GST registration cancellation u/s29(2)(e) challenged for flawed hearing process; cancellation set aside and remanded for fresh decision.

Cancellation of GST registration under s. 29(2)(e) CGST/WBGST was challenged on the ground of breach of natural justice and non-application of mind. The HC held that the personal hearing notice was issued by one authority, but the cancellation order was passed by another, violating the settled rule that the authority who hears must decide. The HC further found the cancellation order unreasoned and devoid of recorded satisfaction, rendering it palpably arbitrary; a post-decisional hearing was rejected as an inadequate substitute for prior compliance with natural justice. The cancellation order was set aside and the matter remanded for fresh hearing and a reasoned order.

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1. ISSUES PRESENTED AND CONSIDERED

(i) Whether a renewed challenge to the show-cause notice for cancellation of registration was maintainable after an earlier writ petition challenging the same notice was disposed of without setting it aside, in view of constructive res judicata.

(ii) Whether the cancellation order suffered from illegality for absence of reasons and non-application of mind, despite recording that a reply had been filed.

(iii) Whether the cancellation order was vitiated because the personal hearing notice was issued by one authority while the final order was passed by another, offending the principle that one who hears must decide.

(iv) Whether the defect, if any, could be cured by directing only a post-decisional hearing, instead of setting aside the cancellation order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Maintainability of challenge to show-cause notice (constructive res judicata)

Interpretation and reasoning: The Court noted that the petitioner had earlier approached the Court challenging the same show-cause notice for cancellation. In that earlier proceeding, the Court expressly recorded that the petition was challenging the show-cause notice, yet the notice was not set aside. The Court held that, in these circumstances, a fresh challenge to the same show-cause notice was not sustainable, as it would be deemed to have been answered against the petitioner on principles of constructive res judicata.

Conclusion: The renewed challenge to the show-cause notice was rejected as not maintainable.

Issue (ii): Validity of the cancellation order-absence of reasons and non-application of mind

Interpretation and reasoning: The Court found the cancellation order unsustainable because, although it recorded that the petitioner had filed a reply to the show-cause notice, the order did not deal with that reply at all. The order was a brief, one-page document that moved from a reference to issuance of notice and opportunity to reply to an abrupt conclusion, without disclosing any reasoning. The Court held that the order showed no application of mind and did not provide reasons linking the material to the conclusion. The Court treated the recording of reasons as essential, observing that absence of reasons renders such an order a nullity.

Conclusion: The cancellation order was set aside for lack of reasons and non-application of mind.

Issue (iii): "One who hears must decide"

Interpretation and reasoning: The Court noted that the personal hearing notice had been issued by a particular authority, whereas the final cancellation order was passed by a different officer. This, in the Court's view, defied the settled principle that an order must be passed by the authority who hears the parties, i.e., one who hears must decide. The Court treated this defect as a substantive infirmity affecting the validity of the decision-making process.

Conclusion: The cancellation order was additionally vitiated for breach of the principle that the hearing authority must be the deciding authority.

Issue (iv): Whether post-decisional hearing was an adequate remedy

Interpretation and reasoning: The revenue authorities argued that, since adverse material existed on record and formed the basis of the cancellation, the petitioner could be given a post-decisional hearing and the order should not be interfered with. The Court rejected this submission, holding that where a final order is passed without application of mind and without recording reasons, the order is "palpably bad" and post-decisional hearing would serve no purpose. The Court further held that post-decisional hearing is not ordinarily to be directed and does not, in such circumstances, sub-serve the rules of natural justice.

Conclusion: The Court declined to sustain the cancellation order by granting only post-decisional hearing; instead, it set aside the order and directed fresh adjudication after hearing and consideration of the reply.

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