Case Law Details
AI Adil Traders Vs Deputy State Tax Officer (Telangana High Court)
Summary: The Telangana High Court allowed the writ petition challenging a show cause notice dated 1 November 2024 suspending the petitioner’s GST registration and the consequential order dated 16 January 2025 cancelling the registration. The Court held that the show cause notice was legally unsustainable because it failed to disclose the factual basis for the alleged violations and therefore violated the principles of natural justice.
The impugned show cause notice alleged violations of Rule 21(e), Rule 21(b), Rule 21(a) and Section 29(e) of the GST Act. These included allegations that the petitioner had wrongly availed input tax credit, issued invoices without supply of goods or services, failed to conduct business from the declared place of business, and obtained registration through fraud, wilful misstatement or suppression of facts. The petitioner contended that the notice merely reproduced the statutory provisions without stating any factual details or reasons explaining how these provisions had allegedly been violated. The petitioner relied on an earlier judgment of the High Court in W.P. No. 20080 of 2024, where similar notices had been set aside for the same reason.
The respondents opposed the petition, submitting that the petitioner had filed a reply to the show cause notice and that the final cancellation order had been passed in accordance with law.
After hearing the parties, the High Court examined the contents of the impugned notice and found that it merely listed alleged breaches of statutory provisions without providing any factual foundation. The Court observed that although an attachment accompanied the notice, the reasons justifying the proposed action were required to be stated in the show cause notice itself. An assessee should not be expected to search through annexed internal departmental correspondence to understand the allegations. The Court held that a valid show cause notice must be specific and contain sufficient factual particulars to enable an effective response.
The Court relied on its earlier decisions dealing with similarly worded notices. It reiterated that merely reproducing the language of statutory provisions or recording conclusions without disclosing the factual basis is insufficient. The Court referred to the principles laid down by the Supreme Court regarding natural justice, emphasising that a notice must be precise, unambiguous and clearly inform the affected party of the case it has to meet. It also reiterated that even if detailed reasons are unnecessary, the notice must contain the minimum factual backdrop and the nature of the alleged breach so that the recipient can submit an effective reply.
The High Court further observed that the departmental authorities had confused “reasons” with “conclusions.” Under the heading of “reasons,” the authorities had merely concluded that the petitioner had violated certain statutory provisions without stating the factual basis for those conclusions. The Court held that the impugned show cause notice, therefore, did not satisfy the requirements of law and could not form the foundation for subsequent proceedings.
The Court reiterated its earlier observations expressing concern over the repeated issuance of such cryptic notices, noting that suspension of GST registration without disclosing adequate reasons adversely affects taxpayers and prevents them from making an effective representation. It observed that authorities should avoid issuing notices in a mechanical manner and should ensure compliance with the principles of natural justice.
Since the show cause notice itself was held to be defective, the Court ruled that the consequential cancellation order, which was founded upon that notice, could not survive. It also clarified that the defect in the notice could not be cured merely because additional reasons were provided in the final order. Accordingly, both the show cause notice dated 1 November 2024 and the cancellation order dated 16 January 2025 were set aside. However, the Court clarified that it had not expressed any opinion on the merits of the allegations and granted liberty to the respondents to initiate fresh proceedings in accordance with law after complying with the requirements of natural justice. The writ petition was allowed without any order as to costs.
FULL TEXT OF THE JUDGMENT/ORDER OF TELANGANA HIGH COURT
Sri M. Uma Shankar, learned counsel represents Sri V. Veeresham, learned counsel for the petitioner; Sri T. Chaitanya Kiran, learned Assistant Government Pleader representing Sri Swaroop Oorilla, learned Special Government Pleader for State Tax, for respondent Nos.1 and 3 and Ms. Pravalika, learned counsel representing Sri Dominic Fernandes, learned Senior Standing Counsel for CBIC, for respondent No.2.
2. With the consent, finally heard.
3. This petition filed under Article 226 of the Constitution assails the show cause notice dated 01.11.2024 whereby the petitioner’s registration was suspended with effect from 01.11.2024. The petitioner is also aggrieved by the final order of cancellation of registration dated 16.01.2025.
