2025 (2) TMI 732 - HC - GST

GST Registration Restored: Defective Notices and Orders Set Aside Due to Lack of Details and Reasoning Underlines Due Process Importance

The HC of Madhya Pradesh set aside the show cause notice, cancellation order, and rejection of the revocation application concerning the petitioner's GST ... Challenge to SCN and subsequent orders - Cancellation of GST registration of petitioner - petitioner had failed to furnish returns for a continuous period of six months - non-application of mind - violation of principles of natural justice - HELD THAT:- SCN requires the petitioner to appear before the undersigned on 16.03.2024 at 11:45 am. The show cause notice does not even bear the name, designation, office or signature of any individual and is completely blank. Further the reason for rejection of the revocation application is a direction to the petitioner to file the return from April 2023 to date. Clearly, the show cause notice for rejection of the application for revocation is also defective and not sustainable. The consequent order to the application for revocation dated 02.04.2024 also does not contain any reason it merely states that reply has not been filed to the notice dated 12.03.2024 and the application is accordingly rejected. There is complete non application of mind. The entire proceedings initiated by the respondent are flawed and the error commenced from the issuance of the the very show cause notice dated 11.10.2023 as noticed hereinabove. Since the very show cause notice i.e. the seed of the proceedings was defected, all proceedings emanating there from are thus unsustainable. There is also complete non application of mind and the show cause notices and orders have been passed in a mechanical manner. Cancellation of GST registration has a serious impact on the registrant and its ability to carry on business. Such a cancellation cannot be in a mechanical or casual manner as has been done in the present case. There has to be a complete application of mind and cogent reasons for such a drastic step of cancellation of GST registration. Conclusion - i) Cancellation cannot be in a mechanical or casual manner as has been done in the present case. There has to be a complete application of mind and cogent reasons for such a drastic step of cancellation of GST registration. ii) The SCN and order cancelling the registration of the petitioner; and the order dated 02.04.2024 rejecting the application for revocation for cancellation are set aside. The GST registration of the petitioner is restored. Petition allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a show cause notice for cancellation of GST registration is valid when it is vague as to reasons, fails to specify the period of default, and is not signed or does not identify the issuing officer by name, designation and office. 2. Whether an order purportedly cancelling GST registration is sustainable when it contains no independent reasons, merely refers to a defective show cause notice, and lacks an individual officer's signature or signified application of mind. 3. Whether a show cause notice rejecting an application for revocation of cancellation is valid when it (a) directs the filer to submit pending returns without specifying material particulars, and (b) is unsigned or does not identify the issuing authority. 4. What is the legal effect of initial procedural defects in the show cause notice on subsequent proceedings (cancellation order and revocation rejection)? 5. What standards of decision-making (reasons, application of mind, procedure) apply to cancellation of GST registration and remedial consequences when those standards are not met? ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of the show cause notice for cancellation (vagueness, omission of period, absence of officer identification/signature) Legal framework: Cancellation of GST registration may be initiated on specified grounds including non-filing of returns; such proceedings must comply with principles of natural justice and statutory procedure by informing the registrant of the precise grounds and particulars of alleged default so as to enable a meaningful response. Precedent Treatment: The Court did not rely upon, distinguish or overrule any authority; analysis proceeds on statutory principles and settled norms of reasoned administrative action and notice. Interpretation and reasoning: The show cause notice stated only a generic ground ('returns furnished by you under section 39') and an isolated observation ('Failure to furnish returns for a continuous period of six months') without specifying which returns, the exact period of non-compliance, or the factual basis. It directed appearance before the 'undersigned' but did not identify the officer by name, designation or office. It bore a digital signature of an entity (the digital portal) rather than an individual officer. Such vagueness and absence of identifiable signatory deprive the noticee of effective notice of the default and of the person before whom to appear, rendering the notice defective. Ratio vs. Obiter: Ratio - A show cause notice is invalid if it fails to particularize the period and nature of default and fails to identify and sign by a responsible officer; such defects vitiate the proceedings. Conclusions: The show cause notice is defective and unsustainable for want of adequate