Gujarat High Court has in a recent judgment[1] quashed a showcause notice (‘SCN’) and the subsequent order on the ground that the reasons for cancellation of the assessee’s registration are not decipherable. The High Court also added that the SCN is quashed because of violation of principles of natural justice.
Facts
The petitioner in the impugned case was registered under CGST Act, 2017 and had been regularly filing GST returns. The petitioner claimed that it received a SCN on 20.01.2023 via GSTN portal but did not receive the SCN or any other document or material at its registered place of business. The petitioner claimed that it was given seven working days to file a reply and was instructed to appear personally on 27.01.2023 to file the reply. The petitioner filed a reply by the said date and on 22.06.2023 received a non-speaking order informing it that its registration was cancelled w.e.f. 13.03.2021.
The SCN was impugned on the ground that it was vague and on the ground that no reason had been assigned for cancellation of the assessee’s registration. The State, on the other hand, argued that the petitioner had obtained registration through fraud and misrepresentation but did not elaborate further as to the nature of fraud or misrepresentation.
High Court Decides
The Gujarat High Court reproduced in detail the procedure of registration, cancellation of revocation of registration enunciated in Aggarwal Dyeing and Printing Works case.[2] To put it pithily, the Gujarat High Court in Aggarwal Dyeing and Printing Works case had stated that the settled legal position is that assignment of reasons by adjudicating authority is imperative in nature. And that the said reasons are the heart and soul of decision making. The High Court stated that all evidence, documents must be considered by the decision making authority and reasons assigned in support of the decision must be cogent, clear and concise.
The Gujarat High Court in the impugned case stated that in Aggarwal Dyeing and Printing Works case the Court’s was clear: if a cryptic SCN is issued and reasons for cancellation of registration are not decipherable, then it amounts to violation of principles of natural justice.
Relying on the aforestated ratio in Aggarwal Dyeing and Printing Works case, the Gujarat High Court in the impugned case held that:
… the show cause notice and the impugned order are quashed and set aside. The petition is allowed solely on the ground of violation of principles of natural justice. The show cause notice as well as the order cancelling the registration are quashed and set aside with a liberty reserved to the respondent to issue a fresh notice with particulars of reasons incorporated with details, and thereafter, to provide reasonable opportunity of hearing to the writ petitioner and to pass appropriate speaking order on merits. (para 8)
The impugned decision of the Gujarat High Court is another attempt to introduce transparency, adherence to principles of natural justice and reasonableness before cancelling registration of taxpayers. It is instructive how the State raises the argument that the taxpayer obtained registration by fraud without backing the argument without any cogent or other evidence leaving the impression that the argument was used as a fig leaf for an ill thought and arbitrary action. Whether the High Court’s impugned decision will have any impact in the State’s behaviour will be known in the future, though the hope for it is bleak.
[1] Hardik KaushikBhai Joshi v Union of India TS-485-HCGUJ-2023-GUJ.
[2] Aggarwal Dyeing and Printing Works v State of Gujarat [2022] 137 taxmann.com 332 (Gujarat).