2025 (7) TMI 994 - HC - GST

Violation of principles of natural justice - while issuing the SCN the opportunity of hearing was not granted - non-application of mind - cancellation of registration of petitioner - HELD THAT - The record shows that a show cause notice was given to the petitioner for failure of filing of returns for continuous period of six months but by the impugned order the registration of the petitioner has been cancelled without assigning any reason. Further the order of cancellation indicates that the reply was submitted by the petitioner on 19.4.2022 but in the order it has been mentioned that no reply has been submitted by the petitioner which itself shows that the orders have been passed without application of mind. This Court in the case of M/s One Place Infrastructure 2025 (5) TMI 386 - ALLAHABAD HIGH COURT has held that The record shows that the impugned order has been passed without application of mind and same does not satisfy the test of Article 14 of the Constitution of India. The impugned orders cannot be sustained in the eyes of law and same are hereby quashed - Petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the cancellation of GST registration of the petitioner was validly passed in compliance with the procedural requirements under the UP GST Act, specifically Section 29(4), including the grant of opportunity of hearing before cancellation.

- Whether the impugned order of cancellation was passed with application of mind and for valid reasons, or was arbitrary and violative of principles of natural justice and Article 14 of the Constitution of India.

- Whether the appellate authority erred in dismissing the appeal on the ground of laches without considering the merits of the case.

- Whether the doctrine of merger applies to the case where the appeal was dismissed on grounds of delay but the original order was without reasons.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Cancellation of GST Registration and Compliance with Procedural Requirements

The legal framework under the UP GST Act mandates that before cancellation of GST registration, the registered person must be given an opportunity of hearing as prescribed under Section 29(4). The petitioner contended that the show cause notice issued on 6.4.2022 for cancellation did not comply with this requirement, as no opportunity of hearing was granted prior to cancellation.

The Court examined the record and found that the order dated 20.4.2022 cancelling the registration did not specify any grounds for cancellation. It was further noted that although the petitioner submitted a reply on 19.4.2022 in response to the show cause notice, the order erroneously recorded that no reply was submitted. This indicated a failure to consider the petitioner's response and a lack of application of mind.

Applying the principles of natural justice and procedural fairness, the Court held that cancellation orders affecting the petitioner's right to carry on business must be reasoned and preceded by an opportunity to be heard. The absence of such opportunity and failure to consider the reply rendered the cancellation order invalid.

Issue 2: Application of Mind and Compliance with Article 14 of the Constitution

The Court referred to precedents including the judgment in M/s One Place Infrastructure, which emphasized that quasi-judicial orders adversely affecting fundamental rights under Article 19 must be passed after due application of mind and in compliance with Article 14's mandate of reasoned decision-making and non-arbitrariness.

Here, the impugned cancellation order lacked any stated reasons and incorrectly recorded that no reply was received from the petitioner. This demonstrated an absence of application of mind and arbitrariness, violating Article 14. The Court held that such orders cannot be sustained in law.

Issue 3: Dismissal of Appeal on Grounds of Laches without Merits

The appellate authority dismissed the petitioner's appeal on the ground of laches (delay), without considering the substantive merits of the case. The petitioner argued that such dismissal was improper, especially since the original cancellation order was without reasons and passed without application of mind.

The Court analyzed precedents including M/s Surya Associates and Ashok Kumar Vishwakarma, which held that where cancellation orders are passed without reasons, dismissal of appeals on procedural grounds like delay does not bar the Court from examining the validity of the original order. The doctrine of merger does not apply in such circumstances.

Therefore, the appellate authority's dismissal on grounds of delay was not a bar to challenge the original order's validity, and the appeal ought to have been decided on merits.

Issue 4: Applicability of Doctrine of Merger

The doctrine of merger generally precludes re-examination of the original order once an appeal is decided. However, the Court noted that in cases where the original order is without reasons and passed without application of mind, the doctrine does not apply. The Court relied on judgments which clarified that an appeal dismissed on grounds of delay cannot validate an otherwise arbitrary and non-reasoned original order.

Accordingly, the Court held that the petitioner's challenge to the original cancellation order remains maintainable notwithstanding the appellate dismissal on delay grounds.

3. SIGNIFICANT HOLDINGS

- "The record shows that the quasi judicial order which has an adverse effect on the right of the petitioner to run business as guaranteed under Article 19 of the Constitution of India, the same has been done without any application of mind which is neither the intent of the Act nor can it be held to be in compliance of the mandate of Article 14 of the Constitution of India."

- "If no reason has been assigned for cancelling the registration, such order cannot sustain despite appeal being dismissed on the ground of laches, and the doctrine of merger will have no application."

- The impugned cancellation order was passed without assigning any reason and without granting the petitioner an opportunity of hearing as mandated under Section 29(4) of the UP GST Act, thereby violating principles of natural justice and Article 14.

- The appellate authority erred in dismissing the appeal on the ground of laches without considering the merits, especially when the original order was non-speaking and arbitrary.

- The impugned orders are quashed and the matter remanded to the adjudicating authority to issue fresh notice stating reasons for proposed cancellation, afford opportunity of hearing, consider the petitioner's reply, and pass a reasoned and speaking order within specified timelines.