In
a recent judgment, the Delhi High Court has reaffirmed that the mere issuance
of a show cause notice (SCN) by the tax authority is not enough to cancel the
Goods and Services Tax (GST) registration of any entity. The judgement
addresses the ongoing uncertainty surrounding the authority to cancel
registration based solely on an SCN, and the prevailing doubts over its
cancellation with retrospective effect.
In
a petition filed by Subhana Fashion, the court invalidated the decision of
cancelling GST registration terming the SCN as ‘in violation of principles of
natural justice.’ The court ruled that the authorities must provide some
‘intelligible reasons’ and also an ‘opportunity of being personally heard’
while proposing to cancel the GST registration.
It further said that the
‘non-payment of dues for three months’ is not a prescribed ground for
cancelling the registration.
Earlier,
in another case filed by a construction company (M/s Chauhan Construction Co),
the court ruled that the SCN must contain every specific detail. In the said
case, the authorities had issued an SCN to the company, asking it to appear for
a personal hearing within seven days, failing which would lead the case to be
decided ex parte (done in the interest of only one party).
However
the court said that the show cause notice (SCN) didn’t state ‘any appointed
date, time or venue for personal hearing’. It ruled that since the SCN was
devoid of ‘any particulars’, the cancellation order must be revoked.
In
a case (Shree Bankey Bihari Trading Company) surrounding the cancellation of
GST retrospectively, the court ruled that there needs to be some ‘material on record’
to show why the registration is sought to be cancelled retrospectively. It
highlighted that if the SCN doesn’t have any specific reason, it can’t be
sustained.
The
court has also emphasised the need of a synergy between cancellation orders and
the SCN. In the A P Enterprises case, the company was issued an SCN which
accused it of violating Rule 21(g) of CGST Rules. It was alleged that the
company had issued invoices without supplying goods.
But
in its judgement the court highlighted that the SCN neither provided the
‘details of the invoices’ that were allegedly not covered by supply of goods,
nor provided any clue as to transactions alleged to violate the rules.
The
court further observed that the cancellation order carried ‘another additional
reason’ apart from that stated in SCN. It is clear that the cancellation order
has travelled beyond the scope of SCN which is in violation of settled
principles of natural justice, the court observed.
The
recent judgments of the Delhi HC have tried to address the ambiguity present in
the SCNs, and the need to observe the principles of natural justice while
cancelling the GST registration of entities.