Motaleb Bhuyan Vs State of Assam And 3 Ors (Gauhati High Court)
Gauhati High Court, in a significant ruling, has set aside a series of Goods and Services Tax (GST) registration cancellations, citing serious procedural irregularities and a “perfunctory and mechanical” exercise of power by the designated Proper Officers. The judgment, delivered in the case of Motaleb Bhuyan & Ors. vs. The State of Assam & Ors., underscores the mandatory requirement for adherence to the principles of natural justice, particularly the issuance of clear and unambiguous show-cause notices before taking coercive action against an assessee.
The court was hearing a batch of writ petitions where traders challenged the cancellation of their GST registrations, which occurred between 2019 and 2021. The petitioners approached the High Court after significant delays, some as long as five years, having exhausted or missed the statutory deadlines for filing for revocation of cancellation or appealing the decision. The primary ground for cancellation by the tax authorities was the non-filing of returns.
In its detailed analysis, the High Court scrutinized the provisions of the Central Goods and Services Tax (CGST) Act, 2017, and the corresponding State Act. The court focused on Section 29, which empowers a Proper Officer to cancel a registration, and Rule 22 of the CGST Rules, which prescribes the procedure for doing so.
The court observed that Section 29(2) allows for cancellation on specific grounds, such as a registered person contravening provisions of the Act or failing to furnish returns for a continuous prescribed period. However, a crucial proviso to this section mandates that the Proper Officer “shall not cancel the registration without giving the person an opportunity of being heard.”
The judgment highlighted that this opportunity is not a mere formality. The procedure, as laid out in Rule 22, requires the issuance of a show-cause notice in a specific format (FORM GST REG-17). This notice must clearly state the reasons for the proposed cancellation to allow the assessee to furnish a meaningful reply.
Upon examining the case files, the court found that the show-cause notices issued to the petitioners were vague and lacked specific details. “The said show cause notices do not specifically state the reasons as to why the Proper Officer was of the opinion that the registration of the petitioner is required to be cancelled. There is no mention of the period when the returns have not been filed,” the court noted. It concluded that the Proper Officer had “mechanically issued the said show cause notice.” In one of the petitions, the respondents could not even produce the show-cause notice, leading the court to deem it invalid.
The court cited the established legal principle that a vague show-cause notice vitiates the entire subsequent proceedings. “It is trite that if the said show cause notice is vague, the very initiation of the proceedings on the basis of the said show cause notice would become redundant,” the judgment stated.
Furthermore, the High Court expressed its surprise at the mechanical manner in which the final cancellation orders were passed. In most of the impugned orders, the Proper Officer had referred to replies from the petitioners, even when no such replies were ever filed. The court observed that the officer had failed to even strike out the irrelevant portions of the standard statutory form (FORM GST REG-19), indicating a complete non-application of mind.
“It appears that the Proper Officer most mechanically passed the orders of cancellation even without caring to strike out the portion which was not required… In fact, it surprises this Court as to how mechanically the jurisdiction was exercised by the Proper Officer,” the court remarked. This led the court to invoke the legal doctrine that when a jurisdiction conferred upon an authority is not exercised according to the stipulated mandate, it is deemed not to have been exercised at all.
While setting aside the cancellations, the court also had to balance the equities, acknowledging the significant delay by the petitioners in approaching the court and the respondents’ allegations that they continued business operations without a valid registration. The court took note of the legal framework, particularly the third proviso to Rule 23(1) of the CGST Rules, which requires an assessee to file all pending returns for the period from cancellation to revocation.
To ensure that the state’s revenue interests were protected, the court, while quashing the cancellation orders, issued specific directions. It ordered the petitioners to file all their pending returns from the date of their respective cancellations up to the present within 30 days. Crucially, the court also addressed the time limit for the tax department to issue notices for non-fraudulent cases under Section 73 of the CGST Act. To balance the equities, the court declared that the three-year period for the department to initiate action would be computed from the date of the judgment, thereby providing a fresh window for assessment. The petitioners were also directed to pay all arrears, including tax, penalties, interest, and late fees.
FULL TEXT OF THE JUDGMENT/ORDER OF GAUHATI HIGH COURT
