2024 (8) TMI 576 - HC - GST

Challenge to SCN whereby the petitioner was called upon to show cause as to why its Goods and Services Tax (GST) registration should not be cancelled - non-constitution of Tribunal - SCN does not contain any details of the allegations against the petitioner - scope of SCN crossed by impugned order - violation of principles of natural justice - HELD THAT - The impugned SCN does not contain any details of the allegations against the petitioner; it merely refers to Rule 21 (g) (presumably of the CGST Rules) and states that the person violates the provisions of Rule 86B. Rule 21 (g) of the CGST Rules pertains to the issuance of invoices without supply of goods. Thus, it appears that the petitioner s GST registration was proposed to be cancelled on an allegation that it had issued invoices without supply of goods. However, the impugned SCN neither provides the details of invoices that are allegedly not covered by supply of goods, nor provides any clue as to transaction alleged to be in violation of the aforesaid rule. It is well settled that a show cause notice must clearly state the reasons on which the adverse action is proposed in order to enable the noticee to respond to the allegations. It is also material to note that there was no suggestion in the impugned SCN to cancel the petitioner s GST registration with retrospective effect. There is no allegation in the impugned SCN that the petitioner was found non-functioning - the impugned order has travelled beyond the scope of the impugned SCN and thus, is passed in violation of settled principles of natural justice. There are merit in the contention that the petitioner s GST registration cannot be cancelled on cryptic allegations and on the basis of the impugned SCN. The impugned SCN did not state any specific allegation, which could be explained by the taxpayer. The impugned cancellation order and the impugned SCN are set aside. The respondent is directed to restore the petitioner s GST registration forthwith - Petition allowed.

Summary

Issues:
Challenge to Show Cause Notice and Cancellation Order regarding GST registration.

Analysis:
The petitioner challenged a Show Cause Notice (SCN) dated 13.11.2023 and a subsequent cancellation order dated 24.11.2023 regarding the cancellation of its Goods and Services Tax (GST) registration. The impugned SCN cited a violation of Rule 86B as the reason for proposing cancellation. The petitioner's GST registration was suspended, and later cancelled with retrospective effect from 03.04.2023. The petitioner appealed the cancellation order, which was dismissed on 30.05.2024. Despite having the remedy of appeal under Section 112 of the CGST Act/DGST Act, the petitioner couldn't utilize it due to the non-existence of the Goods and Service Tax Tribunal. Therefore, the High Court entertained the petition.

The impugned SCN and cancellation order lacked specific details of the allegations against the petitioner, merely citing a violation of Rule 86B without providing transaction specifics or invoice details. The cancellation order also mentioned non-functioning of the firm without providing a report copy or allowing the petitioner to respond. The Court emphasized that a show cause notice must clearly state reasons for adverse action to enable a meaningful response. Cancelling registration with retrospective effect and introducing new reasons beyond the SCN's scope violated principles of natural justice.

During proceedings, the petitioner offered to deposit any dues arising from selling dealers' activities and assured payment if Input Tax Credit was availed and suppliers didn't pay taxes. The impugned order noted the firm's existence during a field visit and submission of an undertaking regarding invoice issuance during registration suspension. The respondent's counsel claimed an error in the impugned order regarding a report dated 24.11.2023, but the Court found this contention baseless.

The High Court found merit in the petitioner's argument that cancellation based on cryptic allegations without specific details was unjust. Consequently, the petition was allowed, setting aside the cancellation order and SCN, directing the restoration of the petitioner's GST registration. The order clarified that fresh proceedings could be initiated in accordance with the law if adverse action was proposed against the petitioner. The petition was disposed of accordingly, including pending applications.