Goods & Services Tax (GST) in IndiaImproper or Unreasoned Show Cause Notice is Liable to be Quashed

The Gujarat High Court, in the case of Dee Cubes Diamonds Pvt. Ltd vs. State of Gujarat, [R/special Civil Application No. 22875 of 2022] decided on 16.12.2022, held that reasons the heart and soul of a show cause notice and non-communication of  the same to the noticee would amount to denial of reasonable opportunity of hearing resulting into miscarriage of natural justice.

FACTS

Dee Cubes Diamonds Pvt. Ltd., (hereinafter referred to as “The Petitioner”) was engaged in the business of trading of bullion and were duly registered under the Central Goods and Services Tax Act, 2017(hereinafter referred to as “CGST Act”).

A search was carried by the State Tax officer, Revenue Department t (“hereinafter “the Respondent No.2 ”) at the premises of the Petitioner on 8.12.2021, on the allegation that the Petitioner had wrongfully availed the Input Tax Credit (hereinafter referred to as  “ITC”) under the CGST Act and reversed the ITC of Rs. 90,00,000/-. It was alleged that the Petitioner also made payment of Rs. 2,00,00,000/- through electronic cash ledger under protest, in order to show bonafides and also to avoid coercive actions.

In lieu of the same , the Respondent No.2 issued a Show Cause Notice dated 26.05.2022 (hereinafter referred to as “SCN”), proposing to cancel the registration of the Petitioner. The Petitioner gave reply to the same stating that the SCN was completely vague and bereft of any reasons. Further, the Petitioner   also requested to restore the GST registration and for personal hearing. However, no heed was paid to the requests of the Petitioner by the Respondent No.2 and an order (hereinafter referred to as the “impugned order”) was passed for the cancellation of registration of the Petitioner on the grounds which were never a part of the SCN.

Being aggrieved by the same, the said Petition had been filed.

ISSUE BEFORE THE HIGH COURT

Whether the SCN issued by the Respondent No.2 for the cancellation of registration of the Petitioner, is violative of principles of natural justice?

CONTENTIONS OF THE PARTIES

The Petitioner contended  that, Respondent No.2 visited the premises of the Petitioner in May, 2022 for inquiry, which was without prior intimation

The Petitioner further argued that the reasons mentioned  impugned order for cancelling the GST registration of the Petitioner was beyond the scope of SCN  and  lacked material evidence supporting it and was violative of the principles of natural justice.

The Petitioner also submitted  that they also requested for personal hearing which was declined and their GST registration was cancelled without being given a chance of being heard.

Thus the Petitioner contended that the initiations of the proceedings under the SCN was illegal and not tenable in law.

While, the Respondents claimed that the SCN was served calling for reply to show the cause on or before 03.06.2022, however, the Petitioner delayed and filed the reply on 02.07.2022.

It was argued that the supporting documents were provided with the SCN. to justify that the transactions of the Petitioner were non- genuine and consequentially the registration of the Petitioner was cancelled.

The Respondents further submitted that they had duly followed the provisions of the CGST Act and there had been no illegality in the procedure.

DECISION AND FINDINGS

The Hon’ble Gujarat High Court observed that there were discrepancies between the SCN and the impugned order issued by the Respondents.

The Hon’ble High Court opined that the SCN issued to the Petitioner and Impugned Order does not specify the reason for which the allegation of wrongful availment or utilization of ITC or refund of tax is made and also observed that, as the SCN does not contain reason to justify the action of the Respondent and thus it is violative of the principles of natural justice.

The Hon’ble Court relied upon the case of Aggarwal Dyeing and Printing Works v. State of Gujarat & Ors. [SCA No.18860 of 2021], in which the court adjudicated that the reasons are heart and soul of the order and non- communication of the same itself amounts to denial of reasonable opportunity of hearing resulting into mis carriage of justice. Therefore, the Hon’ble High Court quashed and set aside both, the SCN and the impugned order issued by the Respondent No.2 and directed the Respondents to restore the GST registration of the Petitioner.

AMLEGALS REMARKS

The Hon’ble Gujarat High Court in the following case asserted  that issuing a Show Cause Notice without proper cause is prima facie vitiated for the same being vague.  The entire purpose of SCN is to enable the noticee to respond to the allegations mentioned in the SCN. Serving immaterial notices prevents the party to whom the notice has been issued from replying to the same. The court emphasized that taking arbitrary actions like cancellation of GST certificate of the petitioners as well as not giving them a chance to be heard causes financial hardships and mental agony and is against the principles natural justice.

– Team AMLEGALS assisted by Mr. Pritam Kumar