
“8. A well-settled rule of interpretation of the statutes is that the use of the word “shall” in a statute, does not necessarily mean that in every case it is mandatory that unless the words of the statute are literally followed, the proceeding or the outcome of the proceeding, would be invalid. It is not always correct to say that if the word “may” has been used, the statute is only permissive or directory in the sense that non-compliance with those provisions will not render the proceeding invalid [State of U.P. v. Manbodhan Lal Srivastava, AIR 1957 SC 912] and that when a statute uses the word “shall”, prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute [State of U.P. v. Babu Ram Upadhya, AIR 1961 SC 751]. The principle of literal construction of the statute alone in all circumstances without examining the context and scheme of the statute may not serve the purpose of the statute [RBI v. Peerless General Finance & Investment Co. Ltd., (1987) 1 SCC 424].”
29.  To examine whether a provision is directory or mandatory, one of the tests is that the court is required to ascertain the real intention of the legislature by carefully attending to the whole scheme of the statute. Keeping in view the scheme of the statute, we find that Section 22(2) of the Act is only directory and thus, the decree-holder cannot be non-suited for the reason that such relief was not granted in the decree for specific relief.”
(underlining supplied)
19. Further, in May George v. Tahsildar, (2010) 13 SCC 98, the Supreme Court while dealing with a similar issue held as follows:
“17.  A Constitution Bench of this Court in State of U.P. v. Babu Ram Upadhya [AIR 1961 SC 751:(1961) 1 Cri LJ 773] decided the issue observing:
“29.… For ascertaining the real intention of the legislature the court may consider, inter alia, the nature and the design of the statute, and the consequences which would follow from construing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance, namely, that the statute provides for a contingency of the non-compliance with the provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and, aboveall, whether the object of the legislation will be defeated or furthered.”
18.  In Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur [AIR 1965 SC 895] and State of Mysore v. V.K. Kangan [(1976) 2 SCC 895 : AIR 1975 SC 2190] , this Court held that as to whether a provision is mandatory or directory, would, in the ultimate analysis, depend upon the intent of the lawmaker and that has to be gathered not only from the phraseology of the provision but also by considering its nature, its design and the consequence which would follow from construing it in one way or the other.
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23.  In State of Haryana v. RaghubirDayal [(1995) 1 SCC 133] this Court has observed as under:
“5. The use of the word ‘shall’ is ordinarily mandatory but it is sometimes not so interpreted if the scope of the enactment, on consequences to flow from such construction would not so demand. Normally, the word ‘shall’ prima facie ought to be considered mandatory but it is the function of the court to ascertain the real intention of the legislature by a careful examination of the whole scope of the statute, the purpose it seeks to serve and the consequences that would flow from the construction to be placed thereon. The word ‘shall’, therefore, ought to be construed not according to the language with which it is clothed but in the context in which it is used and the purpose it seeks to serve. The meaning has to be ascribed to the word ‘shall’ as mandatory or as directory, accordingly. Equally, it is settled law that when a statute is passed for the purpose of enabling the doing of something and prescribes the formalities which are to be attended for the purpose, those prescribed formalities which are essential to the validity of such thing, would be mandatory. However, if by holding them to be mandatory, serious general inconvenience is caused to innocent persons or general public, without very much furthering the object of the Act, the same would be construed as directory.”
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25.  The law on this issue can be summarised to the effect that in order to declare a provision mandatory, the test to be applied is as to whether non-compliance with the provision could render the entire proceedings invalid or not. Whether the provision is mandatory or directory, depends upon the intent of the legislature and not upon the language for which the intent is clothed. The issue is to be examined having regard to the context, subject-matter and object of the statutory provisions in question. The Court may find out as to what would be the consequence which would flow from construing it in one way or the other and as to whether the statute provides for a contingency of the non-compliance with the provisions and as to whether the non-compliance is visited by small penalty or serious consequence would flow therefrom and as to whether a particular interpretation would defeat or frustrate the legislation and if the provision is mandatory, the act done in breach thereof will be invalid.
(underlining supplied)

