Grounds for GST Registration Cancellation Unclear: Bombay HC sets aside Defective SCN, restores Registration [Read Order]

The Bombay High Court had set aside the impugned Show Cause Notice (SCN) issued by the Goods and Services Tax (GST) authorities regarding the cancellation of GST Registration. The court criticised the vague reasons given in the show cause notice and the lack of justification in the orders.

A Division bench of Justices Jitendra Jain and G.S. Kulkarni emphasised the need for responsible and accountable actions by the tax department and noted the apparent non-application of mind in the decision-making process.

The Petitioner, Makersburry India Pvt. Ltd. filed a Writ Petition challenging the cancellation of their registration under the Integrated Goods & Services Tax Act, 2017 and Central Goods & Services Tax Act. The cancellation was based on a show cause notice issued on August 22, 2022. The only reason as set out in the show cause notice to cancel the registration, reads thus:

“In case, Registration has been obtained by means of fraud, willful misstatement or suppression of facts.”

The show cause notice also has suspended the registration of the petitioner with effect from 22 August, 2022.

The petitioner replied to a show cause notice on August 25, 2022, stating that the company's directors had given statements and submitted necessary documents to the Designated Officer. Initially, the department rejected the documents, prompting the petitioner to send them via email. The petitioner stressed that all documents were uploaded on the registration portal, as explained in their response. They also highlighted their cooperation, including a visit to the business premises and providing requested documents to the department.

The petitioner was represented by Advocate Sujit Sahoo, who argued that the reasons given for cancelling the registration were vague, arbitrary, and violated principles of natural justice. They cited a Gujarat High Court decision (Singh Traders vs. State of Gujarat) to support their claim that such actions are considered breaches of natural justice.

Even though the petitioner provided a clear response to the show cause notice, the Designated Officer went ahead and issued an order on October 17, 2022, cancelling the petitioner's registration. According to the petitioner, the reasons for cancellation were completely arbitrary. Further argued that the registration was also cancelled retroactively from April 10, 2021.

According to the petitioner’s side, they cooperated with the authorities, providing necessary documents and explanations. Despite this, the Designated Officer cancelled their registration on October 17, 2022, with retrospective effect from April 10, 2021. The petitioner appealed to the Deputy Commissioner of State Tax, submitting various documents.

The court observed that the higher authority did not carefully review the documents or give reasons for supporting the cancellation. It noted a lack of discussion, especially after considering the materials submitted by the petitioner, as mentioned earlier. This indicated a clear failure of the higher authority to think through the matter before deciding to reject the petitioner's appeal and uphold the registration cancellation, without providing any reasons.

The bench noted that “we are of the clear opinion that there is much substance in the contention as urged on behalf of the petitioner. At the outset, we may observe that the show cause notice itself was defective, as it did not set out any reasons/grounds which could be responded by the petitioner against the cancellation of the petitioner’s registration. The reasons which were furnished, as noted by us, were undoubtedly vague.”

The bench opined that “time and again the department is not required to be told by the Court as to what would be the position in law as also the correct approach in law, the officers needs to follow. We observe so, as repeatedly the Court being called upon to adjudicate similar issues. There has to be a sense of responsibility and accountability, any mechanical approach in this regard, even to justify such action, in our opinion cannot be the stand of the department.”

The Court invalidated the show cause notice dated August 22, 2022, and the subsequent order on October 17, 2022, cancelling the petitioner's registration, along with the order from April 26, 2023, by the appellate authority.

The court permitted the respondents to initiate new proceedings against the petitioner. However, it directed that any fresh show cause notice should comply with the law, providing appropriate reasons. The notice must be adjudicated according to the law, granting the petitioner an opportunity to present their arguments and a personal hearing.

The court emphasised that setting aside the impugned order would restore the petitioner's registration. However, it clarified that this action does not prevent the revenue from issuing a new order to suspend the registration, if legally permissible.

Thus, the bench ruled that “We were inclined to impose costs on the respondents, as repeatedly we are called upon to adjudicate on such orders despite our prior pronouncements making the position very clear. However, with a final hope that the respondents would adopt an approach the law would mandate, we refrain from imposing costs on the present proceedings. Hence, no costs.”

To Read the full text of the Order CLICK HERE

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