2024 (9) TMI 52 - HC - GST

Violation of principles of natural justice - impugned SCN is cryptic and does not clearly set out the reasons as to why the petitioner s GST registration was proposed to be cancelled - HELD THAT - The impugned SCN does not set out the details of the nature of the alleged fraud. It also does not indicate the statement which is alleged to be wilfully misstated or any fact, which is alleged to have been suppressed - The purpose of a show cause notice is to enable the noticee to respond to the allegations made against him. It is a fundamental principle of natural justice that a person cannot be condemned unheard. He must have full opportunity to respond to the allegations before any adverse order is passed on the basis of those allegations. In the present case, the impugned SCN fails to meet the requisite standards of a show cause notice. The impugned cancellation order also does not indicate any reason for cancelling the petitioner s GST registration. It merely states that the same is in reference to the impugned SCN. It is also important to note that the petitioner s GST registration was cancelled with retrospective effect from 24.07.2019. However, no such action was proposed in the impugned SCN - It is apparent that the impugned cancellation order has been passed in violation of the principles of natural justice and therefore, is liable to be set aside. The reply furnished by the petitioner is not on record. However, the petitioner has placed screenshots of the portal indicating that he had sent the reply. He states that he was unable to reply to the SCN on account of his illness. The petitioner has also annexed the proof of his medical condition - there are allegations against the petitioner for availing ITC from a non-existing firm and wrongfully passing of the input tax credit. It is also alleged that the petitioner is non-functional. However, none of these allegations find mention in the SCN. The impugned cancellation order is set aside - the petitioner s GST registration is directed to be restored forthwith - petition allowed.

Summary

Issues:
Impugning a Show Cause Notice and Cancellation Order regarding GST registration.

Analysis:
The petitioner challenged a Show Cause Notice (SCN) dated 19.05.2023 and a subsequent Cancellation Order dated 20.06.2023 regarding the cancellation of their GST registration. The SCN cited Section 29(2)(e) of the CGST Act, 2017, alleging registration obtained through fraud, wilful mistreatment, or suppression of facts. The petitioner's GST registration was suspended, and they were given seven days to respond. However, the SCN lacked specific details of the alleged fraud or misstatement, violating principles of natural justice by not providing adequate opportunity to respond.

The subsequent Cancellation Order did not provide reasons for the cancellation apart from referencing the earlier SCN. The cancellation was made retroactively from 24.07.2019, without prior indication in the SCN. This order was deemed a violation of natural justice principles, necessitating its setting aside. The petitioner later applied for revocation, leading to another SCN on 21.07.2023, alleging ineligible credit availed from a non-existent firm and passing on Input Tax Credit (ITC) amounting to a significant sum.

Despite the petitioner's response to the subsequent SCN, their application for revocation was rejected on the grounds of unsatisfactory replies. The Court noted discrepancies between the allegations in the SCN and subsequent proceedings, including accusations of availing ITC from a non-existent firm and being non-functional, not mentioned in the original SCN. The Court set aside the cancellation order, directing immediate restoration of the petitioner's GST registration while allowing the proper officer to initiate fresh proceedings in compliance with the law.

Furthermore, the Court clarified that the respondents could pursue statutory non-compliance or recovery of dues through lawful proceedings, emphasizing adherence to legal processes. The judgment highlighted the importance of providing detailed reasons in show cause notices, ensuring the right to be heard and respond adequately before adverse actions are taken, thereby upholding principles of natural justice throughout the legal proceedings.