2023 (12) TMI 991 - HC - GST

GST registration cancellation set aside after petitioner filed returns within extended period despite fraud allegations

M/s. DNC Infrastructure Private Limited Versus The Superintendent

The Telangana HC set aside the GST registration cancellation order against the petitioner. While the Department alleged fraudulent ITC availment of Rs. 31 ... Cancellation of G.S.T. registration of the petitioner - contention of the learned senior counsel is that immediately on receipt of the said show cause notice, the petitioner had immediately taken necessary steps and have filed entire returns up till date - HELD THAT:- Though the Department has been granted couple of opportunities to seek instructions, the only oral instructions received by the learned counsel for the Department is to the extent that the order of cancellation does not seem to be on the grounds which were otherwise there in the show cause notice, dated 02.07.2020, but on the ground of the petitioner having fraudulently availed I.T.C. to the tune of Rs. 31 Crores. The learned senior standing counsel for the Department in this regard referred to the correspondence received from the Department, dated 30.05.2023. Taking into consideration the submissions made by the learned senior counsel for the petitioner that after the show cause notice having been issued, taking advantage of the circular of the Government of India extending the time of furnishing the returns, the returns have already been filed by the petitioner within the extended period of time, it is found difficult to sustain the impugned order (Annexure-P1), dated 25.08.2023. On this very ground alone, the impugned order, therefore, is not sustainable and the same deserves to be and is accordingly set-aside/quashed. The respondent authorities are directed to forthwith restore the G.S.T. registration of the petitioner. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether cancellation of GST registration is sustainable where the impugned cancellation refers only to a show cause notice alleging non-furnishing of returns for a continuous period of six months but the assessee filed the returns within the period extended by the Government during the COVID-19 lockdown. 2. Whether an order of cancellation that does not advert to or record the subsequent curing of the alleged default and does not explain the basis for continuing with cancellation is a speaking and reasoned order permissible in law. 3. Whether issuance of a personal-hearing notice after a final cancellation order amounts to impermissible post-decision hearing and/or coercive practice. 4. Whether the Department's oral/informal contention that cancellation was in fact on a different ground (alleged fraudulent availment of input tax credit) can sustain the impugned cancellation when the cancellation order itself references only the original show cause notice. 5. Whether the authority's failure to decide an application for revocation of cancellation filed under Section 30 read with Rule 23 within the statutory period of one month, and continued inaction thereafter, renders the cancellation liable to interference. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of cancellation where returns were filed within Government-extended timeline during COVID-19 Legal framework: Cancellation of GST registration may be predicated on non-furnishing of returns; Governmental circulars and extensions issued during the COVID-19 pandemic extended timelines for filing returns. The statutory regime contemplates compliance and consequences for continued non-filing. Precedent Treatment: No judicial precedent was relied upon or applied by the parties or the Court in the judgment; hence no prior decisions were followed, distinguished or overruled in relation to this factual matrix. Interpretation and reasoning: The impugned cancellation order expressly references and is rooted in the show cause notice dated 02.07.2020 which alleges non-furnishing of returns for six continuous months. The petitioner's returns were subsequently filed within the extended period provided by Government circulars issued in view of the COVID-19 lockdown. The cancellation order does not recognise or deal with the fact that the alleged default was cured by filing returns within the extended timeline. Given the factual backdrop of pandemic-related extensions and the absence of any contemporaneous adverse action by the Department between issuance of show cause notice and the cancellation three years later, the Court concluded it is difficult to sustain cancellation predicated on the earlier default. Ratio vs. Obiter: Ratio - where a cancellation order is founded on a show cause alleging non-filing but the default is subsequently cured within an objectively-recognised extended period, cancellation cannot be sustained without addressing that cure in the order. Conclusion: The cancellation is unsustainable on this ground; restoration of registration was directed. Issue 2 - Requirement of a speaking, reasoned order and failure to record curing of default Legal framework: Administrative action affecting statutory rights must be supported by reasoned and speaking orders that address relevant facts and materials including subsequent compliance. Precedent Treatment: No authorities cited; Court applied principle of reasoned decision-making inherent in administrative law. Interpretation and reasoning: The cancellation order neither deals with the fact of subsequent filing of returns nor explains why the cured default did not preclude