Bombay HC Rejects Imperfect SCN Regarding GSTIN Cancellation Issued by Govt Officials

The impugned show cause notice (SCN) has been set aside by the Bombay High Court which was been issued via the GST officials for the GST registration cancellation. The unclear reasons are been criticized by the court provided in the show cause and the lack of clarity in the orders.

The requirement for responsible and accountable action via the tax council is been emphasized by the division bench of Justices Jitendra Jain and G.S. Kulkarni and observed the apparent non-application of the mind in the process of decision-building.

The applicant, Makersburry India Pvt. Ltd. has filed a Writ Petition contesting the cancellation of their GST registration under the Integrated Goods & Services Tax Act, 2017, and Central Goods & Services Tax Act. The cancellation was on the grounds of a show cause notice issued on August 22, 2022.

The sole basis outlined in the show cause notice for registration cancellation is stated as follows:

“Should the registration have been secured through fraudulent means, willful misrepresentation, or the deliberate concealment of facts.” Additionally, the notice suspended the petitioner’s registration starting from August 22, 2022.

On August 25, 2022, in response to the GST show cause notice, the petitioner communicated that the company’s directors had provided statements and furnished essential documents to the Designated Officer. Initially rejected, these documents were later sent via email by the petitioner.

Emphasizing the comprehensive upload of all documents onto the registration portal, they reiterated this in their response. Moreover, they highlighted their cooperation, including facilitating a visit to the business premises and fulfilling departmental requests for documents.

Mr. Sujit Sahoo, representing the petitioner, contended that the grounds for registration cancellation were ambiguous, arbitrary, and contravened natural justice principles. Referring to a ruling by the Gujarat High Court (Singh Traders vs. State of Gujarat), they argued that such actions constituted violations of natural justice.

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Despite the petitioner’s comprehensive response to the show cause notice, the Designated Officer proceeded to issue an order on October 17, 2022, terminating the petitioner’s registration. The petitioner argued that the grounds for cancellation were entirely arbitrary. Additionally, they contested the retroactive cancellation of registration, dating back to April 10, 2021.

The petitioner asserted their cooperation with authorities, providing requisite documents and explanations. Nevertheless, the Designated Officer cancelled their registration on October 17, 2022, retroactively from April 10, 2021. Seeking recourse, the petitioner appealed to the Deputy Commissioner of State Tax, submitting a range of documents.

Upon review, the court observed a lack of meticulous examination by the higher authority concerning the documents submitted by the petitioner. It highlighted the absence of substantive discussion, especially in light of the materials presented earlier, signalling a significant failure on the part of the higher authority to adequately deliberate before dismissing the petitioner’s appeal and upholding the registration cancellation, devoid of providing any rationale.

The bench expressed a firm conviction that the petitioner’s arguments held considerable merit. Notably, it pointed out that the show cause notice itself lacked specificity, failing to articulate reasons or grounds for the petitioner to counter regarding the registration cancellation. The reasons furnished, as highlighted by the bench, were evidently vague.

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The bench observed, “We firmly believe the petitioner’s argument holds significant weight. Initially, the show cause notice itself was flawed—it lacked any specified reasons or grounds for the petitioner to address concerning the registration cancellation. The reasons provided, as noted by us, were undeniably ambiguous.”

The bench expressed concern that the department continually relies on the Court to delineate legal positions and the appropriate procedural approach, which the officers should inherently follow. Such recurrent adjudications on similar matters signal a lack of responsibility and accountability. In the court’s view, the department’s mechanical approach cannot substantiate such actions.

Consequently, the Court nullified the August 22, 2022, show cause notice, the subsequent October 17, 2022, order cancelling the petitioner’s GST registration, and the April 26, 2023, order by the appellate authority.

While allowing the respondents to initiate fresh proceedings against the petitioner, the Court mandated that any new show cause notice must adhere to legal requirements, providing explicit reasons. Furthermore, it underscored the necessity for adjudication in accordance with the law, affording the petitioner an opportunity for argument and a personal hearing.

The Court stressed that setting aside the impugned order would reinstate the petitioner’s registration. However, it clarified that this action doesn’t preclude the revenue from legally suspending the registration via a new order.

Hence, the bench ruled that although inclined to levy costs on the respondents due to repeated adjudications despite clear prior directives, it refrained from doing so, hoping for an approach adhering to the law in future proceedings. Therefore, no costs were imposed in this instance.