Finding of continuous manufacturing activity in assessment proceedings invalidates prior cancellation of registration for business closure.

The petitioner, a private limited company manufacturing coal briquettes in District Panna, held registration certificates and a tax exemption eligibility certificate valid until 2001.

In July 2000, the Commercial Tax Officer issued a show-cause notice for cancellation of registration based on a Task Force inspection report (dated 24.06.2000) which claimed the unit was locked and non-operational.

Despite the petitioner’s reply stating that production was merely suspended due to raw material (coal) shortage and repairs, the authority cancelled the registrations effective 01.04.2000.

A subsequent revision petition was dismissed on 06.02.2003.

Parallelly, the petitioner challenged separate assessment orders arising from the same facts; the High Court remanded those assessments, leading to a fresh order on 30.12.2015 where the Tax Department itself concluded that the unit was indeed operational during the disputed period.

1. Whether the cancellation of the petitioner’s registration certificates under the M.P. Commercial Tax Act and Central Sales Tax Act was legally sustainable given the subsequent factual findings by the same department.

2. Whether an inspection report showing a temporary closure of a unit is sufficient evidence to conclude a permanent cessation of business for the purpose of cancelling registration.

The court applied Section 22(9) of the Madhya Pradesh Vanijyik Kar Adhiniyam, 1994, and Section 7(4) of the Central Sales Tax Act, 1956, regarding the cancellation of registration certificates.

It relied on the principle that a "best judgment assessment" or an administrative conclusion must be based on evidence and material rather than pure guesswork or "honest belief" without factual reference, citing V.B. Gadkari v. Sale Tax Officer (2005) and the Supreme Court precedents in Raghuvar Mandal Harihar Mandal v. State of Bihar and State of Kerala v. C. Velukutty.

The court found that the very foundation of the cancellation—the Task Force report dated 24.06.2000—was contradicted by the department’s own subsequent findings in remanded assessment proceedings.

The Assistant Commissioner, in the 2015 fresh assessment order, acknowledged evidence from village Sarpanchs and other government officials (GM District Industries Centre, Tehsildar) which proved the unit was operational between 1996 and 1999, and that the closure at the time of inspection was temporary.

The court reasoned that since the Revenue Authority had eventually accepted that manufacturing activities were being carried on during the relevant period and had even regularized the tax exemption for that duration, the earlier orders cancelling the registration certificates on the grounds of "closure of business" were Factually and legally unsustainable.

The court allowed the writ petitions and quashed the order dated 19.10.2000 (cancellation of registration) and the revisional order dated 06.02.2003, restoring the petitioner's registration status as of 01.04.2000.