SCN issued in wrong Form: Kerala HC invalidates GST proceedings

Kunhalavi N Vs State Tax Officer (Kerala High Court)

In a significant judgment, the Kerala High Court ruled that the issuance of a show cause notice in the incorrect form invalidates the entire proceedings under the GST Act. The case, Kunhalavi N Vs State Tax Officer, highlights the importance of adhering to prescribed legal procedures. The court set aside the cancellation of the petitioner’s GST registration, deeming the proceedings without jurisdiction and invalid.

Case Background:

The petitioner, Kunhalavi N, was a registered dealer under the Central Goods and Services Tax Act (CGST) and Kerala State Goods and Services Tax Act (KSGST). The petitioner’s registration was cancelled by an order (Ext.P3) due to the non-filing of returns for a specified period. The sequence of events leading to this decision is crucial for understanding the court’s ruling.

Key Events:

1. Non-Filing of Returns: The petitioner failed to file GST returns from December 2021 onwards, prompting the State Tax Officer to issue a show cause notice (Ext.P2) on 7th June 2022.

2. Show Cause Notice: The notice, issued in Form GST-REG-31, asked the petitioner to justify why his registration should not be cancelled. However, the petitioner did not respond due to personal reasons.

3. Cancellation Order: On 13th July 2022, the State Tax Officer cancelled the petitioner’s registration through Ext.P3 due to non-compliance with the notice.

4. Appeal and Delay: The petitioner filed an appeal against the cancellation but faced a delay of 361 days, raising concerns about the appeal’s admissibility.

Legal Arguments:

• Incorrect Form Usage: The petitioner contended that the show cause notice was issued in the incorrect form, GST-REG-31, instead of the mandated GST-REG-17 as per Rule 22 of the CGST/SGST Rules. This form is designated for suspension proceedings, not cancellation, making the notice vague and procedurally improper.
• Vagueness and Legal Precedents: The petitioner’s counsel referenced Ext.P5, a prior judgment where the court intervened in similar circumstances. The principle of specific legal adherence was emphasized, noting that any deviation from prescribed procedures renders actions legally untenable.

Court’s Findings:

The Kerala High Court noted several critical points:

• Jurisdiction and Procedure: The court reiterated that legal procedures must be strictly followed. The issuance of the show cause notice in the wrong form violated the prescribed process, thus nullifying the proceedings.
• Vague Notices: The court observed that vague notices without clear reasons for cancellation are impermissible under the law, further invalidating the State Tax Officer’s actions.
• Legal Precedent: Relying on established legal principles, the court underscored that any statutory action must be executed in the manner prescribed by the law and no other way.

Conclusion:

The Kerala High Court concluded that the entire proceedings, initiated with a flawed show cause notice, were without jurisdiction and hence invalid. The cancellation order (Ext.P3) was set aside. However, the court clarified that this decision does not absolve the petitioner from fulfilling fiscal liabilities. The petitioner was directed to file all defaulted returns, along with applicable taxes, penalties, and interest, within two weeks of the restoration of his registration.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

The petitioner has approached this Court aggrieved by Ext.P3 order cancelling the registration granted to him under the Central Goods and Services Tax Act/ the Kerala State Goods and Services Tax Act [Hereinafter referred to as the ‘CGST/KSGST Acts] in exercise of jurisdiction under Section 29 of those enactments.

2. The petitioner was a registered dealer on the rolls of the State Tax Officer, Manjeri. Since he did not file the returns for the periods from December 2021 on time, the 1^st respondent issued Ext.P2 show cause notice on 07.06.2022 to show cause as to why the registration granted to the petitioner under the Goods and Service Tax Act, 2017 should not be cancelled.

3. The petitioner states that he could not file reply to the Show Cause Notice as he was busy with the treatment of his father. On 13.07.2022, the 1^st respondent issued Ext.P3 order of cancellation of registration on the ground that the petitioner has not filed the returns for six consecutive months and has not responded to Ext.P2 notice.

4. The petitioner states that Ext.P2 notice is issued by the 1^st respondent in Form GST-REG-31 and as per Rule 22 of the CGST/SGST Rules, the show cause notice ought to have been issued in Form GST-REG 17 and the notice is vague. Against Ext.P3 order, the petitioner filed an appeal under Section 107 of the CGST/KSGST Acts before the 2nd Since there was a delay of 361 days in filing the online appeal, the petitioner apprehends that it would be dismissed by the second respondent.

5. Heard the learned Counsel for the petitioner and the learned Government Pleader.

6. The learned Counsel for the petitioner contends that the entire procedure executed by the respondents to revoke the petitioner’s registration is illegal and unenforceable. He points out that the show cause notice issued prior to cancellation of registration is not in the manner prescribed by the Rules inasmuch as the notice has been issued in Form GST-REG-31 and that the show cause notice should have been issued in Form GST-REG 17. It is pointed out that the show cause notice issued in Form GST-REG-31 is applicable to proceedings leading to the suspension of the registration of the dealer. It is submitted that the officer issued a notice in a form containing vague details of the reasons for cancellation, which is not permissible under law. The learned Counsel also refers to Ext.P5 judgment of this Court where this Court has interfered with the orders of cancellation of registration on identical grounds.

7. It is trite law that if the show cause notice is vague and where the order of cancellation also does not specify the factors that led to the cancellation of registration, the entire proceedings must be held to be bad in law.

8. Further, it is a well settled salutory principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner.

Since the proceedings were initiated by the 1st respondent in Form GST-REG-31 and not in Form GST-REG 17, Ext.P3 order is without jurisdiction. Ext.P3 is accordingly set aside. It is made clear that setting aside Ext.P3 will not have the effect of absolving the petitioner from any fiscal liability. The petitioner will be required to file all defaulted returns together with tax, late fee, interest, penalty etc, within a period of two weeks from the date on which the registration of the petitioner is restored in compliance with this judgment. All other contentions in the writ petition are left open.

The writ petition is disposed of.