HC restore GST Registration as SCN lacked reasons & violates natural justice

My Trading Overseas Vs Commissioner Delhi Goods And Service Tax (Delhi High Court)

Delhi HC quashes GST cancellation in My Trading Overseas case, highlighting flaws in show cause notice. Upholds taxpayer’s right to a fair response.

Introduction: In a recent landmark decision, the Delhi High Court set aside the cancellation of GST registration in the case of “My Trading Overseas Vs Commissioner Delhi Goods and Service Tax.” The court ruled that the cancellation order lacked essential reasons and violated the principles of natural justice, emphasizing the taxpayer’s right to a fair opportunity to respond to allegations.

I. Background: A. Cancellation Order and SCN:

1. The petitioner’s GST registration was canceled through an order dated 11.2023.
2. The cancellation was based on a show cause notice (SCN) issued on 05.04.2022, proposing cancellation on the grounds of obtaining registration through fraud, wilful misstatement, or suppression of facts.

II. Flaws in the SCN: A. Lack of Specifics:

1. The impugned SCN failed to provide specific details or reasons for proposing the cancellation.
2. It did not outline the alleged fraud, misstatement, or suppressed facts, making it impossible for the petitioner to formulate a meaningful response.

B. Violation of Natural Justice:

1. The court highlighted that the impugned SCN violated the principles of natural justice by depriving the petitioner of a fair opportunity to respond.
2. Without clear allegations, the petitioner had no chance to address the specific charges against them.

III. Judicial Precedents on SCN Requirements: A. Judicial Critique:

1. The court referred to its previous decisions emphasizing that SCN lacking specific reasons for cancellation are liable to be set aside.
2. It reiterated the importance of a show cause notice to enable an informed response and decision-making process.

IV. Void Order and Lack of Reasoning: A. Void Order Due to Violation:

1. The court declared the cancellation order void as it was passed in violation of the principles of natural justice.
2. The petitioner was not afforded the opportunity to meet the allegations against them.

B. Blank Space for Reasons:

1. The cancellation order lacked reasoning, as it did not specify any grounds for the cancellation except for a reference to the impugned SCN.
2. The space provided for reasons in the order was left blank, indicating a lack of informed decision-making.

V. Court’s Directive and Clarification: A. Setting Aside Order and SCN:

1. The court set aside both the cancellation order and the impugned SCN.
2. The decision aimed to rectify the procedural irregularities and restore the petitioner’s rights.

B. Restoration of GST Registration:

1. The court directed the respondent to immediately restore the petitioner’s GST registration.
2. It clarified that this restoration did not preclude authorities from initiating fresh proceedings in accordance with the law.

Conclusion: The Delhi High Court’s decision in “My Trading Overseas Vs Commissioner Delhi Goods and Service Tax” serves as a significant precedent affirming the importance of clear, specific show cause notices and adherence to principles of natural justice in administrative actions. The restoration of GST registration underscores the judiciary’s commitment to upholding fairness, transparency, and due process in tax-related matters.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

1. Issue notice.

2. Mr. Aggarwal, learned counsel appearing for the respondent accepts notice.

3. The petitioner has filed the present petition impugning an order dated 11.2023 (hereafter ‘the impugned order’) whereby the petitioner’s GST registration was cancelled. The impugned order was passed pursuant to a show cause notice dated 05.04.2022 (hereafter ‘the impugned SCN’) whereby the petitioner’s GST registration was proposed to be cancelled for the following reasons: –

“1 In case, Registration has been obtained by means of fraud, wilful misstatement or suppression of facts.”

4. The petitioner was directed to file a reply to the impugned SCN within a period of seven working days and to appear before the concerned officer on 04.2022 at 12.00 pm. Additionally, the petitioner’s GST registration was suspended with effect from the said date, that is, 05.04.2022.

5. The petitioner responded to the impugned SCN on 06.04.2022, inter alia, stating that the registration was obtained by uploading all required documents, however, due to size restriction, the documents uploaded were The petitioner further stated that it was ready to upload all the documents once again, if required and requested the concerned officer to restore its GST registration, which was suspended.

6. It is apparent from the above that the impugned SCN was bereft of any particulars. It did not clearly set out any specific reason for proposing to cancel the petitioner’s GST registration. It did not set out any particular allegation of fraud or wilful misstatement allegedly It provided no clue as to the facts allegedly suppressed by the petitioner.

7. This Court has, in a number of decisions, pointed out that such show cause notices, which do not set out the reason for proposing to cancel the taxpayer’s GST registration and are incapable of eliciting any meaningful response, are liable to be set aside. It is settled law that the purpose of the show cause notice is to enable the noticee to respond to the allegations, which in turn enables the concerned authority to take an informed decision.

8. The impugned SCN does not satisfy the rudimentary requirement of a show cause In view of the above, the impugned order is void as having been passed in violation of the principles of natural justice. This is because the petitioner had no opportunity to respond to any allegation. The impugned order has been passed without affording the petitioner any opportunity to meet the allegations against it.

9. The impugned order is also not informed by reason as it does not set out any ground for cancelling the petitioner’s GST registration, save and except mentioning that it is pursuant to the impugned SCN. It is noted that there is a space for filling up the reasons, however, that space has been left blank.

10. In view of the above, the impugned order as well as the impugned SCN are set aside. The respondent is directed to forthwith restore the petitioner’s GST registration. It is clarified that this would not preclude the concerned authorities from initiating fresh proceedings albeit in accordance with the law.

11. Order Dasti. 

12. The petition is disposed of in the aforesaid Pending application is also disposed of.