Case Law Details
Jai Guru Sudarshan Enterprises Vs Delhi State Goods and Services Tax & Anr. (Delhi High Court)
In a significant ruling, the Delhi High Court set aside the cancellation of GST registration for Jai Guru Sudarshan Enterprises, asserting that there was no violation of Section 16 of the Central Goods and Services Tax (CGST) Act. The court’s judgment underscored the necessity for clear and specific reasons in a show cause notice (SCN) to enable the noticee to respond meaningfully.
The case revolves around the cancellation of GST registration for Jai Guru Sudarshan Enterprises via an order dated March 6, 2024, following a show cause notice (SCN) issued on August 7, 2023. The SCN cited Rule 21(e) of the CGST Act, alleging that the petitioner availed Input Tax Credit (ITC) in violation of Section 16 of the Act. However, the SCN failed to provide specific details or evidence supporting this claim, merely stating the alleged violation without elaboration.
The petitioner was given seven working days to respond to the SCN and was also required to appear before the Proper Officer. The GST registration was suspended from the date of the SCN issuance. The lack of detailed allegations in the SCN left the petitioner unable to mount an effective defense, as there were no specific charges to address.
The High Court emphasized that a show cause notice must include sufficient details of the allegations to allow the noticee to respond adequately. In this case, the SCN did not fulfill this requirement, making it impossible for the petitioner to understand the exact nature of the alleged violation of Section 16.
Furthermore, the cancellation order, referencing the SCN, did not provide any additional reasons for the adverse action, compounding the issue of lack of transparency and failure to adhere to natural justice principles. The retrospective cancellation of the GST registration from July 2, 2017, was another point of contention, as this action was not mentioned in the SCN.
The High Court concluded that both the SCN and the cancellation order were fundamentally flawed and in violation of natural justice. Consequently, the court set aside the impugned SCN and order, directing the immediate restoration of the petitioner’s GST registration. However, the court clarified that the authorities are not precluded from initiating fresh action for cancellation, provided it is done in accordance with the law.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Issue notice.
2. The learned counsel for the respondents accepts notice.
3. The petitioner has filed the present petition, inter alia, impugning the order dated 06.03.2024 (hereafter the impugned order), whereby the petitioner’s Goods and Services Tax (GST) registration was cancelled. The impugned order was passed pursuant to the Show Cause Notice dated 07.08.2023 (hereafter the impugned SCN).
4. The Proper Officer had issued the impugned SCN proposing to cancel the petitioner’s GST registration. The only reason stated in the impugned SCN for proposing to cancel the GST registration reads as under: –
“1 Rule 21(e)-person avails ITC in violation of the provisions of section 16 of the Act or the rules made thereunder”
5. The petitioner was called upon to respond to the impugned SCN within a period of seven working days from the date of the impugned SCN and was also directed to appear in person before the Proper Officer, who had issued the impugned SCN, on 16.08.2023 at 12:00 PM. The petitioner’s GST registration was also suspended with effect from the date of the issuance of the impugned SCN.
6. It is apparent from the impugned SCN that it does not clearly reflect the reasons for proposing the adverse action of cancellation of the GST registration of the petitioner. It merely suggests that the petitioner had availed Input Tax Credit (ITC) in violation of the provision of Section 16 of the Central Goods and Services Tax Act, 2017 (hereafter the CGST Act)/ Delhi Goods and Services Tax Act, 2017 (hereafter the DGST Act) or the rules made thereunder. However, the impugned SCN does not provide any the details regarding wrongful availment of ITC. It provides no clue as to how the provisions of Section 16 of the CGST Act/DGST Act are violated. Thus, in effect, the impugned SCN does not provide any intelligible reasons for proposing cancellation of the petitioner’s GST registration.
7. The purpose of a show cause notice is to enable the noticee to respond to the allegations on the basis of which the adverse action is proposed. It is, thus, necessary that the show cause notice must clearly specify the allegations along with necessary details for eliciting a meaningful response. Bereft of any details, the noticee is left clueless as to the case, which he is required to meet. In the event the petitioner desires to contest the notice, the only response that he could give is that he has not violated the provisions of Section 16 of the CGST Act/ DGST Act. Plainly, that would be of little assistance to the respondent.
8. The impugned order also does not provide any reason for cancelling the petitioner’s GST registration except to say that it is in reference to the impugned SCN.
9. It is also material to note that the GST registration of the petitioner has been cancelled with retrospective effect, that is, from 02.07.2017. However, the impugned SCN did not mention any such proposed action.
10. It is apparent that the impugned order has been passed in violation of the principles of natural justice.
11. In view of the above, the impugned SCN and the impugned order are set aside. The petitioner’s GST registration is directed to be restored forthwith.
12. It is clarified that the respondents are not precluded from initiating any fresh action for cancellation of the petitioner’s GST registration for noncompliance of the statutory provision, albeit, in accordance with law.
13. The petition stands disposed of in the aforesaid terms. Pending applications also stand disposed of.
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