GST Cancellation Set Aside: Orissa High Court Slams Mechanical and Non-Speaking Order [Read Order]

The Delhi High Court recently set aside a cancellation order of GST registration passed against assessee, Technocrat Enterprises, calling out the Goods and Services Tax Department for adopting a “mechanical” and “non-speaking” approach that failed to adhere to principles of natural justice. The petitioner, Technocrat Enterprises, challenged the cancellation of its GST registration on the ground that the impugned order lacked proper reasoning and failed to consider its responses and explanations.

The petitioner was issued a show cause notice dated 20th March 2023, proposing the cancellation of their GST registration under vague and generic allegations, which primarily stated "non-compliance of provisions of the CGST Act and Rules." The notice did not specify which provisions were violated or the basis for the proposed action. The petitioner filed a reply dated March 23, 2023, denying the allegations and submitting relevant documentation.

Additionally, the registration was cancelled via an order dated March 30, 2023. Notably, the cancellation order was a stereotyped, one-line order stating that the "registration is liable to be cancelled for the reason stated in the show cause notice", without any application of mind or consideration of the petitioner’s response.

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The petitioner submitted that both the show cause notice and the cancellation order suffered from legal fragility as they failed to disclose reasons and did not satisfy the test of reasoned orders as laid down by courts repeatedly.

After hearing both sides, the Orissa High Court found merit in the petitioner’s contentions. The Court observed that the show cause notice was vague and cryptic and did not enable the petitioner to understand the exact nature of the alleged non-compliance. Notably, the Court noted that the cancellation order was passed without dealing with the petitioner’s reply or providing any reasoning for rejecting it. This, the Court held, was contrary to the well-established principles of natural justice.

The matter was heard by Justice SanjeevNarula, who remarked that GST authorities are expected to issue speaking orders, especially when cancelling registration, which is a measure with serious consequences for a taxpayer's business continuity. The court held that merely reproducing show cause language without engaging with the reply is legally unsustainable.

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Setting aside the cancellation order of the registration, the Court directed the GST Department to restore the registration of Technocrat Enterprises. However, the department was granted the liberty to issue a fresh show cause notice, if necessary, clearly setting out the reasons and providing the petitioner with a proper opportunity to respond by law.

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