2025 (5) TMI 994 - HC - GST

Cancellation of petitioner s GST registration - commodities mentioned in the e-way bills did not match with the registrations and that the functioning of the petitioner was in contravention to the GST Act and Rules - cancellation of registration with retrospective effect without assigning any valid reason or affording a proper reasonable opportunity to respond - violation of principles of natural justice - HELD THAT - A bare perusal of the show-cause notice dated 29.03.2025 of the 2nd respondent does not indicate any charge having been framed by the 2nd respondent against the petitioner in the impugned show-cause notice dated 29.03.2025 issued to the petitioner by the 2nd respondent pertaining to the above referred subject issue pertaining to huge e-ways bills having been raised in March 2025 about 12 cr within 15 to 20 days therefore this Court agrees with the main submission put-forth by the learned counsel appearing on behalf of the petitioner that the impugned show-cause notice dated 29.03.2025 issued to the petitioner by the 2nd respondent is very vague and hence petitioner could not submit his explanation to the said show-cause notice issued to the petitioner by the 2nd respondent dated 29.03.2025. This Court opines that the plea of the learned Special Government Pleader appearing on behalf of the respondents that a supporting document was enclosed along with the show-cause notice dated 29.03.2025 giving details of the allegations leveled against the petitioner is however disputed by the learned counsel appearing on behalf of the petitioner placing reliance on the specific averments made at paragraph No.5 of the affidavit filed by the petitioner in support of the present writ petition contending that no supporting documents were attached to the show-cause notice for cancellation of registration dated 29.03.2025 as contended by the respondents. The Apex Court in Oryx Fisheries Pvt. Ltd. Vs. Union of India Others 2010 (10) TMI 660 - SUPREME COURT observed that It is true that the show-cause notice cannot be read hyper technically and it is well settled that it is to be read reasonably. But while reading a show-cause notice the person who is subject to it must get an impression that he will get an effective opportunity to rebut the allegations contained in the show-cause notice and prove his innocence. If on a reasonable reading of a show-cause notice a person of ordinary prudence gets the feeling that his reply to the show-cause notice will be an empty ceremony and he will merely knock his head against the impenetrable wall of prejudged opinion such a show-cause notice does not commence a fair procedure especially when it is issued in a quasi- judicial proceeding under a statutory regulation which promises to give the person proceeded against a reasonable opportunity of defence. Duly applying the observations of the Apex Court in the judgment and duly examining the contents of the impugned show-cause notice dated 29.03.2025 it is amply evident and borne on record that admittedly the impugned show-cause notice dated 29.03.2025 issued by the 2nd respondent fails the test of fairness and indicates bias. Conclusion - The cancellation order dated 17.04.2025 is passed mechanically without proper application of mind or on merits and is consequently set aside. Petition allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

- Whether the show-cause notice dated 29.03.2025 issued for cancellation of the petitioner's GST registration was valid and in compliance with the principles of natural justice, specifically whether it was sufficiently clear and specific in stating the grounds for cancellation.

- Whether the cancellation order dated 17.04.2025, passed without adequate opportunity to the petitioner to respond and without proper application of mind, was lawful and justified under the CGST Act, 2017.

- Whether the absence of supporting documents attached to the show-cause notice or the vagueness of the notice vitiates the cancellation proceedings.

- Whether the retrospective cancellation of GST registration with effect from 29.12.2024 was valid in the circumstances.

- Whether the respondents complied with the statutory and procedural requirements while initiating and concluding the cancellation proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Specificity of the Show-Cause Notice

Legal Framework and Precedents: Under Rule 22(1) of the CGST Rules, a show-cause notice for cancellation of registration must specify the grounds on which cancellation is proposed and provide the registered person an opportunity to respond. The principles of natural justice require that the notice be clear and specific to enable the person to make an effective defense. The Apex Court judgment in Oryx Fisheries Pvt. Ltd. v. Union of India (2010) 13 SCC 427 was heavily relied upon, which mandates that a quasi-judicial authority must act fairly and with an open mind, and the charges in the show-cause notice must be clearly communicated so the person can rebut them.

Court's Interpretation and Reasoning: The Court examined the show-cause notice dated 29.03.2025 and found it vague and lacking specificity. The notice merely stated "Others" as the reason and mentioned that commodities in the e-way bills did not match registrations, without detailing the exact nature of the alleged contravention or specifying the commodities or transactions involved. Importantly, the notice did not mention the significant allegation of "huge e-way bills raised in March 2025 amounting to 12 crore+ within 15 to 20 days," which was the basis for suspicion in the cancellation order.

The Court observed that the absence of clear charges in the notice deprived the petitioner of a fair opportunity to respond. The petitioner could not effectively explain or rebut the allegations because the charges were not sufficiently articulated. The Court held that such vagueness violates the principles of natural justice and renders the show-cause notice invalid.

