GST registration cancellation for alleged excess ITC set aside due to vague SCN and natural justice violations

HC quashed the orders cancelling the petitioner's GST registration and dismissing its appeal, holding them vitiated by gross violation of principles of natural justice. The SCN was vague, lacked any reference to the alleged excess ITC utilisation or discrepancies in the State GST report, and disclosed no material or basis for the officer's satisfaction. The cancellation order relied on investigation records and reports never supplied or confronted to the petitioner. The appellate authority compounded the illegality by affirming cancellation on materials not shared with the appellant and by ignoring the foundational procedural defects. The petitioner's registration cancellation was set aside and the application disposed of.

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Issues Involved:

1. Legality of the Show Cause Notice.
2. Validity of the Cancellation Order by the Superintendent.
3. Examination of the Assistant Commissioner's Order.
4. Appellate Authority's Confirmation of Cancellation.
5. Breach of Principles of Natural Justice.
6. Judicial Conscience and Fairness of Officers' Actions.

Summary:

1. Legality of the Show Cause Notice:
The petitioner was issued a show cause notice dated January 5, 2021, for cancellation of its registration under Section 29(2) of the CGST Act, 2017. The notice was deemed "bereft of particulars" and "vague and ambiguous," bypassing norms of fairness and reasonableness. It suspended the petitioner's registration effective from the date of issuance without detailing any allegations of fraud, willful misstatement, or suppression of facts.

2. Validity of the Cancellation Order by the Superintendent:
Following the defective show cause notice, the Superintendent cancelled the petitioner's registration on January 20, 2021, with retrospective effect from July 1, 2017. The order cited "Non Genuine Entities under CBIC Jurisdiction" and instructions from an unspecified authority, without providing any material evidence or informing the petitioner about the instructions.

3. Examination of the Assistant Commissioner's Order:
The Assistant Commissioner, following the High Court's directive for a personal hearing, cancelled the registration again on January 31, 2022. The reasons included discrepancies found by the State GST Authority and utilization of more ITC in GSTR 3B than available in GSTR 2A. However, these grounds were never mentioned in the initial show cause notice, and no material was provided to the petitioner, constituting a gross breach of natural justice.

4. Appellate Authority's Confirmation of Cancellation:
The Joint Commissioner (Appeals-II) confirmed the cancellation without addressing the breach of natural justice. The appellate authority relied on materials not supplied to the petitioner and ignored documents submitted by the petitioner as per the Court's order. The decision was found to be casual and legally untenable.

5. Breach of Principles of Natural Justice:
The Court observed that the orders passed by the Superintendent, Assistant Commissioner, and Joint Commissioner (Appeals-II) were in gross violation of principles of natural justice. The authorities acted arbitrarily without following due process, leading to civil consequences for the petitioner.

6. Judicial Conscience and Fairness of Officers' Actions:
The Court expressed its disapproval of the unfair approach of the officers involved. It emphasized that such actions surpass all canons of fairness and reasonableness, affecting the rights of the petitioner under Articles 19(1)(g) and 300A of the Constitution. The Court highlighted the need for authorities to act in strict adherence to the rule of law and avoid dragging assessees into unwarranted litigation.

Conclusion:
The impugned orders by the Assistant Commissioner and Joint Commissioner (Appeals-II) were set aside. The petitioner's registration was ordered to be restored, with liberty to the respondents to follow due legal procedure if any fresh action is intended. The Court directed that a copy of the order be forwarded to the concerned officers and the Secretary, Ministry of Finance, Government of India, to ensure responsible and lawful actions in future.

Disposition:
Disposed of with no costs.

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