2025 (5) TMI 142 - HC - GST

Procedural Flaws Invalidate GST Registration Cancellation, Mandate Fair Hearing and Evidence Consideration Under Rule 21

M/s Genius Ortho Industries Versus Union of India And 2 Others

The HC examined a GST registration cancellation case, finding procedural irregularities. The court quashed the cancellation order due to lack of proper ... Cancellation of the petitioner's GST registration - discrepancies found during physical verification of the business premises - HELD THAT:- Once the fact was recorded as to whether the business activities were being undertaken, no contrary material has been brought on record, the impugned orders cannot be sustained in the eyes of law. The record shows that the material used against the petitioner for cancellation of registration, no notice was ever put to the petitioner, rather in the counter affidavit, a statement has been made that as per Rule 25, reports are available on GST Portal in Form GST REG-30. But in the show cause notice, no mention has been made and thus, as per form- GST REG-30 the action is taken against the petitioner. Therefore, on this ground also, impugned order cannot be sustained. Accordingly, the impugned orders are hereby quashed. Thus, the matter requires re-consideration. In the result, the writ petition is allowed. The core legal questions considered by the Court in this matter include:1. Whether the cancellation of the petitioner's GST registration was valid in light of the alleged discrepancies found during physical verification of the business premises.2. Whether the petitioner was afforded the principles of natural justice, specifically whether adequate notice was given regarding the material on which the cancellation was based.3. Whether the appellate authority properly considered the grounds and evidence presented in the appeal against the cancellation order.4. Whether the absence of any allegation of fraud or wilful misstatement by the petitioner affects the validity of the cancellation of registration under the GST framework.Regarding the validity of the cancellation of GST registration based on discrepancies found during physical verification, the Court examined the relevant provisions under the GST Act and procedural requirements for cancellation. The impugned cancellation order dated 19.12.2022 cited non-availability of any inputs, finished goods, or workers at the registered premises as the basis for cancellation, referencing physical verification findings. The petitioner challenged this on the ground that the physical verification did not conclusively establish cessation of business activity, and that the order was passed without proper consideration of the petitioner's reply.The Court noted that a notice dated 13.12.2022 was issued to the petitioner regarding cancellation, to which a reply was submitted. However, the cancellation order stated that no reply was submitted to the non-availability of inputs or workers, which the Court found to be factually incorrect. The Court relied on the statement recorded during physical verification where the watchman indicated that business activities 'Kabhi Kabhar Chalti Hai' (sometimes operate), suggesting that some business activity was indeed ongoing. The Court observed that the cancellation order failed to give due weight to this specific statement and did not produce any contrary material to disprove it.On the issue of adherence to principles of natural justice, the Court scrutinized whether the petitioner was given adequate notice of the material facts and grounds on which the cancellation was based. The petitioner contended that no notice was issued regarding the material found during the survey that led to cancellation. The respondents argued that notices were issued and replies received. However, the Court found that the show cause notice did not mention the material found during physical verification, nor did it reference the relevant Rule 25 or Form GST REG-30 reports which were the basis for the cancellation. The Court held that the absence of such specific notice amounted to a violation of natural justice, as the petitioner was not apprised of the exact grounds or evidence against it prior to cancellation.Regarding the appellate authority's role, the petitioner argued that the appeal was dismissed without proper consideration of the natural justice violations and the evidence submitted. The Court agreed that the appellate order failed to address these critical points adequately. The Court emphasized that the appellate authority must consider all submissions and evidence in a reasoned manner before upholding cancellation.The petitioner also relied on precedents from the Delhi High Court, which held that in the absence of allegations of fraud or wilful misstatement in obtaining registration, cancellation should not be ordered lightly. The Court took note of these precedents and observed that no such allegations were made against the petitioner. The respondents relied on a Division Bench judgment of the same High Court supporting cancellation in similar circumstances, but the Court found the facts distinguishable due to the procedural lapses and lack of proper notice in the present case.Applying the law to the facts, the Court concluded that the impugned cancellation order was unsustainable because:The order incorrectly stated that no reply was submitted to the non-availability of goods or workers, despite a reply being on record.The statement of the watchman indicating business activity was ignored without any contrary evidence.The petitioner was not given proper notice of the material facts or evidence relied upon for cancellation, violating natural justice.The appellate authority failed to consider these issues in its order.The Court thus quashed the impugned cancellation and appellate orders and remanded the matter to the concerned authority for fresh consideration. The authority was directed to pass a reasoned and speaking order after affording the petitioner a full opportunity to be heard and to produce relevant evidence within three months. The Court also clarified that any amounts deposited pursuant to the impugned orders shall be subject to the outcome of the fresh proceedings.In its significant holdings, the Court underscored the importance of compliance with procedural fairness and natural justice in cancellation proceedings under the GST regime. It stated verbatim:'Once the fact was recorded as to whether the business activities were being undertaken, no contrary material has been brought on record, the impugned orders cannot be sustained in the eyes of law.'Further, the Court emphasized the necessity of specific notice of the material relied upon for cancellation, stating:'The material used against the petitioner for cancellation of registration, no notice was ever put to the petitioner... as per form- GST REG-30 the action is taken against the petitioner. Therefore, on this ground also, impugned order cannot be sustained.'The core principles established include:Cancellation of GST registration must be based on clear, specific grounds with proper notice to the registered person, including disclosure of material evidence relied upon.Principles of natural justice require that the registered person be given an opportunity to respond to all material facts before cancellation.Absence of any fraud or wilful misstatement in obtaining registration militates against cancellation.Appellate authorities must consider all relevant submissions and evidence and provide reasoned orders.On each issue, the Court's final determinations were:The cancellation order was invalid due to procedural irregularities and failure to consider material evidence.The petitioner was denied natural justice as no proper notice of the material facts was given.The appellate authority erred in dismissing the appeal without addressing these issues.The matter must be remanded for fresh adjudication with full opportunity to the petitioner.