2025 (1) TMI 257 - HC - GST

Revocation of cancellation of their GST registration - final order of cancellation fails to record or assign any reason in support of the allegations which stood leveled in the SCN and which preceded the passing of that order - Violation of principles of natural justice - HELD THAT - As is manifest from a reading of the SCN of 26 December 2023, the respondents had failed to indicate any intent to cancel the registration from a retrospective date. The final order of cancellation fails to record or assign any reason in support of the allegations which stood leveled in the SCN and which preceded the passing of that order. In view of the aforesaid, the order of 08 January 2024 is rendered wholly unsustainable. As is manifest from a reading of the SCN of 26 December 2023, the respondents had failed to indicate any intent to cancel the registration from a retrospective date. Conclusion - The entire procedure as adopted by the respondents appears to be wholly arbitrary. The impugned order of 08 January 2024 cannot possibly be sustained - Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The primary legal issues considered in this judgment are:

Whether the cancellation of the petitioner's GST registration with retrospective effect is legally sustainable under the Central Goods & Services Tax Act, 2017 (CGST Act).
Whether the procedural requirements for issuing a Show Cause Notice (SCN) and cancellation order were adhered to by the respondents.
Whether the petitioner was afforded adequate opportunity to respond to the SCN before the cancellation of the GST registration.
Whether the order of cancellation was issued with sufficient reasoning and in compliance with legal principles governing retrospective cancellations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Retrospective Cancellation

Relevant Legal Framework and Precedents: The CGST Act, particularly Section 29, allows for cancellation of GST registration. However, the power to cancel retrospectively must be exercised with caution, as emphasized in precedents like Riddhi Siddhi Enterprises and Ramesh Chander.
Court's Interpretation and Reasoning: The court noted that while Section 29 allows for retrospective cancellation, the order must reflect reasons justifying such an action. The absence of a clear rationale in the cancellation order renders it unsustainable.
Key Evidence and Findings: The court found that neither the SCN nor the cancellation order provided adequate reasons for the retrospective effect, violating the principles of natural justice.
Application of Law to Facts: The court applied the principles from previous judgments, highlighting the need for a reasoned order when exercising the power to cancel registration retrospectively.
Treatment of Competing Arguments: The petitioner argued the lack of procedural fairness and reasoning, which the court found compelling, while the respondents failed to justify the retrospective cancellation adequately.
Conclusions: The court concluded that the retrospective cancellation was unsustainable due to the lack of reasoning and procedural fairness.

Issue 2: Procedural Adherence in Issuing SCN and Cancellation Order

Relevant Legal Framework and Precedents: The CGST Act and related rules require a fair opportunity to be given to the taxpayer to respond to any SCN before cancellation.
Court's Interpretation and Reasoning: The court observed that the petitioner was not given a reasonable opportunity to respond to the SCN, as the hearing was scheduled the day after the notice was issued.
Key Evidence and Findings: The SCN was issued on 26 December 2023, with a hearing scheduled for the next day, depriving the petitioner of adequate time to prepare a response.
Application of Law to Facts: The court applied principles of natural justice, emphasizing the need for sufficient notice and opportunity to be heard.
Treatment of Competing Arguments: The respondents' failure to provide a reasonable response period was a critical factor leading to the court's decision.
Conclusions: The court found the procedural handling of the SCN and cancellation order to be arbitrary and in violation of due process.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The entire procedure as adopted by the respondents appears to be wholly arbitrary." The court emphasized the lack of procedural fairness and reasoning in the cancellation process.
Core Principles Established: The judgment reinforced the necessity for reasoned orders and adherence to procedural fairness when exercising the power to cancel GST registration, especially with retrospective effect.
Final Determinations on Each Issue: The court quashed the impugned order dated 08 January 2024, restoring the petitioner's GST registration and granting consequential reliefs.

In conclusion, the court's decision underscores the importance of procedural fairness and reasoned decision-making in administrative actions under the GST framework. The judgment serves as a reminder that retrospective cancellations must be justified with clear reasoning and adherence to due process. The petitioner's GST registration was restored, and the impugned order was set aside due to these procedural and substantive deficiencies.

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