Case Law Details
SK Enterprises Vs Principal Commissioner of Goods and Services Tax (Delhi High Court)
Delhi HC quashes GST cancellation in SK Enterprises case, stressing clarity in show cause notices. Upholds procedural fairness.
Delhi High Court Emphasizes Clarity in Show Cause Notices to Safeguard Respondent’s Rights
Introduction: In a recent judgment by the Delhi High Court (M/S Sk Enterprises vs. Principal Commissioner of Goods and Services Tax, West Delhi – W.P.(C) 16452/2023 and CM APPL. 66279/2023), the court emphasized the importance of clarity in show cause notices (SCN) to protect the rights of the noticee. The case involved the cancellation of the petitioner’s Goods and Services Tax Number (GSTN) by the department based on an SCN that lacked specificity in its allegations.
Factual Background: The petitioner, M/S SK ENTERPRISES, faced the cancellation of its GSTN following an SCN issued by the department. The SCN vaguely cited “registration obtained by means of fraud, wilful misstatement or suppression of facts” as the grounds for the proposed cancellation. The petitioner was given a short timeframe to respond and was directed to appear before the concerned officer.
However, upon a plain reading of the SCN, it was evident that it did not provide any specific details regarding the alleged fraud, misstatement, or suppressed facts leading to the proposed cancellation.
Court’s Finding and Conclusion: The court, led by Hon’ble Justice Vibhu Bakharu and Hon’ble Justice Anish Dayal, highlighted the fundamental principle that a show cause notice must clearly outline the allegations to enable the noticee to respond meaningfully. In this case, the court found that the SCN failed to meet this essential standard.
The impugned order, which cancelled the petitioner’s GST registration with retrospective effect, was also deemed deficient in providing any reasoning. The court observed that neither the SCN nor the impugned order furnished any reasons for the retrospective cancellation.
Court’s Directive: In light of these deficiencies, the court allowed the petition, setting aside both the SCN and the impugned order. The respondent department was directed to immediately restore the petitioner’s GST registration.
The court clarified that its order did not prevent the department from initiating proceedings if it found the petitioner non-compliant or violating any provisions of the law. However, it underscored the need for clear and specific allegations in show cause notices to uphold the principles of natural justice.
Conclusion: The judgment of the Delhi High Court in the M/S SK ENTERPRISES case reinforces the significance of transparency and specificity in show cause notices. The ruling serves as a reminder to government authorities to articulate clear allegations, allowing the affected parties a fair opportunity to respond. This decision contributes to the preservation of procedural fairness and the protection of the rights of individuals and entities subject to such administrative actions.
FULL TEXT OF THE DELHI HIGH COURT JUDGMENT
CM APPL. 66279/2023
1. Exemption is allowed, subject to all just exceptions.
2. Application is disposed of.
W.P.(C) 16452/2023
3. Issue notice.
4. The learned counsel for the respondent accepts notice.
5. The petitioner has filed the present petition impugning the order dated 19.07.2023 (hereafter ‘the impugned order’) cancelling the petitioner’s GST registration with effect from 23.05.2022. The impugned order was passed pursuant to the show cause notice dated 05.07.2023 (hereafter ‘the SCN’). A plain reading of the SCN indicates that the petitioner’s GST registration was proposed to be cancelled for the following reasons:
“1. Section 29(2)(e)-registration obtained by means of fraud, wilful misstatement or suppression of facts.”
6. The petitioner was called upon to furnish a reply to the SCN within a period of seven working days from the date of service of the SCN. The petitioner was also directed to appear before the concerned Officer on 06.07.2023. Additionally, the petitioner’s GST registration was suspended with effect from the date of the SCN, that is, with effect from 05.07.2023.
7. A plain reading of the SCN indicates that it does not set out any specific reason for proposing to cancel the petitioner’s GST registration. Although it is alleged that the petitioner has obtained registration by means of fraud, wilful misstatement or suppression of facts. It neither specifies the alleged fraud nor the misstatement alleged to have been made by the petitioner. It also provides no clue as to the facts allegedly suppressed by the petitioner.
8. It is trite that a show cause notice must clearly set out the allegations on the basis of which an adverse action is proposed, to enable the noticee to meaningfully respond to the same. Clearly, the SCN in the present case fails to satisfy the said standard.
9. The impugned order is also not informed any reason and it merely mentions that the same has been issued in reference to the SCN.
10. It is noticed that the petitioner’s registration has been cancelled with retrospective effect from 23.05.2023. Neither the SCN nor the impugned order provides any reasons for doing so.
11. In view of the above, the petition is allowed. The SCN as well as the impugned order are set aside.
12. The respondent is directed to forthwith restore the petitioner’s GST registration.
13. It is clarified that this order would not preclude the respondent from initiating or pursuing any proceedings, if it is found that the petitioner has been non compliant, or is violating, any provisions of law.
14. The petition is disposed of.
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