cancellation. The order therefore lacks necessary reasoning and cannot be treated as a proper, lawful exercise of power. The Court emphasised that an order not dealing with material subsequent events and not being a speaking order is legally deficient. Ratio vs. Obiter: Ratio - administrative cancellation affecting registration must be supported by a reasoned order addressing material facts including rectification of the alleged default; absence thereof vitiates the cancellation. Conclusion: The impugned order is legally bad for want of reasons and is quashed on that basis. Issue 3 - Legality of post-decision personal hearing (post-cancellation notice) Legal framework: Procedural fairness requires that opportunities for hearing occur prior to final adverse action; post-decision notices seeking personal hearing in respect of a concluded matter fall foul of the prohibition on post-decision hearings and may amount to coercive conduct. Precedent Treatment: No judicial authorities were cited; Court relied on principle that post-decision hearings are impermissible. Interpretation and reasoning: The personal hearing notice dated 05.12.2023 was issued after the final cancellation order dated 25.08.2023. The Court characterised such a communication as post-decision hearing which is unacceptable. Further, evidence suggested the hearing date was fixed on a Sunday when the office was closed; the notice was held to have the potential to be coercive and contrary to law. The Commissioner was directed to examine whether issuance of that notice was warranted; in any event, the notice lost efficacy upon allowing the writ. Ratio vs. Obiter: Ratio - issuance of a personal-hearing notice after a final cancellation constitutes a post-decision hearing and is impermissible; such action may be quashed. Conclusion: The post-cancellation personal hearing notice was improper and is rendered ineffective by the quashing of the cancellation; the higher authority is to examine propriety of its issuance. Issue 4 - Reliance on alternative ground (alleged fraudulent availment of ITC) not reflected in the cancellation order Legal framework: Grounds for cancellation must be those recorded in the cancellation order; administrative authorities cannot rely on undisclosed or different grounds not articulated in the order relied upon to effect cancellation. Precedent Treatment: No precedent applied; Court treated the matter on ordinary principles of fair notice and reasoned decision-making. Interpretation and reasoning: The Department orally contended that cancellation was in reality initiated for alleged fraudulent availment of input tax credit amounting to Rs. 31 crores. The cancellation order, however, refers only to the show cause notice dated 02.07.2020 concerning non-filing of returns and contains no reference to fraudulent ITC allegations. The Court observed that if the Department intended to proceed on fraud allegations, it had a substantial interregnum of over three years to do so and the impugned order does not reflect any such process or findings. Consequently, oral assertions cannot supply what the written order lacks. Ratio vs. Obiter: Ratio - a cancellation order cannot be sustained on grounds not recorded in the order; oral or post-hoc contentions as to different grounds are insufficient. Conclusion: The Department's alternative/after-the-fact contention cannot validate an order that on its face rests on different grounds; cancellation thus fails for want of congruence between reasons stated and action taken. Issue 5 - Failure to decide revocation application within statutory period Legal framework: Section 30 and Rule 23 (as referred) provide for an applicant to seek revocation of cancellation and envisage a statutory timeframe (one month) for decision on revocation applications. Precedent Treatment: No authorities cited; Court applied statutory time-limit principle and public law requirement of timely decision-making. Interpretation and reasoning: The petitioner filed an application for revocation after cancellation; the respondents failed to decide the revocation application within the one-month period and continued to delay. The Court viewed the inaction as further indicia of procedural infirmity and oppressive conduct on the part of the Department, reinforcing the need to quash the cancellation and restore registration. Ratio vs. Obiter: Ratio - statutory timelines for deciding revocation applications are mandatory in the sense that prolonged inaction may warrant judicial intervention and relief. Conclusion: The unexplained failure to decide the revocation application within the prescribed period supports interference with the cancellation; registration was directed to be restored forthwith. Final Disposition (Court's Conclusion) The Court found the impugned cancellation unsustainable on the combined grounds that it was rooted in a show cause notice alleging non-filing notwithstanding subsequent filing within Government-extended COVID-period timelines, that the cancellation order was not speaking or responsive to the cured default, that a post-decision personal-hearing notice was impermissible, that the Department could not rely on unrecorded allegations of fraudulent ITC to validate the order, and that statutory timelines for revocation were ignored. Accordingly, the cancellation was quashed and GST registration was ordered to be restored forthwith; the post-cancellation personal-hearing notice was directed to be examined and loses efficacy in light of the order. The Court's directions were issued without costs.