Department Can't Issue SCN Simply Alleging Misstatement, Without Pointing Out Specific Fact Of Suppression By Taxpayer: Delhi HC

Finding that the Show cause notice (SCN) issued to the petitioner/assessee did not set out any intelligible reasons for cancellation of its GST registration, the Delhi High Court quashed the said SCN.

The High Court found that the SCN issued to the petitioner, simply mentioned the provisions of Section 29(2)(e) of the CGST Act, 2017 which authorises the proper officer to cancel the taxpayer's GST registration if it is obtained by means of fraud, wilful mis-statement, or suppression of facts, without pointing any specific fact of allegation.

The Division Bench of Justice Vibhu Bakhru and Justice Sachin Datta observed that “The impugned SCN did not indicate any alleged fraud or mention any statement, which is alleged to be a wilful misstatement. It also did not set out any facts, which are alleged to have been suppressed by the petitioner”. (Para 10)

Facts of the case

The petitioner was called upon to show cause why its GST registration should not be cancelled. In response, the petitioner filed an application seeking revocation of the cancellation order. Pursuant to the said application, the respondent/ Department issued a SCN calling upon the petitioner to show cause as to why its application for revocation of cancellation order not be rejected. Since the petitioner neither responded to the SCN nor appeared before the concerned proper officer on the appointed date and time, the petitioner's application for revocation of the cancellation order was rejected. Hence, the petitioner approached the High Court.

Observation of the High Court

First, the Bench noted that the cancellation order was passed in violation of the principles of natural justice.

Further, the Bench noticed that the SCN which was passed pursuant to the petitioner's application for revocation of the cancellation order, clearly sets out two reasons for rejecting the said application and for sustaining the cancellation order.

The first reason for rejection of revocation application was that the petitioner's address of its principal place of business was vague/incomplete and could not be located, added the Bench.

On the other hand, the Bench observed that the second reason for rejection of revocation application was that the petitioner had shown huge turnover within a period of two months and the entire GST was paid by availing input tax credit (ITC).

When the proper officer questioned the genuineness of the said transaction and called upon the petitioner to furnish the details of the same, the counsel for the petitioner has confined the petition to seeking an opportunity to respond to the said allegations, added the Bench.

Hence, the High Court quashed the order by which the petitioner's application for revocation of the cancellation order was rejected, as it fails the test of natural justice, so as to enable the petitioner to respond to the allegations in the SCN.

Thus, the High Court disposed of the matter by answering the question of law in favour of the assessee.

Counsel for Petitioner/ Assessee: Priyanka Goel

Counsel for Respondent/ Revenue: None Appeared

Case Title: M/s SS Enterprises versus Principal Commissioner

Citation: 2024 LiveLaw (Del) 1041

Case Number: W.P.(C) 12183/2024 & CM APPL.50686/2024

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