2025 (3) TMI 1314 - HC - GST

GST registration cancellation quashed for failure to follow Rule 21 procedures and establish grounds

The Allahabad HC allowed the petition challenging GST registration cancellation. The appellate authority had rejected the appeal claiming the petitioner's ... Cancellation of the petitioner's GST registration - Violation of Sections 25 and 29 of the GST Act - HELD THAT:- In the present case, the appellate authority has rejected the appeal on the ground that while applying for registration, HSN / SAC code has been disclosed, therefore, business undertaken by the petitioner under two different registrations are one and same cannot be bifurcated into two business verticals. Further, the record shows that the conditions have been prescribed under Rule 21 for cancellation of registration, which have not been followed in the impugned order but only on the basis of reflection of HSN / SAC code in the registration application of the petitioner under the GST, the registration has been cancelled. In other words, the grounds mentioned under Rule 21 of the Act have not been tested by the respondent authorities, which empowers the cancellation of registration. Further, it is not the case of the revenue that the petitioner has obtained the registration by committing any breach of the conditions mentioned under Section 29 (2) read with Rule 21 of the GST Act as well as the Rules. Conclusion - The cancellation of registration cannot be upheld, due to the failure to meet the procedural and substantive requirements of the GST Act. The respondent authorities is directed to restore the petitioner's GST registration immediately upon presentation of the order. Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment involve the legality of the cancellation of the petitioner's GST registration under the UPGST Act. Specifically, the Court examined whether the cancellation of registration complied with the procedural and substantive requirements under Sections 25 and 29 of the GST Act, and whether due process was followed, including the provision of adequate notice and opportunity for the petitioner to respond to the allegations.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Legality of the Cancellation of GST Registration- Relevant Legal Framework and Precedents: The cancellation of GST registration is governed by Section 29 of the GST Act and Rule 21 of the GST Rules. Section 25 (2) is also relevant, as it pertains to the conditions under which registration can be maintained. The Court referenced several precedents, including cases like Image Labs vs. State of UP and Aggarwal Dyeing and Printing Works vs. State of Gujarat, which emphasize the necessity of due process and the provision of specific grounds in show cause notices.- Court's Interpretation and Reasoning: The Court found that the authorities failed to provide specific allegations or evidence in the show cause notice that justified the cancellation of the petitioner's registration. The lack of a fixed date for reply or personal hearing was also noted as a procedural deficiency. The Court emphasized that the cancellation of registration is a serious matter with significant consequences, requiring strict adherence to legal provisions and procedural fairness.- Key Evidence and Findings: The Court noted that the show cause notice issued to the petitioner was vague and did not specify the grounds for cancellation under Section 29 (2). Additionally, the appellate authority introduced new grounds for cancellation that were not previously communicated to the petitioner, violating principles of natural justice.- Application of Law to Facts: The Court applied the principles of administrative justice, highlighting that the absence of specific allegations and failure to provide an opportunity for the petitioner to respond vitiated the cancellation proceedings. The Court also noted that the appellate authority's reliance on new grounds without prior notice was improper.- Treatment of Competing Arguments: The respondent argued that the cancellation was justified due to the petitioner's alleged violation of Section 25 (2). However, the Court found that the authorities did not substantiate this claim with evidence or follow the necessary procedural steps, rendering the cancellation invalid.- Conclusions: The Court concluded that the cancellation of the petitioner's GST registration was procedurally flawed and substantively unsupported by the evidence or legal provisions cited by the authorities.3. SIGNIFICANT HOLDINGS- Preserve verbatim quotes of crucial legal reasoning: The Court emphasized, 'The cancellation of registration is a serious act. In other words, by cancelling the registration, a person loses his opportunity to earn his bread and butter.'- Core Principles Established: The judgment reinforced the principle that administrative actions, particularly those with severe consequences like cancellation of registration, must strictly adhere to procedural fairness and the requirements of the relevant statutory provisions. It highlighted the necessity for authorities to provide clear, specific reasons and evidence when initiating such actions.- Final Determinations on Each Issue: The Court quashed the impugned orders, finding them unsustainable in law due to the failure to meet the procedural and substantive requirements of the GST Act. The Court directed the respondent authorities to restore the petitioner's GST registration immediately upon presentation of the order.