2025 (3) TMI 417 - HC - GST

GST registration cancellation revoked after appellate authority exceeded show cause notice scope without proper hearing

Jagdamba Marble, Mr. Mithun Sarkar Versus Joint Commissioner (Appeals), State Goods And Services Tax, Raipur, Chhattisgarh, Assistant Commissioner Circle -3, Division -1, State Goods And Services Tax, Raipur, Chhattisgarh, Joint Commissioner Division -1, State Goods And Services Tax, Raipur, Chhattisgarh, Commissioner State Goods And Services Tax, GST Department

Chhattisgarh HC allowed a writ petition challenging GST registration cancellation. The appellate authority dismissed petitioner's appeal citing incomplete ... Scope of SCN - Cancellation of the petitioner's GST registration - reporting officer has not examined the petitioner with respect to ‘red alert notice’ issued by the department to the petitioner - Violation of principles of natural justice - HELD THAT:- Against the cancellation order, the petitioner filed an appeal before the appellate authority i.e. respondent No.1 and prayed for revocation of registration. Meanwhile, the petitioner intimated the department about the change in address of place of business and also updated in GST portal. Along with appeal, a report of the State Tax Inspector has also been filed in which it has been reported that during physical verification conducted on 26.10.2023, business was found functional at the new place ie village Temri, Ekta Nagar, Mana Camp, Raipur. It is also mentioned in the report that Assistant Commissioner, State Tax, Circle-3 Raipur has also recommended for revocation of registration of petitioner. Perusal of copy of notice dated 10.7.2023 (Annexure R-4) annexed along with return filed on behalf of respondents/State would show that during special drive against fake registrations, petitioner is found to be non-existent business entity and engaged in bill trading activities, and therefore, immediate action to block/recover the fraudulent income tax credits available by petitioner is recommended. There is nothing on record of this writ petition to show as to what action has been taken thereafter against the petitioner. It is well settled that it is beyond the competence of an authority to make out in favour of the department a case which the department had never canvassed and which the petitioner had never been required to meet. The Hon'ble Supreme Court in the case of Commissioner of Central Excise, Bhubaneswar -I versus Chambdany Industries Ltd [2009 (9) TMI 7 - SUPREME COURT] as also in case of of Precision Rubber Industries Pvt. Ltd. vs. Commissioner of Central Excise, Mumbai [2016 (4) TMI 841 - SUPREME COURT], that no new case would have been set up or decided contrary to the show cause notices and that the Department is not allowed to travel beyond the show cause notice. In the case at hand, from the order impugned it transpires that respondent No.1 while adjudicating the appeal of petitioner against the cancellation of registration and dismissed the same on the ground that the reporting officer has not examined the petitioner with respect to ‘red alert notice’ issued by the department to the petitioner and as such, report is incomplete, which is clearly impermissible in law. Thus, it is apparent and abundantly clear that respondent No.1 has completely travelled beyond the scope of show cause notice because the regarding the ground on which appeal of petitioner is dismissed by impugned order i.e. issuance of red alert notice, there is no whisper either in the show-cause notice or order cancelling the registration. Further, it also amounts to violation of principles of natural justice as neither a proper show-cause notice has been issued nor any opportunity of hearing was given to the petitioner with respect to allegation of red-alert notice i.e. non-existing unit and fake registration. It is also now well settled that before adjudicating any issue which is against the interest of a party; opportunity of hearing should be granted to him. The reason of cancellation of registration was that during spot verification at the principal place of business, the same was found closed and non-functioning and since the petitioner has already rectified the said defect by intimating new address of place of business to the department as well as through GST portal, which was also found operational during spot verification, therefore, in the considered opinion of this Court, no fruitful purpose would be served in refusing to revoke the GST registration of petitioner. Conclusion - i) Authorities cannot exceed the scope of the show cause notice, and cancellation of registration must adhere strictly to statutory grounds. Fundamental rights under Articles 19(1)(g) and 21 must be protected. ii) The cancellation of the petitioner's GST registration is revoked, directing the petitioner to file GST returns within 30 days. The impugned order set aside - petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the cancellation of the petitioner's GST registration by the respondent authorities was lawful and in accordance with the provisions of the CGST Act and Rules.Whether the appellate authority exceeded its jurisdiction by considering issues not raised in the original show cause notice, specifically the 'Red Alert Notice.'Whether the actions of the respondents violated the principles of natural justice and the fundamental rights of the petitioner under Articles 19(1)(g) and 21 of the Constitution of India.Whether the petitioner's failure to update the GST portal with the new place of business justified the cancellation of their GST registration.