4. The sheet-anchor argument of learned counsel for the petitioner is that as per the prescribed Form GST REG-17, the Department sunder a statutory obligation to assign reasons on which show cause notice is based. The reasons mentioned in the impugned show cause notice are as under:
1. Rule 21(e)-person avails ITC in violation o1′ dm provisions of section 16 of the Act or the ru es made thereunder
2. Rule 21(b)-person issues invoice or bill wi thout supply of goods or services or both in violation of the provisions of the Act, o–th rules made thereunder
3. Rule 21(a)-person does not conduct air? :,incss from declared place of business
4. Section 29(e)-registration obtained by means of fraud, willful misstatement or st_ppression of facts.
5. It is, submitted that the aforesaid averments/contents are only alleged violation of Rules but does not contain any factual details Dr reasons therefor. This Court in W.P No.20080 of 2024 has disapproved such notice and set aside the same. For the same –eason, interference may be made.
6. The prayer is opposed by learned counsel for the respondents <uld it is submitted that the petitioner filed reply to the impugnec show cause notice and thereafter, impugned final order was pa: ,sed which is in accordance with law.
7. We hive heard learned counsel for the parties at length.
8. The reproduced portion of impugned show cause notice shows that the said contents are allegations relating to breach of certain Rules but the impugned show cause notice nowhere provides the factual foundation on the strength of which, the said Rules were allegedly breached by the petitioner. There exists attachment to the show cause notice but the reasons are required to be mentioned in the show cause notice itself. The assessee is not expected to travel through a document which is annexed with the show cause notice and which is an internal correspondence between two departmental authorities and then try to gather what could be the allegation against him. The show cause notice should be specific and should be pregnant with necessary details. In absence thereof, this Court in aforesaid W.P.No.20080 of 2024 interfered with a show cause notice by recording following findings:
“6. We have previously interfered with similar notices which were not pregnant with necessary factual details and descriptions. We find substance in the argument of learned counsel for the petitioner that such a notice runs contrary to principles of natural justice and deprives the assessee to file an effective reply to the show cause notice. In previous occasion, in W.P.No.17400 of 2024, this Court has held as under:
“The singular reason assigned in the impugned notice dated 29.02.2024 reads asunder:
”1. Section 29(2)(e)-registration obtained by means of fraud, willful misrepresentation or suppression of facts”.
Apart from this bald statement, there exists nothing in the show cause notice which can throw light as to what is the nature of ‘fraud’ or ‘willful misrepresentation’ or ‘suppression of fact’by the petitioner. Thus, show cause notice is ryptic and an example of non application of mind. In absence of factual basis and necessary de ails, notice becomes vulnerable.
This Court, recently, considered this aspect in T S R Exports (supra) and held as ur der:
`9. We find subsistence in the argument of the learned counsel for the petitioner that the factual backdrop or the reason on the strength of which, conclusion of fraud or misstatement or suppression of facts was drawn is totally absent in the show cause notice. The show cause notice, in our considered opinion, should spell out the factual backdrop of breach, on the strength of which the department has rejected and concluded that Section 29 (2) (e) of the Act, can be invoked. If minimum factual backdrop and nature of breach is not mentioned with accuracy and precision, the petitioner was not in a position to file reply.
10. The Apex Court expressed the need of issuance of such notice in Canara Bank vs. Debasis Das 12003/ 4 SCC 557, at para No. 15, which reads as under:
“15. …Notice is the first limb of this principle. It must be precise and unambiguous. It should apprise the party determinatively of the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should he put on notice of the case before any adverse order is passed against him. This is one of the most important principles of natural justice. It is after all an approved rule of fair play. The concept has gained significance and shades with time…”
11. In the Rajesh Kumar vs. CIT (2006] 157 Taxman 168/287 ITR 91/12007] 2 SCC 181, the Apex Court at para No.61, held as under:
“61. …The notice issued may only contain briefly the issues which the assessing officer thinks to be necessary. The reasons assigned therefor need not be detailed ones. But, that would not mean that the principles of justice are not required to be complied with. Only because certain consequences would ensue if the principles of natural justice are required to be complied with, the same by itself would not mean that the court would not insist on complying with the fundamental principles of law…”
12. This Court in Sri Avanthika Sai Venkata vs. Deputy State Tax Officer f2024] 159 com 235/83 GSTI, 311 (Telanganay [W.P.No.1596 of 2024, dated 23-1-2024J and S.B. Traders vs. The Superintendent [2022] 145 tcvanann.corn 556/[2023] 96 GST 13/ 69GSTI, 175 (Telangana)/ [W.P.Nos.39498 and 39502 of 2022, dated 28-10-2022], interfered with the impugned proceedings and order therein because the reasons were not mentioned while initiating proceedings against the petitioners therein.
