Registration cancellation order quashed for violating natural justice principles, hearing opportunity denied to petitioner

The Telangana HC quashed the registration cancellation order dated 11.07.2022 and rejection order dated 26.12.2023 for violating principles of natural justice by not providing hearing opportunity to petitioner. The court treated the cancellation order as show cause notice, directing petitioner to appear before respondent and submit detailed reply by 09.02.2024. Registration was restored but unutilized Input Tax Credit usage was restricted pending finalization of show cause proceedings. Petitioner permitted to file pending returns with late fees. Writ petition allowed.

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Issues Involved:
1. Validity of the Order for Cancellation of GST Registration.
2. Compliance with principles of natural justice.
3. Grounds for cancellation of GST registration.
4. Procedure for revocation of cancellation.

Summary:

1. Validity of the Order for Cancellation of GST Registration:
The petitioner challenged the Order for Cancellation of Registration dated 11.07.2022, which cancelled the GST registration effective from 11.06.2019. The impugned order lacked reasons necessitating the cancellation. The court observed that the order was passed without application of mind, as evidenced by the contradictory statements in the order itself.

2. Compliance with Principles of Natural Justice:
The petitioner argued that they were not served with the show cause notice dated 07.06.2022, nor did they respond to it, contrary to the authority's claim. The court noted that the impugned order did not reference any reply from the petitioner, indicating a breach of natural justice principles. The court cited similar cases, including decisions from the High Courts of Delhi, Bombay, and Madras, emphasizing the need for a pragmatic approach and proper service of show cause notices.

3. Grounds for Cancellation of GST Registration:
The Department's counsel contended that the cancellation was due to the petitioner's default in furnishing returns for over six months. However, the court found that the impugned order did not disclose any grounds for cancellation, making it liable for interference. The court referenced decisions where defective show cause notices and lack of reasons in cancellation orders were deemed illegal.

4. Procedure for Revocation of Cancellation:
The court set aside the impugned order and the rejection of the revocation application, directing that the order dated 11.07.2022 be treated as a show cause notice. The petitioner was given the opportunity to submit a detailed reply and file pending returns with late fees by 09.02.2024. The court clarified that the setting aside of the order would automatically restore the petitioner's registration, but the petitioner could not utilize any unutilized Input Tax Credit until the finalization of the show cause proceedings.

Conclusion:
The writ petition was allowed, the impugned orders were quashed, and the matter was remitted back for fresh consideration, ensuring compliance with principles of natural justice and proper procedural adherence. The court emphasized the importance of detailed reasoning in orders affecting civil consequences.

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