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of GST Registration CancellationRelevant Legal Framework and Precedents: The cancellation of GST registration is governed by Section 29 of the CGST Act, 2017, which allows for cancellation if a registered person contravenes the provisions of the Act or fails to conduct business from the declared place. Rule 21 of the CGST Rules specifies grounds for cancellation, including non-operation from the declared place of business.Court's Interpretation and Reasoning: The Court noted that the cancellation was based on the petitioner's failure to conduct business from the declared address. However, the petitioner had moved to a new location and failed to update the GST portal due to lack of knowledge. The Court found that the petitioner had rectified this by updating their address and conducting business from the new location.Key Evidence and Findings: Physical verifications confirmed the petitioner's business operations at the new address. The appellate authority's decision was influenced by a 'Red Alert Notice,' which was not part of the original grounds for cancellation.Application of Law to Facts: The Court applied the provisions of Section 29 and Rule 21, finding that the petitioner's non-compliance was rectified and did not justify continued cancellation.Treatment of Competing Arguments: The respondents argued that the failure to update the business address justified cancellation. The Court disagreed, emphasizing the rectification and the lack of a proper basis for the 'Red Alert Notice' in the cancellation process.Conclusions: The Court concluded that the cancellation was unjustified, as the petitioner had corrected the address issue and was conducting legitimate business.Issue 2: Jurisdiction of the Appellate AuthorityRelevant Legal Framework and Precedents: The principle that authorities cannot exceed the scope of the original show cause notice is well-established, as seen in precedents like Chambdany Industries Ltd and Precision Rubber Industries Pvt. Ltd.Court's Interpretation and Reasoning: The Court found that the appellate authority erred by considering the 'Red Alert Notice' without it being part of the original show cause notice, thus violating the principles of natural justice.Key Evidence and Findings: The appellate authority's decision was based on incomplete examination related to the 'Red Alert Notice,' which was not initially raised.Application of Law to Facts: The Court held that the appellate authority's decision was beyond its jurisdiction and not supported by the original grounds for cancellation.Treatment of Competing Arguments: The respondents' reliance on the 'Red Alert Notice' was deemed inappropriate, as it was not part of the initial proceedings.Conclusions: The Court concluded that the appellate authority acted beyond its jurisdiction, invalidating its decision based on the 'Red Alert Notice.'Issue 3: Violation of Fundamental RightsRelevant Legal Framework and Precedents: Articles 19(1)(g) and 21 of the Constitution protect the right to practice any profession and the right to life and livelihood, respectively.Court's Interpretation and Reasoning: The Court recognized that the cancellation of GST registration affected the petitioner's ability to conduct business, impacting their livelihood and fundamental rights.Key Evidence and Findings: The inability to issue invoices and conduct business due to the cancellation was highlighted as a violation of the petitioner's rights.Application of Law to Facts: The Court applied constitutional protections to emphasize the unjust impact of the cancellation on the petitioner's business operations.Treatment of Competing Arguments: The respondents' actions were seen as disproportionate, given the rectification of the address issue and the lack of proper grounds for the 'Red Alert Notice.'Conclusions: The Court concluded that the cancellation violated the petitioner's fundamental rights, necessitating revocation.3. SIGNIFICANT HOLDINGSVerbatim Quotes of Crucial Legal Reasoning: 'It is beyond the competence of an authority to make out in favour of the department a case which the department had never canvassed and which the petitioner had never been required to meet.'Core Principles Established: Authorities cannot exceed the scope of the show cause notice, and cancellation of registration must adhere strictly to statutory grounds. Fundamental rights under Articles 19(1)(g) and 21 must be protected.Final Determinations on Each Issue: The Court set aside the appellate authority's decision and revoked the cancellation of the petitioner's GST registration, directing the petitioner to file GST returns within 30 days.