GST registration cancelled as "fraud" after inspection visit report-quashed due to vague SCN, no evidence, no reasons.

Cancellation of GST registration on the ground that it was obtained by fraud, wilful misstatement, or suppression of facts was held unsustainable because the SCN and cancellation order were laconic, lacked any evidentiary basis, and disclosed no independent application of mind to the alleged adverse post-registration visit report, amounting to arbitrariness and breach of natural justice. The authority neither confronted the registrant with the adverse material nor recorded reasons showing how the statutory grounds were made out, and the medical material explaining absence during inspection remained uncontroverted. Consequently, the HC quashed the SCN and set aside the cancellation order, restoring the registration.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether cancellation of GST registration under Section 29(2)(e) on the allegation that registration was obtained by "fraud, wilful misstatement or suppression of facts" could be sustained when the show cause notice relied only on an "adverse Post GST Registration visit report" without disclosing allegations or supplying the report.

(ii) Whether the cancellation order was vitiated for being mechanical, unreasoned, and unsupported by any discussion or evidence of "fraud, wilful misstatement or suppression of facts", thereby violating principles of natural justice and amounting to arbitrariness.

(iii) Whether, upon setting aside the cancellation and quashing the notice, the Court should grant an opportunity to file returns and deposit applicable tax and interest, and the consequence of non-compliance.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Validity of the show cause notice founded on an undisclosed "adverse Post GST Registration visit report"

Legal framework: The Court examined cancellation invoked under Section 29(2)(e) (registration obtained by "fraud, wilful misstatement or suppression of facts") and tested the process against principles of natural justice.

Interpretation and reasoning: The notice stated only that it was issued "as per the receipt of adverse Post GST Registration visit report". The Court found no indication that the visit report was supplied to the registrant, and further held the notice to be vague and mechanically issued because it did not spell out the specific allegation or objection relating to "fraud, wilful misstatement or suppression of fact". In absence of the germane document and particulars, the notice was treated as inchoate and "non est" in the eye of law.

Conclusion: The show cause notice was quashed for failure to comply with principles of natural justice, and the cancellation order founded upon such notice could not be sustained.

Issue (ii): Sustainability of the cancellation order under Section 29(2)(e) and requirement of application of mind/evidence

Legal framework: The Court considered that cancellation under Section 29(2)(e) requires a defensible conclusion that registration was obtained by "fraud, wilful misstatement or suppression of facts", and noted that such cancellation entails "civil and evil consequences", necessitating reasoned decision-making and fair procedure.

Interpretation and reasoning: The cancellation order merely recited Section 29(2)(e) and was found "laconic, terse and bald", containing no discussion of circumstances constituting fraud, no reasoning on wilful misstatement, and no evidence of suppression of facts in either the notice or the order. The Court held that the authority did not apply an independent mind to the alleged visit report and "jumped to the conclusion" without positive facts being proved. Such conclusion based on assumption was held tainted with arbitrariness.

Conclusion: The cancellation order was set aside as mechanically passed, arbitrary, unreasoned, and unsupported by any demonstrated evidence of fraud/wilful misstatement/suppression, and as a sequel to an invalid notice.

Issue (iii): Directions after quashing-opportunity to file returns and deposit tax and interest; consequence of default

Interpretation and reasoning: The Court took cognizance of undisputed material showing serious health issues and prolonged treatment, finding no basis to disbelieve the explanation for absence during the visit. On the statement that returns would be filed with applicable tax and interest, and with no objection from the revenue, the Court granted a limited opportunity to comply.

Conclusion: The authority was directed to facilitate deposit of tax and interest and filing of returns within two weeks from receipt of the order. The Court further directed that if the registrant fails to comply within the stipulated period, the cancellation order would remain valid and the department would be at liberty to proceed in accordance with law.

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