Goods & Services Tax (GST) in IndiaCryptic Show Cause Notice and Orders illegal and violative of Principles of Natural Justice

The Bombay High Court, in Nirakar Ramchandra Pradhan v. Union of India  & Ors., [Writ Petition No. 2534 of 2023, decided on 11.09.2023] held that the department must issue a SCN and pass the orders based on proper reasons and application of mind. Moreover, cryptic and unreasoned Show Cause Notice and orders are illegal and unsustainable in law and violative of principles of natural justice.

FACTS

The Respondent issued a Show Cause Notice (hereinafter referred to as the “SCN”) dated 27.07.2022 to Mr. Nirakar Ramchandra Pradhan (hereinafter referred to as the “Petitioner”) directing to show cause against cancellation of the GST registration. However,  the registration was suspended w.e.f. 27.07.2022. The Petitioner filed a reply stating that the SCN was devoid of any reasons even though serious allegations of fraud, wilful misstatement and suppression of facts were against the Petitioner.

The Respondent without considering the reply of the Petitioner, passed an unreasoned order dated 11.11.2022 (hereinafter referred to as the “Impugned Order”) cancelling the GST Registration of the Petitioner retrospectively from 26.11.2022.

The Petitioner being aggrieved by the unreasoned and non-speaking SCN as well as Impugned Order has filed the present petition.

ISSUE BEFORE THE COURT

Whether unreasoned and cryptic SCN as well as the Impugned Order are proper and in adherence with the law?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the SCN did not furnish any reasons in regard to any fraud, wilful misstatement or suppression of facts on the part of the Petitioner,  for cancellation of the GST registration. It was argued that the Petitioner had already filed the reply regarding the inability to reply to the SCN in absence of any allegations or reasons in the SCN.

It was further argued that though the reply was already filed, the Respondent passed the Impugned Order, without even considering the reply or according an opportunity of personal hearing to the Petitioner. Therefore, the Impugned Order was not only unreasoned and non-speaking, but also in grave violation of principles of natural justice.

It was claimed that the reasons and verification report put on record by the Respondent, was never produced during the proceedings nor a single reason regarding the same was stated during the SCN and Impugned Order.

The Respondent contended that the affidavit-in-reply clearly stated the reason for issuance of SCN in relation to investigation in regard to fake ITC, and the Petitioner was involved in the cartel for mutual benefit.

DECISION AND FINDINGS

The Bombay High Court observed the SCN as well as the Impugned Order and held that the SCN did not state even a single reason for issuance. Moreover, the Respondent did not curb the defect when pointed out by the Petitioner. Further, the Respondent passed the Impugned Order, which is not only violative of principles of natural justice, but also, total non-application of mind, as it is bereft of reasons.

The High Court held that when the GST registration of the Petitioner was cancelled, the Petitioner faced civil consequences. Therefore, such unreasoned SCN or Impugned Order is nullity and unsustainable in law.

The High Court further observed that many procedural inadequacies have been done by the Respondent and it should be further taken care by the respective department that the procedural law is being followed in entirety. Moreover, it was held that SCN cannot be issued as a mere formality and Impugned Order cannot be passed in an arbitrary manner. It was further directed to find out such faulty cryptic SCN and quash all such proceedings.

The High Court quashed and set aside the SCN as well as the Impugned Order with a liberty to the Department to commence fresh proceedings with adherence to principles of natural justice.

AMLEGALS REMARKS

The Bombay High Court has upheld that whenever any actions are to be taken against the taxpayer, which would result into civil consequence, then the reasons shall be known to such taxpayer. Moreover, an unreasoned and cryptic SCN defeats the purpose of issuance of SCN. Therefore, adequate particulars and reasons must be stated in the SCN, so that the taxpayer can respond to the allegation.

Furthermore, the order shall be reasoned and with application of mind. Hence, the SCN as well as Impugned Order were quashed with a direction for the Department to be accountable and responsible for the action taken against the taxpayers.

Team AMLEGALS assisted by – Mr. Atulit Raj (Intern)

For any query or feedback, please feel free to get in touch with himanshi.patwa@amlegals.com or rohit.lalwani@amlegals.com