Goods & Services Tax (GST) in IndiaIssuance of Unreasoned SCN and Cancellation Order Unsustainable and Invalid

The Hon’ble Delhi High Court, in Suresh Chand Gupta vs Union of India and Others vs Union of India, W.P(C)11492/2024 dated 21.08.2024, quashed and set aside the SCN and Cancellation Order, which were unreasoned, without specific allegations and violative of principles of natural justice.

FACTS

The Suresh Chand Gupta, Proprietor of Gupta and Associates (hereinafter referred to as the  “Petitioner”) received a show cause notice dated 19.05.2023 (hereinafter referred to as the “SCN”) from the Respondent, proposing the cancellation of his GST registration under Section 29(2)(e) of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as “CGST Act”), and suspended the registration of the Petitioner on the same day.

An order dated 20.06.2023 (hereinafter referred to as “Impugned Order”), was issued, cancelling the Petitioner’s GST registration retrospectively w.e.f. 24.07.2019. The cancellation order referenced the SCN but did not provide any additional reasoning.

The Petitioner applied for revocation of the cancellation order dated 06.07.2023. In response, another SCN was issued on 21.07.2023, which specified the allegations of availing ineligible Input Tax Credit (hereinafter referred to as “ITC”) from a non-existent firm, M/s Gunjan Traders, and passing on ITC amounting to Rs. 90,12,574/- (Ninety lakh twelve thousand five hundred seventy-four). The Petitioner submitted a response to the second SCN, but his application for revocation was rejected vide Order of Rejection  05.06.2024 (hereinafter referred to as the “Impugned Rejection Order”), on the grounds that the reply was unsatisfactory. The Petitioner claimed he was unable to respond adequately due to ill health, providing medical documentation as proof.

It is in this context; the Petitioner has filed the present Petition challenging the actions of cancellation as well as rejection of revocation by the Respondent.

ISSUES BEFORE THE HIGH COURT

Whether the SCN proposing cancellation of registration issued to the Petitioner was valid as per law?

Whether the Impugned Order of Cancellation of  GST registration of the Petitioner was justified and in accordance with the law?

CONTENTIONS OF THE PARTIES

The Petitioner contended that the SCN was cryptic and failed to provide specific details regarding the alleged fraud or misstatement, violating the principles of natural justice. They contended that the subsequent Impugned Order of Cancellation did not provide any reasoning beyond referencing the SCN, which was inadequate.

The Petitioner argued for revocation of the cancellation order and had responded to the subsequent SCN, but his responses were not considered.

The Respondents maintained that the cancellation of the GST registration was based on the provisions of the CGST Act, which allows for cancellation in cases of fraud or wilful misstatement.

The Respondent argued that the Petitioner had availed ITC from a non-existent firm and had passed on ineligible credits, justifying the cancellation of his registration.

DECISION AND FINDINGS

The Hon’ble Delhi High Court observed that the Respondent had issued cryptic SCN and Impugned Order of Cancellation which is beyond the jurisdiction of the Respondent. It was also observed that a proper SCN must contain specific allegations that clearly outline the basis for the proposed action. The absence of detailed information regarding the purported fraud or misstatement meant that the Petitioner was left in the dark about the exact nature of the accusations against him. This lack of clarity not only hindered the Petitioner’s ability to mount an effective defence but also contravened the legal standards expected of administrative notices. The court emphasized that the purpose of an SCN is to inform the recipient of the charges they face, thereby enabling them to respond adequately. The failure to provide specific allegations rendered the SCN ineffective and legally insufficient, leading the court to conclude that the administrative action taken based on such a notice was unjustifiable.

It was also held  that the Impugned Order of Cancellation itself was violative of principles of natural justice. The Petitioner was not given a fair opportunity to respond to the allegations before the cancellation of his GST registration.

The Hon’ble Delhi High Court quashed and set aside the SCN as well as the Impugned Order of Cancellation of Registration and held that any SCN without specific allegations is invalid and without authority of law. Whereas, Order passed without according an opportunity of personal hearing is violative of principles of natural justice.

AMLEGALS REMARKS

The Hon’ble Delhi High Court has observed that a  SCN must provide specific, substantiated allegations to allow the recipient a fair opportunity to respond. Moreover, the order of cancellation should also provide proper reasons for the same ensuring adherence to principles of natural justice.

Team AMLEGALS Assisted by  Ms. Kritika Dwivedi (Intern)