Show Cause Notice Cancelling GST Registration Must Disclose Reason: Allahabad High Court

The single bench of Justice Saumitra Dayal Singh has observed that cancellation of registration has the most serious civil consequences. While Section 29(1) of the CGST Act provides for specific grounds for cancellation with effect from the date of the occurrence of certain events, Section 29(2) provides for harsher consequences, including cancellation of registration with a retrospective date. However, a registration may not be cancelled on the mere whims and fancies of the proper officer. It may be cancelled if the registered person contravenes any provision of the Act or Rule or if the person does not furnish returns for three tax periods consecutively or does not furnish returns for six months continuously. The registration can be cancelled if he does not commence business within six months of the grant of registration or he is found to have obtained registration by means of fraud, wilful misstatement, or suppression of facts.

The petitioner submitted that the show cause notice was issued, ostensibly with reference to Section 29(2)(a) of the Act, inasmuch as the notice dated 9.7.2021 alleged non-compliance with specified provisions of the GST Act or the Rules. However, that notice did not disclose the exact violation of the Act or the Rules, alleged. Unless that allegation was specified in the notice with details and unless material considered adverse to the petitioner had been confronted with it for the purposes of eliciting its reply thereto, the notice dated 9.7.2012 would remain completely vague and mute.

The petitioner submitted that a person who may be visited with a notice proposing a harsh civil consequence had a perfect right to be informed of the exact allegations levelled against him. In a way, the harshest penalty contemplated is the cancellation or registration of the assessee. The cancellation of the registration has the consequence of bringing the business of an assessee to a complete stand still. Its a death of his business. It has an adverse impact on his fundamental right to do business.

The court held that the petitioner was not confronted with the substance of the allegation of violation of the provisions of the Act and the Rules. It is not shown that alleged violations were such as may have warranted cancellation of the petitioner's registration under Section 29(2)(a). Since the material that may have formed the basis for such an allegation had not been confronted by the petitioner, the entire exercise would remain an irregular exercise.

Case Title: M/S Ram Krishna Garg Supplier Versus State Of U.P. And 4 Others WRIT TAX No. - 1064 of 2021

Citation: 2022 LiveLaw (AB) 329

Counsel For Petitioner: Advocates Udai Chandani, Nitin Chandra Mishra

Counsel For Respondent: C.S.C.

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