2025 (7) TMI 1442 - HC - GST

HC allows petition against GST registration cancellation under Section 29, citing lack of proper grounds and reasoning

M/s Tyagi Lube Agency Versus State Of Uttar Pradesh And 2 Others

The HC allowed the petition challenging cancellation of GST registration, finding the cancellation was not in accordance with Section 29 of the Act as the ... Cancellation of registration of petitioner - no business activity was found at the principal place of business at the time of survey - no reply to the show cause notice was submitted - principles of natural justice - time limitation - doctrine of merger of order - HELD THAT:- Under Section 29 of GST Act, certain situations have been prescribed for cancellation of registration which does not contemplate the condition to which the registration of the petitioner has been cancelled. Further, the petitioner has filed a detailed revocation application which has been rejected on the ground that no reply to the show cause notice has been submitted against which an appeal has been filed which has been rejected without assigning any reason. This Court in the case of M/s Surya Associates [2024 (10) TMI 1317 - ALLAHABAD HIGH COURT] has held that 'In the case in hand, the cancellation of registration order has been passed without application of mind as no reason has been assigned in the impugned order dated 08.08.2023. However, the Division Bench of this Court has categorically held that if no reason has been given for cancelling the registration, doctrine of merger will not apply and therefore, the judgment relied upon by the counsel for the respondents in the case at hand, are of no aid to them.' The record shows that appeal under Section 107 of the Act has been rejected on the ground of limitation without assigning any reason. The merger of the order does not come in way as held in the case of M/s Surya Associates. Petition allowed. 1. ISSUES PRESENTED and CONSIDERED Whether the cancellation of registration under the GST Act was valid when no business activity was found at the principal place of business during a survey. Whether the order of cancellation complied with the requirements of Section 29 of the GST Act. Whether the impugned cancellation order was passed with proper application of mind and adequate reasons. Whether the rejection of the revocation application and the appeal on grounds of delay and latches was justified. Whether the doctrine of merger applies to the appeal order dismissing the revocation application and the original cancellation order. Whether the failure to provide reasons in the cancellation and appellate orders violates principles under Article 14 of the Constitution of India. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of cancellation of registration under GST Act when no business activity was found at principal place of business - Relevant Legal Framework and Precedents: Section 29 of the GST Act prescribes specific situations under which registration can be cancelled. The cancellation must be based on grounds enumerated therein. - Court's Interpretation and Reasoning: The Court noted that the cancellation order was passed on the ground that no business activity was found at the principal place of business during survey. However, such a ground is not contemplated under Section 29 for cancellation. Therefore, the cancellation was not in accordance with the statutory provisions. - Application of Law to Facts: Since the reason for cancellation was not one prescribed under Section 29, the cancellation order was held to be invalid. - Treatment of Competing Arguments: The State-respondents argued that absence of business activity justified cancellation. The Court rejected this argument as not supported by the statutory scheme. - Conclusion: Cancellation of registration on the ground of no business activity at principal place of business was not valid under Section 29. Issue 2: Requirement of reasons and application of mind in cancellation and appellate orders - Relevant Legal Framework and Precedents: Principles under Article 14 of the Constitution of India require administrative and quasi-judicial orders to be reasoned and reflect application of mind. The Court relied on prior judgments emphasizing that reasons are the 'heartbeat and soul' of any judicial or administrative order. - Court's Interpretation and Reasoning: The impugned cancellation order and the appellate order rejecting the revocation application were found to be devoid of any reasons. The absence of reasons indicated a lack of application of mind, rendering the orders arbitrary and violative of Article 14. - Key Evidence and Findings: The cancellation order dated 16.9.2022 and appeal rejection order were silent on reasons. The revocation application was dismissed on the ground of no reply to the show cause notice, but the petitioner had filed a detailed revocation application. - Application of Law to Facts: The Court held that orders without reasons cannot sustain judicial scrutiny and must be set aside. - Treatment of Competing Arguments: The respondents contended that delay and latches justified dismissal of appeals; however, the Court held that absence of reasons in the original order negates the doctrine of merger and allows challenge to the cancellation order. - Conclusion: Cancellation and appellate orders without reasons are invalid and violate Article 14; such orders require reconsideration with proper application of mind. Issue 3: Rejection of revocation application and appeal on grounds of delay and latches - Relevant Legal Framework and Precedents: The Court noted that the appellate authority has no power to condone delay beyond prescribed periods under the GST Act. Prior judgments confirm that delay in filing appeals cannot be condoned. - Court's Interpretation and Reasoning: While delay condonation was rejected, the Court emphasized that where the original cancellation order is without reasons and without application of mind, dismissal of appeal on limitation grounds does not bar challenge to the original order. - Application of Law to Facts: The petitioner's revocation application was rejected for no reply to show cause notice; the appeal was dismissed on latches. However, the Court found that since the original cancellation order was flawed, the appeal dismissal on limitation does not preclude relief. - Treatment of Competing Arguments: Respondents relied on delay and latches to uphold dismissal; the Court distinguished this by emphasizing the invalidity of the original cancellation order. - Conclusion: Rejection of revocation and appeal on delay grounds cannot sustain when the original cancellation order is without reasons and without application of mind. Issue 4: Applicability of doctrine of merger in appeal dismissal and cancellation orders - Relevant Legal Framework and Precedents: The doctrine of merger holds that when an appeal is decided on merits, the original order merges into the appellate order. However, where appeal is dismissed on procedural grounds without considering merits, merger does not apply. - Court's Interpretation and Reasoning: The Court held that since the appeal was dismissed on limitation grounds without assigning reasons, the doctrine of merger does not apply. The original cancellation order remains open to challenge. - Application of Law to Facts: The appeal rejection order did not deal with merits and was silent on reasons; hence, the original order could be independently challenged. - Conclusion: Doctrine of merger is inapplicable where appeal is dismissed on procedural grounds without reasons; original cancellation order can be set aside. Issue 5: Direction for fresh opportunity and de novo consideration - Court's Interpretation and Reasoning: In line with precedents, the Court directed that the petitioner be allowed to file reply to the show cause notice within three weeks. The adjudicating authority was directed to pass a fresh order after hearing the petitioner and considering the defense. - Application of Law to Facts: Since the original cancellation order lacked reasons and was passed without application of mind, a fresh adjudication was necessary. - Conclusion: The matter was remanded for fresh consideration after providing opportunity of hearing and considering petitioner's reply. Summary of Conclusions Cancellation of registration without reasons and outside the grounds prescribed under Section 29 of the GST Act is invalid. Orders affecting fundamental rights such as the right to carry on business require reasoned decisions reflecting application of mind to satisfy Article 14. Dismissal of revocation application and appeals on delay grounds does not preclude challenge to original cancellation order if that order is without reasons. The doctrine of merger does not apply where appeals are dismissed on procedural grounds without consideration of merits. The petitioner must be given an opportunity to respond to the show cause notice and the authority must reconsider the cancellation de novo. Impugned orders lacking reasons and application of mind are set aside accordingly.