Vrishti Mercantile Vs Assistant Commissioner (ST) (Madras High Court)
Madras High Court has addressed a petition challenging the cancellation of a firm’s Goods and Services Tax (GST) registration, opting not to immediately quash the cancellation order but instead directing the tax authorities to follow a specific process for considering the taxpayer’s plea for reinstatement through the revocation mechanism. The case, involving Vrishti Mercantile and the Assistant Commissioner (ST), highlights issues surrounding adherence to judicial directives and procedural fairness in registration cancellation proceedings.
The sequence of events leading to the court’s intervention began with the issuance of a show cause notice (SCN) to Vrishti Mercantile on October 9, 2024. This notice also simultaneously resulted in the suspension of the firm’s GST registration effective from the same date. In response to this SCN, Vrishti Mercantile filed a reply on November 22, 2024.
Prior to the final cancellation order, the firm had approached the Madras High Court by filing a writ petition, W.P.No.38716 of 2024, challenging the initial show cause notice dated October 9, 2024. The High Court, in its order dated December 18, 2024, in that previous writ petition, had directed the respondent tax authority to duly consider the reply filed by Vrishti Mercantile.
Despite this specific directive from the High Court, the Assistant Commissioner (ST) proceeded to issue an order in January 2025, cancelling the GST registration of Vrishti Mercantile. This cancellation order became the subject of the current writ petition before the High Court.
Before the court, the learned counsel representing Vrishti Mercantile argued that the impugned cancellation order was fundamentally flawed for several reasons. A primary contention was that the respondent authority had failed to consider the reply submitted by the petitioner on November 22, 2024, a failure rendered more significant given the specific direction from the High Court in the earlier writ petition (order dated December 18, 2024) to do precisely that. The petitioner asserted that passing a cancellation order without evaluating the taxpayer’s response violates basic principles of natural justice.
Furthermore, the petitioner’s counsel highlighted that the cancellation order was passed without affording Vrishti Mercantile an opportunity for a personal hearing. The absence of a hearing, particularly in a matter as consequential as the cancellation of a business registration, was put forth as another violation of natural justice principles, which generally require an affected party to be heard before an adverse decision is made. The petitioner’s counsel therefore sought to have the cancellation order set aside on these procedural grounds.
In response, the learned Government Advocate (Taxes) appearing for the respondent tax department presented their position. The department contended that the reply filed by the petitioner had been considered. However, they also offered an explanation for the apparent disregard of the earlier High Court order. According to the department’s representative, the respondent authority was unaware of the High Court’s order dated December 18, 2024, at the time the cancellation order was passed in January 2025, because the said court order had not been uploaded onto the relevant portal or communicated to them in a timely manner.
Justifying the cancellation itself, the department’s counsel submitted that investigations had revealed “a lot of suspicious transactions” associated with the petitioner’s bank account. Additionally, concerns were noted regarding documents and transactions uploaded by the petitioner on the departmental portal. It was based on the detection of these suspicious transactions, according to the department, that the decision to cancel the registration was made.
In a rejoinder, the learned counsel for the petitioner countered the department’s claim regarding suspicious transactions, asserting that all transactions carried out by Vrishti Mercantile were genuine. The petitioner maintained that the respondent authority had cancelled the registration without undertaking proper verification of these transactions, relying instead on an unsubstantiated claim of suspicious activity.
Having heard submissions from both sides and perused the available records, the High Court acknowledged the central issue raised by the petitioner: that the cancellation order was issued without considering their reply, contrary to the explicit direction in the court’s earlier order. The court also took note of the respondent’s submission that they were unaware of the prior court order because it had not been uploaded at the time of the cancellation.
While the court recognised the procedural lapse and the petitioner’s grievance regarding the lack of consideration of their reply despite a prior court direction, it also acknowledged the department’s stated concerns about suspicious transactions. Instead of directly invalidating the cancellation order, the court determined that an alternative approach, allowing the petitioner to demonstrate the legitimacy of their transactions through the established mechanism of revocation of cancellation, would be appropriate. The court reasoned that if the transactions were indeed genuine, the petitioner could readily establish this during the revocation process.
Based on these considerations, the High Court decided to dispose of the writ petition with specific directives aimed at providing Vrishti Mercantile a clear path to seek the restoration of its GST registration while also allowing the tax authority to address its concerns regarding the transactions.
The court issued the following directions: Firstly, the petitioner, Vrishti Mercantile, is required to file an application for the revocation of the cancellation of its GST registration. This application must be submitted to the concerned authority along with all relevant documents that can substantiate and establish the genuineness of the transactions carried out by the firm. Secondly, upon receiving the revocation application from the petitioner, the respondent Assistant Commissioner (ST) is directed to consider the said application. Thirdly, as part of the consideration process, the respondent authority must issue a notice to the petitioner, providing at least three days’ clear notice, for a personal hearing. This ensures that the principles of natural justice, which the petitioner argued were violated previously, are now explicitly adhered to. Finally, after conducting the personal hearing and considering all submitted documents and arguments, the respondent authority is directed to pass an appropriate order on the revocation application. This order must be made on the merits of the case and strictly in accordance with the relevant provisions of the law. The court stipulated a timeframe for this final decision, directing the respondent to pass the order within a period of two weeks following the date of the personal hearing.
By issuing these directives, the Madras High Court has steered the resolution of the dispute towards the statutory mechanism for revocation of cancelled registrations, albeit under the court’s supervision to ensure procedural fairness, including the mandatory consideration of the reply and the provision of a personal hearing. The court did not make a finding on the genuineness of the transactions, leaving that determination to the authority during the mandated revocation process. The current writ petition was accordingly disposed of, with no costs imposed on either party. Connected miscellaneous petitions were also closed.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
