2025 (6) TMI 920 - HC - GST

Applicability of doctrine of merger - cancellation of GST registration as per Rule 21 (a) of the CGST/SGST Rules - opportunity of being heard not provided - violation of principles of natural justice - HELD THAT - On perusal of the record it shows that the show cause notice was given for failure of filing of return of continuous period of six months whereas the order of cancellation has been passed on a new ground that no business was performed on the declared place for which the petitioner was never put to the notice. Once the impugned cancellation order has been passed without putting any notice to the petitioner the same itself is in violation of principles of natural justice. The petitioner was never put to any notice on the ground on which the order of cancellation of registration has been passed. Further the petitioner was also not afforded any opportunity of being personally heard. Therefore the impugned order cannot be sustained in the eyes of law. 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. 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 matter is remanded to the adjudicating authority who shall issue fresh notice to the petitioner mentioning the reason of the proposed cancellation of registration within a period of one week from the date of production of certified copy of this order - Petition allowed by way of remand.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court include:

- Whether the cancellation of the petitioner's GST registration was validly executed in accordance with the provisions of the CGST/SGST Act and Rules, particularly Section 29 of the Act and Rule 21(a) of the CGST/SGST Rules.

- Whether the cancellation order was passed after affording the petitioner proper notice and opportunity of being heard, thereby complying with the principles of natural justice.

- Whether the impugned cancellation order, which cited a ground different from that mentioned in the show cause notice, was legally sustainable.

- Whether the appeal against cancellation was dismissed without adjudicating on merits, and if so, whether the doctrine of merger applies to bar further challenge.

- Whether the impugned orders satisfy the requirements of reasoned decision-making under Article 14 of the Constitution of India.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Cancellation of GST Registration under Section 29 and Rule 21(a)

The petitioner's registration was cancelled on the ground that the petitioner did not conduct any business from the declared place of business, as per Rule 21(a). However, the show cause notice issued initially cited failure to furnish returns for a continuous period of six months as the reason for cancellation.

The Court noted that the cancellation order was passed on a ground different from that stated in the show cause notice, which was a violation of procedural fairness. The legal framework under Section 29 of the CGST Act mandates that cancellation of registration must be preceded by proper notice specifying the grounds and an opportunity to respond. The Court emphasized that the impugned order did not comply with this requirement.

The Court held that the cancellation order passed without notice on the ground of non-conduct of business at the declared place was illegal and unsustainable.

Issue 2: Compliance with Principles of Natural Justice

The Court examined whether the petitioner was given adequate notice and opportunity to be heard before cancellation. It was found that the show cause notice lacked essential details such as the name and designation of the proper officer before whom the petitioner was to appear. Moreover, the petitioner was not served any notice with respect to the new ground of cancellation invoked in the order.

The Court held that such failure violated the principles of natural justice, which require that an affected party must be informed of the case against it and given a fair chance to respond. The absence of personal hearing further compounded the violation.

Issue 3: Dismissal of Appeal Without Merits and Doctrine of Merger

The petitioner's appeal against the cancellation was dismissed on the ground of laches (delay) without adjudication on merits. The petitioner contended that this dismissal should not bar judicial review under the doctrine of merger.

The Court referred to precedents where it was held that if the original cancellation order is without reasons and the appeal is dismissed on technical grounds such as delay, the doctrine of merger does not apply. The petitioner must be afforded an opportunity to contest the cancellation on merits.

The Court relied on judgments holding that dismissal of appeal on limitation grounds does not validate an otherwise unreasonable or unreasoned order.

Issue 4: Requirement of Reasoned and Speaking Orders under Article 14

The Court scrutinized whether the impugned cancellation and revocation orders demonstrated an application of mind and compliance with the constitutional mandate of equality and fairness under Article 14.

It was found that the orders lacked any reasoned analysis and were passed mechanically, thereby failing the test of reasoned decision-making essential to administrative justice. The Court held that such orders are liable to be quashed as arbitrary and violative of Article 14.

Application of Law to Facts

The Court applied the principles laid down in relevant precedents, including judgments of the Apex Court and this Court, which emphasize that cancellation of registration must be preceded by proper notice specifying grounds, opportunity of hearing, and reasoned orders. The Court found that the petitioner was deprived of these safeguards.

The Court also noted the importance of protecting the petitioner's right to carry on business under Article 19 of the Constitution, which cannot be curtailed without due process.

Treatment of Competing Arguments

The State-respondents supported the impugned orders, but the Court found their arguments insufficient to justify the procedural lapses and absence of reasoned orders. The Court rejected reliance on judgments that uphold dismissal of appeals on limitation grounds when the original order itself is unreasoned.

3. SIGNIFICANT HOLDINGS

- "Once the notice does not disclose that before which officer, the petitioner has to appear, the notice cannot be said to be proper or in accordance with law."

- "Once the impugned cancellation order has been passed without putting any notice to the petitioner, the same itself is in violation of principles of natural justice."

- "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 orders were quashed for being passed without application of mind, without proper notice, and without opportunity of hearing, violating principles of natural justice and constitutional mandates.

- The matter was remanded with directions to issue fresh notice specifying grounds, allow the petitioner to reply within 21 days, and thereafter pass a reasoned and speaking order after hearing the petitioner.