Delhi HC quashes GST registration cancellation due to lack of reasoning on SCN’s part

Amir Malik vs Commissioner of Gst (Delhi High Court)

In the case of Amir Malik Vs. Commissioner of GSTthe Delhi High Court filed a writ petition challenging the cancellation of the GST registration of the petitioner, Amir Malik, by order dated July 4, 2023. This cancellation followed a Show Cause Notice (SCN) issued on June 16, 2023, which stated that the registration of the petitioner is liable to be canceled due to non-compliance with unspecified provisions of the Goods and Services Tax Act (GST Act) and its rules. The SCN demanded that the petitioner respond and appear for a hearing within seven days; however, there was a lack of clarity about the specific provisions that were allegedly violated. Consequently, the registration was suspended from the date of the SCN, and the final cancellation order referred to the SCN without providing any further justification.

The Court found that the SCN was fundamentally flawed, stating that it was “gloriously silent” as to which provisions of the GST Act or GST Rules had allegedly been breached. Both the SCN and the final cancellation order did not provide any reason or context for the allegations against the petitioner. This lack of clear reasoning was considered a critical shortcoming as it did not provide the petitioner with sufficient information to effectively contest the allegations. As a result, the Supreme Court quashed both the SCN and the final cancellation order, indicating that the authorities retained the right to initiate new proceedings if necessary and in accordance with the law. The ruling underlines the importance of transparency and specificity in regulatory actions taken under the GST framework, giving individuals a fair opportunity to respond to allegations against them.

FULL TEXT OF THE JUDGMENT/ORDER OF THE DELHI HIGH COURT

Exemption permitted, subject to all justified exceptions.

The request is deleted.

WP(C) 13706/2024

1. The writ petitioner has been aggrieved by the cancellation of his registration in terms of the impugned order dated July 4, 2023. It becomes pertinent to note that the aforesaid order was preceded by what is called a Show Cause Notice (‘SCN’) dated June 16, 2023. The said SCN reads as follows:-

“Show cause notice for cancellation of registration

Based on the information that has come to my attention, it appears that your registration may be canceled for the following reasons:

1. Non-compliance with specified provisions of the GST Act or the rules made thereunder as prescribed

You are hereby requested to respond to the notice within seven working days from the date of service of this notice.

You are hereby requested to appear before the undersigned on 19/06/2023 at 10:37 am.

If you do not respond within the set date or do not appear for an in-person hearing on the agreed date and time, the case will be decided ex parte on the basis of the available files and on its merits.

Please note that your registration has been suspended as of 16/06/2023

Location: Delhi

Date: 16/06/2023”

2. Subsequently, the impugned final order dated July 4, 2023 was served on the petitioner, which reads as follows:

“Order to cancel registration

This relates to the Notice of Cause issued dated 16/06/2023.

The effective date of cancellation of your registration is 10/04/2021

3. It may be noted that a registered person filing a return under sub-section (1) of Section 39 of the CGST Act, 2017 is required to file a final return in FORM GSTR within three months from the date of this order -10.

4. You are required to submit all your outstanding returns.

5. It may be noted that the cancellation of registration shall not affect the obligation to pay taxes and other levies under this Act or to comply with any obligation under this Act or the rules adopted thereunder for a period prior to the date of cancellation, regardless of whether such taxes and other charges are assessed before or after the date of cancellation.

Location: RANGE – 161
Date: 04/07/2023”

3. As is clear from the above, neither the SCN nor the final order assigns or records any reasons in support of the ultimate conclusion reached and recorded that petitioner has violated the provisions of the Goods and Services. Tax Act, 2017 (‘GST law’) or the Goods and Services Tax Rules, 2017 (‘GST rules’) framed below.

4. The SCN is gloriously silent on the provisions of the GST Act that are alleged to have been violated or violated. The aforesaid position remained unchanged in the final order, which also does not give any indication as to the provision of the statute which may have been violated or violated. In view of the above, we are unable to uphold the contested decision.

5. The petition is granted accordingly. The contested SCN of June 16, 2023 and the contested decision to cancel the registration of June 4, 2023 are hereby annulled. However, this order does not affect the right of the respondents to reinitiate the proceedings in accordance with the law.