13. Needless to mention that the show cause notice dated 09.11.2023 became the foundation for issuance of orders dated 29.11.2023 and 23.02.2024, since the foundation cannot sustain judicial scrutiny, the entire edifice of orders passed thereupon are liable to be jettisoned “.
(Emphasis Supplied)
8. Since the show-cause notice and suspension of registration is founded upon a cryptic notice dated 29.02.2024, both are set aside. On regular basis, we are painfully noticing this kind of notices, whereby, without assigning adequate reasons, the business of taxpayer is suddenly suspended. In absence of basic reasons available in the show-cause notice, the party aggrieved by it cannot even prefer an effective representation. We wonder how in such aninsensitive and mechanical manner. the registrations are being suspended by issuing defective show-cause notices. Such orders certainly have :111 adverse impact on the livelihood of taxpayer and hits Article 21 of the Constitution. The authorities must remind themselves that the words `LIFE’ and ‘FILE’ contain same letters. Every file has a nexus with somebody’s ‘life’ or liberty. Thus, the authorities should sensitize themselves and should not pass order/notice in the mechanical manner it is passed in the present case. We hope and trust that, henceforth, the authorities will take care of this aspect. Learned counsel for the petitioner insisted for imposition of costs. Faced with this, Sri P.Sri Harsha, learned Assistant Government Pleader, submits that he will appraise the authorities about observation of this Court so that henceforth such mistakes do not occur. In view of this assurance, in the instant case, we are not imposing any costs on the respondents.”
7. In view of aforesaid, the aforesaid impugned show cause notice is liable to be interfered with because it does not disclose minimum/elementary factual details on the basis of which power under Section 29 of trie Act is invoked. Mere reproduction of offending clause or enabling orovision cannot be a reason to give stamp of approval to a show cause notice which lacks minimum essential details.
8. Resultantly, the impugned show cause notice dated 24.05.2024 is set aside. Liberty is reserved to the respondents to proceed against the petitioner in accordance with law. Sri Swaroop Oorilla, learned Special Government Pleader for State Tax, assured the Court that this order will be brought to the notice of the concerned authorities and he will appraise there to eschew the practice of issuing such cryptic notice.
9. Accordingly, this Writ Petition is allowed.No costs.”
9. In the instant case, the impugned show cause notice, in our opinion, runs contrary to the principles laid down by this Court in aforesaid W.P.No.20080 of 2024. The departmental authorities must understand the difference between the ‘reasons’ and ‘conclusions’. Under the head ‘reasons’, infact departmental authorities have recorded their conclusion that the petitioner has breached certain Rules mentioned hereinabove. On what basis and on what factual details such violation has taken place is not spelled out. Thus, the impugned show cause notice which became foundation of issuance of impugned final order is bad in law. Since the foundation i.e., impugned show cause notice is cryptic and bad in law, the edifies standing of said cryptic notice by impugned final order also cannot sustain judicial scrutiny.
10. The decision making process adopted by the respondents and the impugned show cause notice cannot sustain judicial scrutiny.
11. Resultantly, the impugned show cause notice dated 01.11.2024 and consequential final order dated 16.01.2025 are set aside. At the cost of repetition, it may be noticed that if the show cause notice itself is cryptic, it cannot gain life if certain reasons are assigned in the final order. Consequent upon setting aside of impugned show cause notice and final order on technical grounds i.e., violation of principles of natural justice, the respondents deserve liberty to proceed against the petitioner in accordance with law afresh.
12. Accordingly, the Writ Petition is allowed to the extent indicated alp( e. It is made clear that this Cour has not expressed and, opinion on merits of the case. No costs.
Interlocutory applications, if any pending, shall also stand closed.
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