2026 (2) TMI 1072 - HC - GST

Quasi-judicial independence: cancellation and revocation must be based on independent, speaking reasons and adequate notice.

Show-cause notices must disclose essential particulars; omission of tax period, invoices, suppliers and quantification vitiated the notice and denied a ... Vagueness and non-disclosure of material particulars in a show-cause notice - principles of natural justice and meaningful opportunity of hearing - independent exercise of quasi-judicial power - no dictation by investigating wing - cancellation of GST registration under Rule 21(e) and Section 16 must be founded on objective satisfaction and reasons - non-speaking order and pre-determination in revocation proceedings - HELD THAT:- The undisputed record authored by the GST authorities makes it abundantly clear that such a request was made at a stage when the investigation was ongoing. The statute does not contemplate that a quasi-judicial authority, while exercising its power under Section 29 of the CGST Act, 2017, read with Rule 21(e) of the CGST Rules, 2017, acts at the dictate of an investigating wing. The power to cancel registration has a serious civil consequence. It deprives a taxable person of the ability to carry on business in a regime where registration is the gateway to the trade. Such power must be exercised on objective satisfaction of jurisdictional facts, founded on the material disclosed to the noticee by adherence to the principles of natural justice. The show cause notice dated 10.09.2025, states, in its entirety, that the petitioner has “availed input tax credit in violation of Section 16 of the Act, 2017 and the Rules made thereunder.” No tax period is mentioned. No invoice is identified. No supplier is named. No quantification is provided. Section 16 of the Act, 2017, prescribes the conditions for eligibility to input tax credit; Rule 21(e) of the Rules, 2017, contemplates cancellation, where registration is obtained or retained by fraud, willful misstatement or suppression of fact, or where credit is availed in violation of the Act in a manner that attracts the Rule. There is nothing on record to indicate that the proper officer independently evaluated the material or formed a satisfaction based on reasons of his own. A quasi-judicial order must speak for itself. It must demonstrate application of the mind to the objection raised. The repetition of the investigative allegation, as the sole ground of rejection, is indicative of the mechanical exercise of power. Cancellation of registration is not to be used as a tool of coercion during investigation. The act provides adequate machinery for assessment, adjudication and recovery. To cancel registration solely on the basis of an interim investigation report, without furnishing particulars and without independent satisfaction, amounts to obstructing the statutory process. In view thereof, the impugned show-cause notice dated 10.09.2025, order of cancellation dated 25.08.2025 and order dated 31.10.2025 are set aside. The petitioner’s registration shall stand restored forthwith. It is, however, opined to the authority under the GST Act, 2017 to initiate fresh proceeding in accordance with law, if so advised, by issuing a detailed show-cause notice specifying the precise allegations; the tax period involved; the invoices and the suppliers relied upon and the quantification of the alleged ineligible credit and by affording the petitioner a reasonable opportunity of hearing. The writ petition is allowed as indicated hereinabove. Issues: (i) Whether the show-cause notice proposing cancellation of GST registration was vitiated by vagueness and non-disclosure of material particulars; (ii) Whether the order cancelling GST registration was passed under dictation without independent exercise of quasi-judicial power; (iii) Whether the order rejecting revocation of cancellation was non-speaking and reflected pre-determination.Issue (i): Validity of the show-cause notice in terms of disclosure of tax period, invoices, suppliers and quantification of alleged ineligible input tax credit.Analysis: The notice reproduced statutory language alleging availing of input tax credit in violation of Section 16 of the Act, 2017 but omitted identification of tax period, invoices, suppliers and quantification. Such omission deprived the noticee of particulars necessary to formulate an effective response and frustrated the requirement of due notice and a meaningful opportunity to be heard under the applicable statutory scheme.Conclusion: The show-cause notice is vitiated by vagueness and non-disclosure of material particulars.Issue (ii): Legitimacy of the cancellation order issued under Rule 21(e) of the Rules, 2017 and Section 29 of the Act, 2017 where cancellation followed a request from an investigating officer while investigation was ongoing.Analysis: The cancellation was grounded on a communication from an investigating authority made during an ongoing investigation and no record shows independent evaluation or satisfaction by the quasi-judicial authority. The statutory scheme requires independent exercise of discretion when imposing the civil consequence of cancellation; acting at the dictate of an investigative wing substitutes mechanical endorsement for independent adjudication and undermines the rule of law.Conclusion: The cancellation order was passed under dictation and without independent exercise of quasi-judicial power; it is unsustainable.Issue (iii): Validity of the order rejecting revocation of cancellation where the show-cause/communication records liability to reject at the outset.Analysis: The communication styled as a show-cause on revocation recorded the investigative finding and stated the application was liable to be rejected before considering the applicant's explanation. The final rejection reproduced those reasons verbatim without independent reasoning or analysis of whether the alleged facts satisfied Section 16(2) or attracted Rule 21(e). A notice that pre-declares rejection and a verbatim non-speaking final order indicate predetermination and denial of a meaningful hearing.Conclusion: The revocation rejection is a non-speaking order reflecting pre-determination and is unsustainable.Final Conclusion: The cumulative defects found in the notice, cancellation order and revocation rejection warrant setting aside the impugned communications and restoration of registration, while preserving the authority's right to initiate fresh proceedings in accordance with law by issuing detailed particulars and affording a meaningful opportunity of hearing.Ratio Decidendi: A quasi-judicial authority exercising cancellation powers under the CGST Act and Rules must act on its own independent satisfaction based on particulars disclosed to the noticee; a show-cause notice must state essential material particulars and a decision that predetermines outcome or mechanically adopts an investigative dictum without independent reasoning is vitiated.