Cancellation of GST Registration without determining the amount payable by the assessee is cryptic, invalid and not sustainable

The Hon’ble Gujarat High Court in M/S. DEVI PRODUCTS VERSUS STATE OF GUJARAT - 2023 (2) TMI 821 - GUJARAT HIGH COURThas set aside the Show Cause Notice (“SCN”) issued to the assessee and the consequential order for cancellation of GST Registration, on the grounds that they were passed without recording any reasons and without determining the tax demand and thus, are cryptic in nature. Held that, cancellation of GST Registration without any determination of the amount payable by the assessee is not valid and sustainable.

Facts:

M/s Devi Products (“the Petitioner”) is a sole proprietor engaged in the business of trading of brass articles. The Petitioner had filed its it return till June, 2020, however due to prevalent circumstances during Covid-19 pandemic the Petitioner had no business subsequent to June, 2020 and due to the financial hardship suffered, the Petitioner was of bonafide belief that there was no requirement to file GST returns.

Subsequently, a SCN dated March 15, 2021 (“the Impugned SCN”) was issued by the Revenue Department (“the Respondent”) under Rule 22(1) of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) read with Section 29 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) whereby, the Petitioner was informed that its GST Registration was liable to be cancelled for not filing returns for a continuous period of six months. The GST Registration of the Petitioner was also suspended on March 15, 2021 under Rule 21A of the CGST Rules without recording any reasons. Thereafter, the GST Registration of the Petitioner was cancelled by the Respondent with effect from July 1, 2017 vide Order dated March 24, 2021 (“the Impugned Order”) without recording any particulars or the reasons or the grounds for cancellation and without determining the tax demand.

Being aggrieved, this petition has been filed.

Issue:

Whether Impugned SCN and the Impugned Order without recording the grounds for cancellation of GST Registration and without determining the tax demand are sustainable?

Held:

The Hon’ble Gujarat High Court in M/S. DEVI PRODUCTS VERSUS STATE OF GUJARAT - 2023 (2) TMI 821 - GUJARAT HIGH COURT held as under:

• Relied on the judgment of the Hon’ble Supreme Court in KRANTI ASSOCIATES PVT. LTD. VERSUS MASOOD AHMED KHAN - 2010 (9) TMI 886 - SUPREME COURTwherein, it was held that recording of reasons is meant to serve the vital principle that justice must not only be done but it must also appear to be done and it would also operate as valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. Further, it reassures that discretion has been exercised by the decision maker on relevant grounds and by disregarding extraneous considerations and facilitates the process of judicial review by the superior Court.
• Noted that, the Respondent ought to have at least incorporated the specific details of the contents of the Impugned SCN which any prudent person can respond to as otherwise it would to fail to respond to such SCN which is bereft of details thereby making the mechanism of issuing SCN only a formality.
• Stated that, the very nature of the Impugned SCN and the Impugned Order was cryptic and unsustainable under law, as while cancelling the GST Registration, the Respondent had not even determined the amount payable pursuant to such cancellation.
• Held that, cancellation of GST Registration without any determination of the amount payable by the Petitioner is hardly sustainable and such action cannot be ratified in any manner.
• Quashed the Impugned SCN and the Impugned Order.
• Permitted the Respondent to issue fresh SCN with the particular reasons incorporating the details and directed to provide reasonable opportunity of hearing to the Petitioner.

Relevant provisions:

Section 29 of the CGST Act:

“Cancellation or suspension of registration.

29. (1) The proper officer may, either on his own motion or on an application filed by the registered person or by his legal heirs, in case of death of such person, cancel the registration, in such manner and within such period as may be prescribed, having regard to the circumstances where,––

(a) the business has been discontinued, transferred fully for any reason including death of the proprietor, amalgamated with other legal entity, demerged or otherwise disposed of; or

(b) there is any change in the constitution of the business; or

(c) the taxable person is no longer liable to be registered under section 22 or section 24 or intends to optout of the registration voluntarily made under sub-section (3) of section 25:

Provided that during pendency of the proceedings relating to cancellation of registration filed by the registered person, the registration may be suspended for such period and in such manner as may be prescribed.

(2) The proper officer may cancel the registration of a person from such date, including any retrospective date, as he may deem fit, where,––

(a) a registered person has contravened such provisions of the Act or the rules made thereunder as may be prescribed; or

(b) a person paying tax under section 10 has not furnished 5[the return for a financial year beyond three months from the due date of furnishing the said return]; or

(c) any registered person, other than a person specified in clause (b), has not furnished returns for 6[such continuous tax period as may be prescribed]; or

(d) any person who has taken voluntary registration under sub-section (3) of section 25 has not commenced business within six months from the date of registration; or

(e) registration has been obtained by means of fraud, wilful misstatement or suppression of facts:

Provided that the proper officer shall not cancel the registration without giving the person an opportunity of being heard.

Provided further that during pendency of the proceedings relating to cancellation of registration, the proper officer may suspend the registration for such period and in such manner as may be prescribed.

(3) The cancellation of registration under this section shall not affect the liability of the person to pay tax and other dues under this Act or to discharge any obligation under this Act or the rules made thereunder for any period prior to the date of cancellation whether or not such tax and other dues are determined before or after the date of cancellation.

(4) The cancellation of registration under the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act, as the case may be, shall be deemed to be a cancellation of registration under this Act.

(5) Every registered person whose registration is cancelled shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock or capital goods or plant and machinery on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher, calculated in such manner as may be prescribed:

Provided that in case of capital goods or plant and machinery, the taxable person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher.

(6) The amount payable under sub-section (5) shall be calculated in such manner as may be prescribed.”

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