particulars and proper issuance/signature. Issue 2 - Validity of the cancellation order in absence of reasons and individual signature Legal framework: Administrative orders affecting rights (here, registration) must record reasons and reflect application of mind; cancellation being a drastic step requires cogent reasons and proper authorization. Precedent Treatment: No precedents cited or applied; reasoning follows general requirements of reasoned orders in administrative law. Interpretation and reasoning: The cancellation order merely referred back to the defective show cause notice, stated an effective date of cancellation, and did not set out reasons or indicate any individual officer's signature (digitally signed by the portal entity). The order therefore displayed non-application of mind and mechanical action, lacking the essential elements of reasoned administrative decision-making. Ratio vs. Obiter: Ratio - An order cancelling GST registration must contain reasons and proper authorisation; an order that simply references a defective notice and lacks an individual signatory is vitiated. Conclusions: The cancellation order is unsustainable for want of reasons and proper signing/authorization; it demonstrates mechanical decision-making and is set aside. Issue 3 - Validity of the show cause notice rejecting the revocation application (lack of particulars, absence of responsible signatory) Legal framework: Decisions on revocation of cancellation require notice specifying grounds for rejection and must permit meaningful response; notices must be attributable to an identifiable officer. Precedent Treatment: No authority applied; Court assessed consistency with statutory expectations and procedural fairness. Interpretation and reasoning: The revocation-rejection show cause notice asked the petitioner to 'PLEASE FILE ALL THE PENDING GST RETURN AND PROVIDE THE TAX LIABLITY SHEET FROM APRIL-23 TO TILL DATE' but did not identify the officer, did not explain application of relevant provision(s), and was digitally signed by the portal entity only. The requirement to file returns without specifying periods and the absence of an identifiable issuing authority rendered the notice vague and defective. Ratio vs. Obiter: Ratio - A show cause notice rejecting a revocation application is invalid if it lacks specificity about the required compliance and is not attributed to a proper officer. Conclusions: The revocation-rejection notice and the consequent order (stating non-filing of reply and rejecting the application) are defective for want of particulars, reasoning and proper signature; they are unsustainable. Issue 4 - Effect of initial procedural defects on subsequent proceedings Legal framework: Where an initial step forming the basis of a statutory proceeding is fundamentally defective, subsequent actions dependent upon that step are tainted; administrative action must show bona fide application of mind throughout. Precedent Treatment: None cited; Court applied principle that the 'seed' defect contaminates subsequent proceedings. Interpretation and reasoning: The Court found the initial show cause notice to be the genesis of the entire cancellation process. Because it was defective in multiple material respects, subsequent proceedings (cancellation order and revocation rejection) which flowed from it were rendered unsustainable. The orders displayed complete non-application of mind and mechanical issuance. Ratio vs. Obiter: Ratio - A fundamental defect in the foundational notice vitiates all consequential orders flowing from it unless and until proper notice and opportunity are provided. Conclusions: All proceedings emanating from the defective initial show cause notice are set aside. Issue 5 - Standards for cancellation of GST registration and remedial consequences (requirement of application of mind; restoration subject to compliance; preservation of recovery rights) Legal framework: Cancellation of registration has serious commercial consequences and therefore requires careful, non-mechanical decision-making with cogent reasons; natural justice and statutory procedure entail stating reasons and providing an opportunity to be heard. Precedent Treatment: Not invoked; reasoning rests on accepted administrative law principles and statutory expectations under the GST regime. Interpretation and reasoning: The Court emphasized that cancellation cannot be done mechanically or casually. Given the defects, the Court set aside the impugned notices and orders and restored registration, while making clear that restoration does not extinguish the revenue authorities' rights to recover tax, penalty or interest in accordance with law, or to initiate new cancellation proceedings after giving proper notice and opportunity of hearing. Ratio vs. Obiter: Ratio - Restoration is an appropriate remedy where procedural defects are foundational; however, authorities retain the right to pursue substantive recovery or fresh cancellation after complying with proper procedure. Conclusions: The registration is restored; petitioner must file requisite returns and comply with statutory rules; respondents may pursue recovery or fresh cancellation only after giving proper notice and opportunity of hearing. These directions constitute the operative remedy and establish the requirement that future action adhere to procedural and substantive standards.