20. Thus as held by the Supreme Court in May George (supra)in order to declare a provision mandatory, the test to be applied is as to whether non-compliance with the provision could render the entire proceedings invalid or not. Whether the provision is mandatory or directory, depends upon the intent of the legislature and not upon the language for which the intent is clothed. The issue is to be examined having regard to the context, subject-matter and object of the statutory provisions in question. The Court may find out as to what would be the consequence which would flow from construing it in one way or the other and as to whether the statute provides for a contingency of the non-compliance with the provisions and as to whether the non-compliance is visited by small penalty or serious consequence would flow therefrom and as to whether a particular interpretation would defeat or frustrate the legislation and if the provision is mandatory, the act done in breach thereof will be invalid.
21. To determine the intention of the legislature, we may refer to the provisions of Sections 73 and 74 of the Act which inter aliadeal with determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised.
22. Section 73 of the Act reads as under:
“73. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised for any reason other than fraud or any wilful-misstatement or suppression of facts.––(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded, or where input tax credit has been wrongly availed or utilised for any reason, other than the reason of fraud or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty leviable under the provisions of this Act or the rules made thereunder.
(2) The proper officer shall issue the notice under sub-section (1) at least three months prior to the time limit specified in sub-section (10) for issuance of order.
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(9) The proper officer shall, after considering the representation, if any, made by person chargeable with tax, determine the amount of tax, interest and a penalty equivalent to ten per cent. of tax or ten thousand rupees, whichever is higher, due from such person and issue an order.
(10) The proper officer shall issue the order under sub-section (9) within three years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within three years from the date of erroneous refund.
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23. Section 74 of the Act reads as under:
74. Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilful-misstatement or suppression of facts.––(1) Where it appears to the proper officer that any tax has not been paid or short paid or erroneously refunded or where input tax credit has been wrongly availed or utilised by reason of fraud, or any wilful-misstatement or suppression of facts to evade tax, he shall serve notice on the person chargeable with tax which has not been so paid or which has been so short paid or to whom the refund has erroneously been made, or who has wrongly availed or utilised input tax credit, requiring him to show cause as to why he should not pay the amount specified in the notice along with interest payable thereon under section 50 and a penalty equivalent to the tax specified in the notice.
(2) The proper officer shall issue the notice under sub-section (1) at least six months prior to the time limit specified in sub-section (10) for issuance of order.
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(9) The proper officer shall, after considering the representation, if any, made by the person chargeable with tax, determine the amount of tax, interest and penalty due from such person and issue an order.
(10) The proper officer shall issue the order under sub-section (9) within a period of five years from the due date for furnishing of annual return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or utilised relates to or within five years from the date of erroneous refund.
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24. Section 73 and 74 of the Act stipulate time lines for issuance of the order as three year or five year respectively.
25. Section 75(10) of the Act provides that “The adjudication proceedings shall be deemed to be concluded, if the order is not issued within three years as provided for in sub-section (10) of section 73 or within five years as provided for in sub-section (10) of section 74.”
26. Section 75(10) of the Act mandates that in case the order on the proceedings initiated under section 73 and 74 of the Act is not passed within the time stipulated under Section 73(10) and 74(10) of the Act the adjudication proceedings shall be deemed to be concluded.
27. There is no such stipulation with regard to the non compliance of the timeline provided by Rule 22(3) of the Rules. The fact that there is no stipulation of an automatic forfeiture of the right to pass an order implies that the condition is not mandatory but directory.
28. Further, Rule 22 (3) of the Rules refers to two separate proceedings. One initiated by the tax payer by submitting an application seeking cancellation of registration and the other by the proper officer by issuance of show cause notice for cancellation of the registration. The time line provided for issuance of an order is 30 days for both the proceedings. If the intention was that the proper office would forfeit the right to pass an order, then an anomalous situation would arise with regard to proceedings where the tax payer voluntarily applies for cancellation. If the proper officer, qua the said proceedings, also forfeits the right to issue an order, then the application seeking cancellation would be deemed to be rejected and the tax payer would continue to remain registered despite his desire to seek cancellation of registration.
29. The expression ‘shall issue an order’ used in Rule 22 (3) of the Rules cannot be construed as mandatory for proceedings under Rule 21 and directory for proceedings under Rule 20. Accordingly, we hold that the expression “shall be passed within 30 days” used in Rule 22(3) of the Rules is not mandatory but is only directory.
30. In view of the above, we are unable to accept the contention of learned counsel for the petitioner that the authorities have lost the right to pass an order after the lapse of period of 30 days of the filing of the reply by the petitioner to the Show Cause Notice issued under Rule 21 of the Rules.
31. The petition is accordingly disposed of directing the Proper Officer to expeditiously pass an order on the Show Cause Notice, preferably within a period of two weeks from today.
32. It is clarified that this Court has neither considered nor commented on the merits of the contentions of either party. All rights and contentions of parties are reserved.

SANJEEV SACHDEVA, J

RAVINDER DUDEJA, J
MARCH 5, 2024
‘rs’

W.P.(C) 570/2024 Page 17 of 17