The Delhi High Court has recently set aside an order which had cancelled the GST registration of Frequent Logistics Services Pvt. Ltd. The Court emphasized the necessity for Show Cause Notices to explicitly indicate the reasons for the proposed cancellation of GST registration. This article delves into the judgment, outlining its ramifications for GST compliance and the legal landscape.
Background: Frequent Logistics Services Pvt. Ltd. had their GST registration cancelled pursuant to a Show Cause Notice. The reason cited in the notice was either fraud, wilful misstatement, or suppression of facts, but the notice was ambiguous about what specific allegations were being made.
Legal Proceedings: The petitioner did not file a reply within the stipulated time to the Show Cause Notice, leading to the order for cancellation. The company appealed this order, but the appeal was rejected on the ground of delay. Notably, the court found that the impugned order for cancellation was uninformed, as it did not give an intelligible reason for the cancellation.
Focus on Clarity: The High Court particularly emphasized the need for Show Cause Notices to be clear and specific. A notice must allow the recipient enough information to respond adequately. In this case, the Show Cause Notice was deemed to be cryptic and fell short of the standards required for such a legal document.
The Gap in Procedure: It was revealed that while the GST registration was cancelled on grounds that the company was not found at its registered place of business, the department had not inspected the new address, to which the business had lawfully moved. This also brought into question the methods followed during the GST compliance checks.
Conclusion: The Delhi High Court’s ruling in the case of Frequent Logistics Services Pvt. Ltd. Vs Commissioner Goods And Service Tax Department has emphasized the critical importance of clear and specific Show Cause Notices, especially concerning the cancellation of GST registration. The decision impacts not just the legal requirements for such notices but also highlights the gaps in procedural conduct. This serves as a reminder for both tax authorities and taxpayers to be diligent in following the law to the letter, lest important legal actions be set aside for lack of clarity or procedural lapse.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. The petitioner has filed the present petition, inter alia, impugning an order dated 08.06.2022 (hereafter ‘the impugned order’), whereby the petitioner’s GST registration was cancelled.
2. The impugned order was passed pursuant to a Show Cause Notice dated 20.05.2022 (hereafter ‘the Show Cause Notice’). A plain reading of the Show Cause Notice indicates that the petitioner’s GST Registration was proposed to be cancelled for the following reason:
“In case, Registration has been obtained by means of fraud, wilful misstatement or suppression offacts.”
3. The petitioner was called upon to respond to the said Show Cause Notice within a period of seven working days and was also directed to appear before the proper officer on 23.05.2022 at 04:11 PM. The Show Cause Notice also reflected that the petitioner’s GST registration was suspended with effect from 20.05.2022.
4. As is apparent from the above, the Show Cause Notice is cryptic and did not afford the petitioner any sufficient information as to the grounds on which the petitioner’s registration was proposed to be cancelled. Although, it is alleged that the registration had been obtained by fraud, wilful misstatement or suppression of facts, there was no material to indicate as to what fraud is alleged to have been committed; which statement made by the petitioner is alleged to be a misstatement; and which fact was suppressed by the petitioner.
5. It is also not clear whether the petitioner’s registration was cancelled on account of fraud, wilful misstatement or suppression of facts, since all the three reasons were mentioned.
6. The petitioner did not file a reply to the said Show Cause Notice within the stipulated time. In the meanwhile, the proper officer passed the impugned order cancelling the petitioner’s registration with retrospective effect from 27.07.2017. The only reason stated in the said order for cancelling the petitioner’s registration reads as under:
“1. Reply not receive. Hence, the registration Suo Moto cancelled.”
7. It is clear from the above that the impugned order is not informed by reason as it does not reflect any intelligible reason as to why the petitioner’s GST registration was cancelled. Further, the Show Cause Notice did not disclose that the petitioner’s GST Registration was proposed to be cancelled with retrospective effect. The impugned order for the cancellation of the GST registration also does not reflect any ground to support the decision to cancel the GST registration with retrospective effect.
8. The petitioner filed an appeal against the impugned order before the Appellate Authority. However, the appeal was rejected by an Order-in-Appeal dated 09.06.2023, on the ground of delay.
9. It is submitted that the petitioner’s GST registration was cancelled as it was not found to be existing at its principal place of business. However, it is noted that the petitioner had made an application dated 19.08.2021 for change of its registered principal place of business. This application was allowed and the amended certificate of the GST Registration was issued. Admittedly, the concerned officer had inspected the old premises and not the new premises as reflected in the certificate of the GST registration issued on 19.08.2021.
10. In view of the above, the present petition is allowed. The impugned order cancelling the petitioner’s GST registration is set aside. The Show Cause Notice suspending the petitioner’s registration is also set aside.
11. It is clarified that the concerned officers are not precluded from taking such steps which they consider necessary albeit, in accordance with law.
12. The present petition is allowed solely on the ground that the Show Cause Notice falls short on the standards required of a Show Cause Notice. At the least, the Show Cause Notice must clearly indicate the reasons for which an adverse order is proposed to be passed in order for the noticee to respond to the same.
13. The impugned order is set aside for the reason that it is not informed by reason.
14. All pending applications are also disposed of.