The Bombay High Court in DBS Tradelink and Advisors Pvt. Ltd. v. The State of Maharashtra and Anr., Writ Petition No. 8474 of 2022 decided on 20.07.2022 held that the GST Registration cannot be cancelled on the basis of a vague, system generated Show Cause Notice (hereinafter referred to as the “SCN”).
DBS Tradelink and Advisers Private Limited (hereinafter referred to as “the Petitioner”) was issued SCN dated 21.04.2022 by the State Tax Officer (hereinafter referred to as “the Respondent”) in electronic Form GST REG-17/31, stating that the Petitioner’s Goods and Services Tax (hereinafter referred to as “GST”) Registration is liable to be cancelled due to it being obtained by means of fraud, wilful misrepresentation and suppression of facts.
The Petitioner furnished its response to the aforementioned SCN vide Reply dated 08.06.2022. Thereafter, the Petitioner’s GST Registration was cancelled by the Respondent vide Order dated 05.07.2022 (hereinafter referred to as the “Impugned Order”), on the basis of the Deputy Commissioner (A/E), CGST & C. Ex. Bhiwandi Commissionerate’s Letter dated 10.03.2022, the Commissioner of CGST and Central Excise Commissionerate Belapur’s Letter dated 18.02.2022, system verification and office visit by the office of the Respondent.
Being aggrieved by the vague and ambiguous SCN issued by the Respondent, and the unlawful cancellation of GST Registration vide the Impugned Order, the Petitioner filed a Writ Petition before the Bombay High Court (hereinafter referred to as “the High Court”).
ISSUE BEFORE THE HIGH COURT
Whether the GST Registration can be cancelled on the basis of a vague, system generated SCN?
CONTENTIONS OF THE PARTIES
The Petitioner contended that the Impugned Order is in violation of the principles of natural justice, as the Petitioner was not served the copies of the Letters dated 18.02.2022 and 10.03.2022, issued by the concerned GST Commissioners, which was relied upon by the Respondent for cancellation of the Petitioner’s GST Registration through the Impugned Order.
The Petitioner submitted that the remedy provided under Section 30 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”) for the revocation of GST Registration is neither an alternate nor an efficacious remedy against the Impugned Order.
Further, the Petitioner stated that it was adversely impacted by the Impugned Order as it was far reaching and restricted the Petitioner from carrying on its business. Thus, the Petitioner prayed for the High Court to invoke its jurisdiction under Article 226 of the Constitution of India to quash and set aside the Impugned Order and SCN, and to restore the Petitioner’s GST Registration.
The Respondent contended that the SCN and Impugned Order were system generated documents, and the issues relating to such documents were reported by the Commissioner to the Central Authority.
DECISION AND FINDINGS OF THE HIGH COURT
The High Court examined the contents of the SCN and observed that it did not expressly allege that the Petitioner had obtained GST Registration by fraud, wilful misstatement or suppression of facts.
Further, the High Court noted that the digital signature appended to the SCN stated ‘Signature Not Verified’, and thus, the SCN was an unsigned document which could not considered as an official document.
The High Court, analysing the Impugned Order, held that there was non-application of judicial mind as the Impugned Order first stated that it was in response to the Petitioner’s Reply to the SCN, then stated that no Reply to the SCN was submitted by the Petitioner, and finally stated that the Petitioner’s Reply to the SCN was examined by the Respondent.
In response to the Respondent’s contention that the Impugned Order and SCN were system generated documents, the High Court observed that the Respondent was expected to comply with the Order of the Gujarat High Court in Aggarwal Dyeing and Printing Works V. State of Gujarat and Ors. [ 2022 (4) TMI 864] directing the GST Department to issue notices and pass orders in physical form specifying all necessary information and particulars.
Thus, the High Court quashed and set aside the SCN and the Impugned Order, and directed the Respondent to proceed further in accordance with the law, to issue notices and pass orders only in physical form and not in digital form until the network problems are resolved.
Subsequently, the High Court directed the Respondent to restore the GST Registration of the Petitioner with immediate effect.
Section 29 of the CGST Act stipulates certain grounds pursuant to the GST Registration of a registered person may be cancelled by the GST Authority. Similarly, Rule 22 of the Central Goods and Services Tax Rules, 2017 (“CGST Rules”) require the GST Authority to issue detailed SCN to such person, specifying all information and clear reason(s) for cancellation of GST Registration.
The essence of Section 29 of the CGST Act and Rule 22 of the CGST Rules is to uphold the principles of natural justice at the time of cancellation of GST Registration, by granting the registered person a fair opportunity to understand the reasons behind such cancellation and to defend itself from such cancellation.
The High Court, taking into consideration the spirit of Section 29 of the CGST Act and Rule 22 of the CGST Rules, held that an SCN which is vague and ambiguous cannot be the basis for cancellation of GST Registration, as being violative of the principles of natural justice.
The High Court emphasized that the GST Authority should only issue such SCNs which contain all the information and reasons for cancellation of GST Registration, and cannot issue a vague and ambiguous SCN for cancellation under the guise of system generated SCN. Thus, the High Court directed the GST Authority to issue SCNs in physical form containing all the relevant information and reasons, until the issues with the electronic form are resolved.
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