2024 (2) TMI 1500 - HC - GST

Cancellation of GST registration of the petitioner with retrospective effect - SCN was given with a different allegation and the cancellation of the registration has been done on altogether different ground - opportunity of personal hearing not provided - violation of principles of natural justice - HELD THAT - On perusal of the impugned order would reveal that the instant cancellation of registration has been passed pursuant to the earlier show cause notice dated 15.12.2023 to which the petitioner had replied on 21.12.2023. The passing of the show cause notice and the impugned order of cancellation of registration clearly indicate that the show cause notice was given with a different allegation and the cancellation of the registration has been done on altogether different ground other than that which is mentioned in the show cause notice. Further what is also admittedly evident that before passing of order of cancellation of registration the petitioners also have not afforded with any opportunity of personal hearing so as to justify their stand in respect of the alleged allegation of any fraud willful misstatement and suppression of fact. Neither the show cause notice nor order of cancellation of registration provides for any reason or findings by which the authorities thought of issuance of show cause notice and suspend the operation of the GST registration and also which lead to the cancellation of the GST registration. This Court recently in Sri Avanthika Sai Venkata JV 2024 (2) TMI 416 - TELANGANA HIGH COURT had allowed the writ petition setting aside the cancellation of registration under similar circumstances and the matter was remitted back for the respondent authorities to pass an order afresh. Recently there was yet another decision of the High Court of Bombay under similar circumstances in the case of Nirakar Ramchandra Pradhan v. Union of India and Others 2023 (9) TMI 1176 - BOMBAY HIGH COURT whereby a show cause notice issued for cancellation of registration and the subsequent cancellation of GST registration was subjected to challenge wherein the Division Bench of the High Court of Bombay held The impugned action in issuing such show cause notice and passing of the impugned order thereon has in fact proved counter-productive to the interest of revenue if the department is correct in its case as put up in the reply affidavit for the first time. The concerned Commissionerate needs to take a serious view of such approach of the concerned Officers who are not following the law in issuing appropriate show cause notices more particularly when the issues are serious. Such deviation by the concerned officers from deviating the following the well settled norms and procedures in fact would benefit an assessee if there is material that he was committed illegalities. Taking into consideration the aforesaid judicial pronouncements and also considering the factual aspects as is evident in the instant case it is opined that the show cause notice as also the impugned order lacks information and details as to the alleged fraud willful misstatement or suppression of facts if any committed by the petitioner. Therefore it would be difficult to sustain the said impugned order. Conclusion - Neither the show cause notice nor order of cancellation of registration provides for any reason or findings by which the authorities thought of issuance of show cause notice and suspend the operation of the GST registration and also which lead to the cancellation of the GST registration. The cancellation order set aside due to procedural defects and lack of substantiated allegations allowing the respondents to issue a fresh show cause notice if necessary. Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

• Whether the cancellation of the petitioner's GST registration with retrospective effect was lawful.
• Whether the procedural requirements, including the issuance of a valid show cause notice and the opportunity for a personal hearing, were adhered to by the authorities.
• Whether the cancellation order was justified based on the allegations of fraud, willful misstatement, or suppression of facts.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Retrospective GST Registration Cancellation

• Relevant Legal Framework and Precedents: The GST Act and relevant judicial precedents emphasize that cancellation of registration should be exercised with caution and only when necessary, as seen in prior judgments like Kritika Agarwal v. Union of India.
• Court's Interpretation and Reasoning: The court found that the cancellation was executed on grounds different from those in the show cause notice, violating the principles of natural justice.
• Key Evidence and Findings: The cancellation order lacked specific reasons or findings, making it arbitrary and unjustified.
• Application of Law to Facts: The court applied the principles of natural justice and found that the retrospective cancellation was not substantiated by the procedural requirements.
• Treatment of Competing Arguments: The court considered the respondent's arguments but emphasized the lack of procedural compliance and the need for a valid basis for cancellation.
• Conclusions: The retrospective cancellation was deemed unlawful due to procedural deficiencies and lack of substantiated grounds.

Issue 2: Procedural Compliance in Issuance of Show Cause Notice

• Relevant Legal Framework and Precedents: The requirement for a valid show cause notice and opportunity for a hearing is established under the principles of natural justice, as reinforced by cases like Nirakar Ramchandra Pradhan v. Union of India.
• Court's Interpretation and Reasoning: The court noted the defective nature of the show cause notice, which lacked specific allegations and evidence of fraud or misstatement.
• Key Evidence and Findings: The petitioner was not provided with adequate details to respond effectively, violating procedural fairness.
• Application of Law to Facts: The court found that the procedural defects rendered the show cause notice and subsequent cancellation order invalid.
• Treatment of Competing Arguments: The court dismissed the respondent's justifications due to the lack of compliance with established legal procedures.
• Conclusions: The procedural non-compliance invalidated the show cause notice and the cancellation order.

Issue 3: Justification for Cancellation Based on Allegations

• Relevant Legal Framework and Precedents: The cancellation must be based on clear evidence of fraud, willful misstatement, or suppression of facts, as highlighted in previous judgments.
• Court's Interpretation and Reasoning: The court found no substantial evidence or reasoning in the cancellation order to justify the allegations against the petitioner.
• Key Evidence and Findings: The absence of detailed allegations or evidence in the show cause notice and order was critical.
• Application of Law to Facts: The court applied the requirement for substantiated allegations and found the cancellation unjustified.
• Treatment of Competing Arguments: The court acknowledged the respondent's claims but emphasized the need for a valid and detailed basis for cancellation.
• Conclusions: The cancellation was not justified due to the lack of evidence and reasoning in the allegations.

3. SIGNIFICANT HOLDINGS

• Preserve verbatim quotes of crucial legal reasoning: The court emphasized that "the measure of cancellation of GST must be exercised with circumspection and only in cases, where it is necessary."
• Core principles established: The importance of procedural fairness, including valid show cause notices and opportunities for hearings, was reinforced.
• Final determinations on each issue: The court set aside the cancellation order due to procedural defects and lack of substantiated allegations, allowing the respondents to issue a fresh show cause notice if necessary.