Cryptic GST cancellation u/s 29 CGST quashed for violating natural justice; fresh, reasoned show cause permitted

HC set aside the order cancelling petitioner's GST registration on the ground of breach of principles of natural justice. The show cause notice alleging registration obtained by fraud, wilful misstatement and suppression was held to be cryptic and non-speaking, as neither it nor the impugned order disclosed intelligible reasons for cancellation. The HC held that such vague notice and order are unsustainable in law. Consequently, both the show cause notice and the cancellation order were quashed. However, liberty was reserved to the department to issue a fresh, reasoned notice, supply full particulars, grant adequate opportunity of hearing, and pass a speaking order on merits.

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Issues Involved:
1. Challenge to the show cause notice and subsequent order cancelling the registration of the petitioner.

Summary:

Issue 1: Challenge to the Show Cause Notice and Order Cancelling Registration

Mr. Priyank Lodha, learned Senior Standing Counsel, waived service of notice of rule on behalf of the respondent. With consent of the learned advocates appearing for the respective parties, the matter was taken up for final hearing.

Ms. Vaibhavi Parikh, learned counsel for the petitioner, argued that the show cause notice issued to the petitioner seeking to cancel the registration was cryptic. Although the notice mentioned that the registration was obtained by means of fraud, willful mis-statement, and suppression of facts, no details were furnished to the petitioner. Consequently, the order of cancellation was also deemed bad.

Ms. Parikh further contended that both the Show Cause Notice and the impugned order were vague as no reasons were assigned for the cancellation of registration. She relied on the decision rendered by this Court in Special Civil Application No. 13230 of 2023, which quashed and set aside a similar show cause notice and subsequent order.

Mr. Priyank Lodha, learned Senior Standing Counsel for the respondent, countered that the registration was found fraudulent and obtained by means of fraud, willful mis-statement, and suppression of facts, and thus was rightly cancelled. He relied on the affidavit-in-reply filed on behalf of the respondent, which included a spot visit report by the Commercial Tax Officer, Ghatak 94, Gondal. The premises were found closed, and no business activity was observed. The State Department sent an email to the CGST Division-II, Rajkot, along with a spot verification report and panchnama.

The Deputy Commissioner (Anti Evasion), CGST, Rajkot, directed the Assistant Commissioner, CGST Division-II, Rajkot, to cancel the GST registration of the petitioner firm under section 29(2)(e) of the CGST Act, 2017.

Having considered the submissions, the Court noted that the issue was covered by the decision in Aggarwal Dyeing and Printing Works, which set out the procedure for cancellation of registration. The Court emphasized that reasons are the heart and soul of the order, and non-communication of the same amounts to a denial of reasonable opportunity of hearing, resulting in a miscarriage of justice.

The Court held that by issuing a cryptic show cause notice, the authorities had violated the principles of natural justice. The reasons for cancellation were not decipherable from the impugned order and the show cause notice.

On these grounds, the show cause notice and the impugned order were quashed and set aside. The petition was allowed solely on the ground of violation of principles of natural justice. The respondent was given liberty to issue a fresh notice with particulars of reasons incorporated with details and to provide a reasonable opportunity of hearing to the petitioner. The petitioner was allowed to respond to such notice by filing objections/reply with necessary documents. The Court clarified that it had not gone into the merits of the case. Rule was made absolute to the above extent. Direct service was permitted.

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