GST Registration Cancellation: Procedural Fairness Prevails with 10% Deposit and Mandatory Personal Hearing

HC analyzed a GST registration cancellation case involving procedural challenges and assessment orders. The court set aside the original assessment order, allowing the petitioner to contest the tax demand by remitting 10% of the disputed amount. The HC directed the tax authority to provide a personal hearing and issue a fresh order within three months, effectively suspending the distraint proceedings while ensuring due process.

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Issues:
1. Challenge to an order and consequential distraint order following cancellation of GST registration.
2. Allegation of inability to participate in proceedings due to registration cancellation.
3. Compliance with principles of natural justice in assessment under Section 62 of GST enactments.

Analysis:

Issue 1: Challenge to Orders
The petitioner challenged an order dated 03.03.2023 and a consequential distraint order dated 16.05.2024 following the cancellation of their GST registration on 27.02.2019. The petitioner claimed unawareness of proceedings leading to the impugned assessment order under Section 62 until distraint proceedings were initiated.

Issue 2: Allegation of Inability to Participate
The petitioner contended that business losses led to the cancellation of their GST registration, rendering them unable to participate in the proceedings resulting in the impugned order. The petitioner agreed to remit 10% of the disputed tax demand as a condition for remand.

Issue 3: Compliance with Principles of Natural Justice
The Additional Government Pleader submitted that principles of natural justice were adhered to by issuing notice in Form GSTR 3A on 05.01.2023. Due to the petitioner's failure to file returns upon receipt of the notice, the assessing officer resorted to making the assessment on a best judgment basis under Section 62 of the applicable GST enactments.

The court observed that the assessment was indeed based on best judgment due to the petitioner's non-response to the notice in Form GSTR 3A. Acknowledging the petitioner's financial constraints and cancellation of registration, the court deemed it necessary in the interest of justice to allow the petitioner an opportunity to contest the tax demand on merits, subject to the condition of remitting 10% of the disputed tax demand.

Consequently, the impugned order dated 03.03.2023 was set aside with the condition of remittance within two weeks. The petitioner was granted the opportunity to reply to the show cause notice within the stipulated period. Upon satisfaction of the remittance and receipt of the petitioner's reply, the 1st respondent was directed to provide a reasonable opportunity for a personal hearing and issue a fresh order within three months. The setting aside of the assessment order also led to the cancellation of the distraint order.

The writ petition was disposed of without costs, and connected miscellaneous petitions were closed as a result of the court's decision.

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