Key Evidence and Findings: The petitioner's affidavit specifically averred that no supporting documents were attached to the show-cause notice, contrary to the respondents' claim. The Court found this claim credible, noting that even if supporting documents had been sent separately, they cannot be treated as part of the notice if the notice itself fails to specify the charges clearly.

Application of Law to Facts: Applying the Apex Court's principles, the Court concluded that the impugned show-cause notice did not meet the legal requirement of fairness and clarity. It was tantamount to a closed mind and pre-judgment, which vitiates the quasi-judicial process.

Treatment of Competing Arguments: The respondents contended that a supporting document was attached and that the petitioner failed to respond or appear for hearing, which justified cancellation. The Court rejected these contentions on the ground that the petitioner could not respond to an unclear notice and that the absence of specific charges and reasons in the notice invalidated the entire proceeding.

Conclusion: The show-cause notice dated 29.03.2025 was held to be vague, unfair, and violative of natural justice, thus invalid.

Issue 2: Legality of the Cancellation Order dated 17.04.2025

Legal Framework and Precedents: Under Rule 22(3) of the CGST Rules, the cancellation order must be passed after considering the reply to the show-cause notice and after providing a reasonable opportunity of hearing. The order must be based on proper application of mind and supported by valid reasons.

Court's Interpretation and Reasoning: The cancellation order was passed on the premise that the petitioner did not respond to the show-cause notice and did not appear for the hearing. However, since the show-cause notice was vague and did not specify the charges, the petitioner's failure to respond was not a wilful default but a consequence of the defective notice. The Court noted that the order was passed mechanically without proper application of mind or on merits.

Further, the retrospective effect of cancellation from 29.12.2024 was imposed without any explanation or justification, which the Court found arbitrary.

Key Evidence and Findings: The order itself acknowledged that no reply was received and that the petitioner was given seven working days to respond. The order also mentioned suspiciously high e-way bills but this was not part of the show-cause notice, indicating a disconnect between the notice and the order.

Application of Law to Facts: The Court applied the principle that a cancellation order must be preceded by a fair and clear show-cause notice and proper consideration of the petitioner's response. Since these conditions were not met, the cancellation order was held to be invalid.

Treatment of Competing Arguments: The respondents argued that the petitioner's non-appearance and non-response justified cancellation. The Court held that such non-response cannot be treated as default when the notice itself was defective and unclear.

Conclusion: The cancellation order dated 17.04.2025 was set aside as it was passed without due process, fairness, or proper application of mind.

Issue 3: Attachment and Role of Supporting Documents

Legal Framework and Precedents: Supporting documents, if any, must be clearly referenced and form an integral part of the show-cause notice so that the person charged can understand the case against him and respond accordingly.

Court's Interpretation and Reasoning: The Court observed that the respondents claimed to have attached supporting documents, but the petitioner denied receipt or attachment. Even if such documents were sent separately, the Court held that they cannot substitute for a clear and specific show-cause notice. The absence of explicit reference to these documents in the notice and failure to describe the charges in the notice itself rendered the notice ineffective.

Application of Law to Facts: The Court emphasized that the notice itself must be self-contained to the extent of enabling the recipient to understand the allegations and respond. Reliance on separate documents without clear incorporation into the notice is insufficient.

Conclusion: The alleged supporting documents did not cure the vagueness or deficiency of the show-cause notice.

3. SIGNIFICANT HOLDINGS

- "It is well settled that a quasi-judicial authority, while acting in exercise of its Statutory power must act fairly and must act with an open mind while initiating a show-cause proceeding. A show-cause proceeding is meant to give the person proceeded against a reasonable opportunity of making his objection against the proposed charges indicated in the notice."

- "At the stage of show-cause, the person proceeded against must be told the charges against him so that he can take his defence and prove his innocence. At that stage the authority issuing the charge-sheet, cannot, instead of telling him the charges, confront him with definite conclusions of his alleged guilt. If that is done, the entire proceeding initiated by the show-cause notice gets vitiated by unfairness and bias and the subsequent proceedings become an idle ceremony."

- "Justice is rooted in confidence and justice is the goal of a quasi-judicial proceeding also. If the functioning of a quasi-judicial authority has to inspire confidence in the minds of those subjected to its jurisdiction, such authority must act with utmost fairness. Its fairness is obviously to be manifested by the language in which charges are couched and conveyed to the person proceeded against."

- "The principle that justice must not only be done but it must eminently appear to be done as well is equally applicable to quasi-judicial proceeding if such a proceeding has to inspire confidence in the mind of those who are subject to it."

- The Court held that the impugned show-cause notice was vague and failed to specify charges clearly, thereby violating the principles of natural justice and rendering the cancellation order passed pursuant thereto invalid.

- The cancellation order dated 17.04.2025 was passed mechanically, without proper application of mind or on merits, and is consequently set aside.

- The respondents are at liberty to issue a fresh show-cause notice clearly stating specific charges to enable the petitioner to respond effectively, thereby ensuring compliance with statutory requirements and principles of natural justice.

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