Cancellation of GST Registration without following statutory procedure is bad in law.

Arsh Traders v. Commercial Tax Officer

High Court of Gujarat

R/Special Civil Application No. 3224 of 2022

Category: GST Registration Cancellation

Date of Judgment: 17 February 2023

Relevant Sections: Rule 21, 22 of CGST Rules; Sections 29, 30 of the CGST Act, 2017

Facts of the Case

1. The petitioner, a registered scrap dealer under the GGST Act, was issued a show cause notice on 24-06-2019 citing fraud, willful misstatement, and suppression of facts, but no physical copy was received due to non-tech savvy nature of the petitioner [Para 2.2].
2. On 26-07-2019, the respondent cancelled the registration without assigning any reasons [Para 2.3].
3. The petitioner filed an application for revocation on 01-08-2019 (GST REG-21) but received no response for over 1.5 years, even after raising grievances via CPGRAM portal [Para 2.4].
4. A previous petition (SCA No. 4422 of 2021) resulted in court directions to the department to act upon the revocation application within prescribed timelines, which were again disregarded [Para 2.5].
5. Revocation was rejected on 05-01-2022 alleging bogus billing, without prior show cause notice detailing such charges, thus violating principles of natural justice [Para 2.7].

Questions in Consideration

1. Whether the cancellation of GST registration and rejection of revocation were valid in law without adhering to the due process and natural justice? [Para 5.1]
2. Whether the show cause notices and orders passed without details or opportunity to be heard can be sustained under GST laws? [Para 5.3, 14, 18]

Observation of Court

1. The Court held that the respondent failed to follow the procedure under CGST Rules, particularly Rule 22, by not issuing a detailed show cause notice or granting opportunity for hearing before cancellation [Para 5.1, 5.3].
2. It relied on Aggarwal Dyeing and Printing Works v. State of Gujarat, where it was held that vague and non-speaking orders without factual details violate natural justice [Para 5.3].
3. Emphasized that technical glitches in GSTN portal cannot justify cryptic notices or non-speaking orders; physical notices with full particulars must be issued until system improves [Para 16, 17].
4. Highlighted that registration cancellation affects civil rights and such action must follow strict adherence to due process, including reasoned decisions and opportunity to respond [Para 11, 12].
5. Directed issuance of detailed fresh show cause notices by RPAD until portal is capable of handling procedural compliance properly [Para 18.1].

Judgement of the Court

1. The High Court quashed the original cancellation order dated 26-07-2019 and the revocation rejection order dated 05-01-2022 due to violation of principles of natural justice [Para 19].
2. Liberty was granted to the department to issue fresh, reasoned show cause notice containing all particulars within two weeks and to decide after granting opportunity of hearing [Para 7, 19].
3. Clarified that findings will not prejudice the rights of either party before the authority in fresh proceedings [Para 6].

Between Fine Lines

• A GST registration cannot be cancelled without a proper show cause notice and opportunity of hearing.
• Technical glitches in the portal are no excuse for procedural lapses.
• Natural justice and reasoned orders are foundational in any cancellation process.
• The court requires all future notices and orders to be issued physically with full details until the GSTN portal is fixed.
• Dealers must be informed of allegations and evidence to effectively respond.

Summary of Referred Cases