Telangana HC: GST Notice Must Have Fraud Details for GSTIN Cancellation U/S 29(2)(e)

It was ruled by the Telangana High Court in the case that the SCN should comprise the information on fraud, wilful misstatement, or suppression of facts for cancelling the GST registration as under Section 29(2)(e) of CGST Act, 2017.

Justice Sujoy Paul and Justice N. Tukaramji marked that “Needless to mention that the show cause notice dated 09.11.2023 became the foundation for issuance of orders dated 29.11.2023 and 23.02.2024 since the foundation cannot sustain judicial scrutiny, the entire edifice of orders passed thereupon are liable to be jettisoned.”

T S R Exports, the GST registrant filed a writ petition to the court contesting the order for cancellation of registration in Form GST REG-19 on 29.11.2023 and the order of rejection of application for revocation of cancellation in GSTR REG-05 on 23.02.2024.

Read Also: Delhi HC Overturns Retroactive Cancellation of GST Registration for Discontinued Business

The applicant argued that the Show cause notice was just a replication of the legal language of section 29(2)(e) of the GST Act and failed to furnish any substantial facts about the alleged infractions.

As per the applicant, the same omission averted them from filing a proper reply and rendered the show cause notice invalid. The applicant claimed that both the cancellation order and the rejection of the revocation application were on the grounds of this poor notice and thus cannot withstand judicial scrutiny.

The court considered the argument of the applicant that the SCN is not able to detail the factual basis sufficiently for invoking Section 29(2)(e) of GST law. It was remarked that show cause notice does not have enough explanation of the factual backdrop or reasons assisting the conclusion of fraud, misstatement, or suppression of facts.

The notice must provide specific factual details about the alleged breach to invoke Section 29(2)(e) of the GST legislation. Without this information, the petitioner would be unable to respond effectively, making the notice incomplete and invalid.

The High Court referred the cases of Canara Bank vs. Debasis Das and Rajesh Kumar vs. CIT to the Supreme Court. In the Canara Bank case, the Supreme Court noted that ‘Notice is the first limb of this principle. It should be unambiguous. It must inform the party determinatively of the case he has to meet.’

Further, in the other case i.e., Rajesh Kumar vs. CIT, the Supreme Court mentioned that “The notice issued may only contain briefly the issues which the assessing officer thinks to be necessary. The reasons assigned therefore need not be detailed ones.”

On November 9, 2023, the High Court stated that the Show Cause Notice (SCN) was crucial in determining the cancellation and rejection of subsequent orders. However, as the SCN did not meet the required standards for detailing the factual breaches, the Court invalidated it along with the subsequent orders.

Hence, SCN has been set aside by the bench, the cancellation order, and the rejection of the revocation application. However, the court mentioned that the restoration of the GST registration of the applicant does not qualify them to use any unused ITC till the finish of the amended SCN proceedings.