2025 (9) TMI 183 - HC - GST

GST cancellation and suspension set aside for lack of hearing; petitioner ordered to file reply under Section 74(1) by 16.9.2025

Shubham Singh Versus State of U.P. Thru. Prin. Secy. Deptt. Of State Tax Lko. And 2 Others

Shubham Singh Versus State of U.P. Thru. Prin. Secy. Deptt. Of State Tax Lko. And 2 Others - 2025:AHC - LKO:52038 - DB ISSUES PRESENTED AND CONSIDERED 1. Whether cancellation of GST registration and suspension orders comply with statutory limits under Section 29(2) of the U.P. GST Act and relevant rules when impugned orders repeatedly issue without adjudication under Sections 73/74 and without consideration of the taxpayer's replies. 2. Whether repeated issuance of show-cause notices, suspension and cancellation orders without supply of supporting materials and without giving effective opportunity of reply constitutes abuse of power and breach of principles of natural justice. 3. Whether the Department, after earlier judicial intervention granting liberty to proceed afresh, is entitled to reopen cancellation proceedings and issue fresh show-cause/suspension orders based on intelligence inputs (DGGI report) and whether such material must be served on the taxpayer before further action. 4. Whether issuance of a notice under Section 74(1) of the U.P. GST Act (for recovery in cases of fraudulent availment of input tax credit) affects the maintainability of writ relief and the proper judicial response when such a notice exists. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of cancellation/suspension under Section 29(2) Legal framework: Cancellation of registration under the U.P. GST Act must conform to conditions set out in Section 29(2) and applicable rules (including Rule 22 and Rule 21 grounds cited in the show-cause), and cancellation normally requires proper adjudication under the Act where relevant. Precedent Treatment: No specific precedents were cited or applied from the judgment text. Interpretation and reasoning: The Court noted a pattern of repeated cancellation and suspension orders targeting the taxpayer, including prior instances where earlier cancellation was quashed by the Court and subsequently set aside on appeal. The Court observed that cancellation can be resorted to only when conditions in Section 29(2) are attracted and that adjudication under Sections 73/74 had not been undertaken earlier in relation to the asserted violations. The Court emphasized that revocation of earlier cancellation pursuant to judicial orders implies any fresh action must be taken in accordance with liberty granted by the Court and statutory requirements. Ratio vs. Obiter: Ratio - Cancellation/suspension must adhere to statutory conditions in Section 29(2) and cannot proceed absent proper adjudicatory process where required. Obiter - The Court's comments on departmental reluctance and repeated issuance as showing improper zeal are ancillary observations. Conclusions: The Court treats past procedural irregularities as material and underscores that cancellation/suspension must be grounded in the statutory framework; however, because fresh statutory notice (Section 74(1)) had been issued, the writ was not entertained further at that stage and procedural directions were given instead (see Issue 4). Issue 2 - Natural justice and supply of supportive material Legal framework: Principles of natural justice require that a person affected by adverse regulatory action be supplied the material upon which prima facie satisfaction is based and be afforded an opportunity to file a meaningful reply before any irrevocable action like cancellation is taken; Rules 21/22 procedural steps and the appellate directions allowing fresh proceedings subject to provision of supportive material govern conduct. Precedent Treatment: None applied or distinguished in the text. Interpretation and reasoning: The Court accepted the petitioner's contention that supportive documents were not initially supplied and replies were not duly considered on earlier occasions, leading to earlier orders being quashed. The Court recorded the Department's position that liberty was given to proceed afresh only after supplying supportive material. The DGGI report and other departmental assertions were placed on record by the respondents as the material now relied upon. Ratio vs. Obiter: Ratio - Administrative action must be taken after supplying the supporting material that forms the basis of prima facie satisfaction and after considering the taxpayer's reply; failure to do so vitiates cancellation/suspension. Obiter - Observations regarding departmental persistence in issuing repeated notices without adequate basis. Conclusions: The Court affirmed the necessity of supplying supportive material and giving the taxpayer a real opportunity to reply; procedural inadequacy in prior instances justified judicial scrutiny and corrective orders, but where supporting material has now been communicated (DGGI report, Section 74(1) notice), the remedy is to engage the statutory process rather than fresh writ intervention at that stage. Issue 3 - Effect of prior judicial orders and liberty to proceed afresh Legal framework: Where a Court quashes administrative action but grants liberty to proceed afresh, subsequent departmental action must be in accordance with the terms of that liberty and with statutory safeguards; administrative proceedings remain open subject to compliance with directions. Precedent Treatment: No precedent discussed. Interpretation and reasoning: The Court noted prior judicial relief which revoked cancellation and the appellate order setting aside cancellation, both of which included liberty to the Department to proceed afresh after furnishing supportive material. The respondents contend they have received DGGI intelligence and other material, and thus rely on that material in issuing the fresh show-cause cum suspension and the Section 74(1) notice. The Court recognized the Department's right to proceed but insisted on proper service and opportunity to reply. Ratio vs. Obiter: Ratio - Liberty granted by a Court to proceed afresh does not immunize the taxpayer from subsequent legitimate proceedings, provided such proceedings comply with the directions and statutory requirements. Obiter - The Court's remarks about departmental conduct reiterate expectations of fair process. Conclusions: The Department may initiate fresh proceedings consistent with the liberty granted, but must do so by disclosing the material relied upon and by observing statutory and natural justice requirements; the existence of fresh material (e.g., DGGI report) justifies departmental action subject to procedural fairness. Issue 4 - Consequence of issuance of Section 74(1) notice and judicial disposition Legal framework: Section 74(1) notice relates to recovery and adjudication in cases of fraud or deliberate evasion; issuance of such notice triggers statutory adjudicatory remedies and may render interim writ relief inappropriate until the statutory process is availed of and concluded (subject to specific circumstances warranting interim relief). Precedent Treatment: None cited. Interpretation and reasoning: The Department produced instructions indicating a Section 74(1) notice was issued and presumably served by email. The petitioner disputed service. Given that a Section 74(1) notice had been placed on record by the respondents and that the Writ Court and Appellate Court previously granted liberty to proceed afresh, the present writ petition was disposed of with directions requiring the petitioner to file a detailed reply and documentary evidence before the proper authority within a specified short period (two weeks). The Court chose not to entertain the writ further at this stage, directing the statutory authority to receive the reply and proceed in accordance with law rather than to grant immediate writ relief quashing the show-cause/suspension order. Ratio vs. Obiter: Ratio - Where a statutory adjudicatory notice (Section 74(1)) has been issued and the Department relies on material (e.g., intelligence reports), the appropriate course is to require the taxpayer to engage the statutory process by filing a detailed reply and evidence; courts may decline extraordinary writ relief pending such engagement. Obiter - Observations about presumed service by email and departmental assertions where service is denied by the taxpayer. Conclusions: The writ petition was disposed of by directing compliance with statutory process - the taxpayer was ordered to file a detailed reply with documents within two weeks so that the authority may proceed in accordance with law; the Court did not grant immediate relief quashing the latest show-cause/suspension order in view of the Section 74(1) notice and the material relied upon by the Department. Cross-References See Issue 2 for the Court's insistence on supply of supportive material and Issue 3 for the interplay between judicially granted liberty to proceed afresh and subsequent departmental reliance on intelligence reports; see Issue 4 for how issuance of a Section 74(1) notice channels the remedy into statutory adjudication rather than immediate writ relief.