The Allahabad High Court has set aside the cancellation of a taxpayer's GST registration, along with the appellate order confirming it, after finding that the show-cause notice and consequent orders were vague, non-speaking and passed without affording a proper personal hearing.

Facts of the Case

Apparent Marketing Private Limited ("the assessee") was registered under the UP GST Act, 2017 with effect from 17.08.2017 for trading in Pan Masala and Tobacco. The assessee claimed to have filed its returns on time and deposited due tax. A survey conducted at its business premises on 15.12.2017 found them closed, while a second survey on 16.02.2018 revealed no adverse material. The assessee also cooperated in a third-party proceeding where it was summoned under Section 70 of the Act. On 22.07.2020, the assessee received a show-cause notice under Section 29 proposing cancellation of its registration on the solitary ground that the firm was "found bogus in inspection of SIB." No order was passed on the fixed date of 24.07.2020; instead, registration was cancelled by an order dated 13.08.2020 without further notice. The assessee's subsequent revocation application under Section 30 was rejected by order dated 21.08.2020, the very day the assessee had filed its reply, without any personal hearing. Its appeal was dismissed by order dated 12.02.2021, with the Appellate Authority relying on the earlier survey report not referred to by the original authority.

Issues Involved

  1. Whether cancellation of GST registration on the vague ground of the firm being "bogus," without specifying the applicable clause of Section 29(2), is sustainable.
  2. Whether failure to fix a date and time for personal hearing before the cancellation and revocation-rejection orders violated principles of natural justice.
  3. Whether the Appellate Authority could supply fresh reasoning not recorded by the original authority.

Petitioner's Arguments

  • No personal hearing was ever fixed or offered before the cancellation order dated 13.08.2020 was passed.
  • The revocation notice dated 21.08.2020 required a reply but fixed no date or time for hearing; the rejection order was passed the same day the reply was filed.
  • The notices and orders were non-speaking, nowhere specifying which of the five statutory conditions under Section 29(2) was attracted; "bogus" is not a term used in the statute.
  • Returns had been filed and tax paid regularly, so cancellation on an unspecified "bogus" ground was unsustainable.
  • The Appellate Authority erred by introducing its own reasoning (the survey report) that the original authority never relied upon, and that finding was factually incorrect.

Respondent's Arguments

  • Sufficient adverse material existed to show the firm was completely "bogus" and had not conducted genuine business; the registration was obtained only to create a false paper trail of invoices.
  • The assessee had failed to reply to the notice despite being aware of the survey findings.
  • There was no error in the Appellate Authority's order.

Court Order / Findings

  • Cancellation of registration has serious consequences and takes away a citizen's right to conduct lawful business; a presumption of due verification attaches once registration is granted, placing a heavy burden on the department to justify cancellation.
  • "Bogus" is not itself a ground under Section 29(2); the department must specify the exact statutory clause and the material supporting the charge before cancellation.
  • The show-cause notice, cancellation order and revocation-rejection order were all vague and non-speaking; the assessee was never confronted with the material or told which statutory ground was invoked.
  • No personal hearing date was ever fixed, and the revocation application was rejected the same day it was replied to, without any hearing.
  • The Appellate Authority erred by supplying fresh reasoning not considered by the original authority instead of setting aside the defective order.
  • The orders dated 12.02.2021, 21.08.2020 and 13.08.2020 were set aside and the writ petition allowed, with liberty to the department to issue a fresh, properly particularised notice under Section 29(2). A copy was directed to be sent to the Commissioner, State Tax, U.P. for corrective action.

Important Clarification

  • A registration cancellation notice must specify the precise clause of Section 29(2) being invoked; "bogus" is not a statutory ground and cannot substitute for identifying the actual contravention.
  • A fixed-date personal hearing is mandatory before cancellation or rejection of a revocation application, not merely an invitation to file a written reply.
  • An Appellate Authority cannot cure a non-speaking original order by supplying its own reasons or evidence; the appropriate course is to set the defective order aside.

Sections Involved

  • Section 29, CGST/UPGST Act, 2017 — cancellation of registration.
  • Section 29(2), CGST/UPGST Act, 2017 — the five specified grounds on which registration may be cancelled.
  • Section 30, CGST/UPGST Act, 2017 — revocation of cancellation of registration.
  • Section 70, CGST/UPGST Act, 2017 — power to summon persons to give evidence.

Decision – In Favour of

In favour of the Assessee. The cancellation order, the revocation-rejection order and the appellate order were all set aside, though the department retains liberty to initiate fresh, properly particularised proceedings under Section 29(2).

Related Case Laws

Readers may find it useful to read this alongside other case notes on this site dealing with GST registration cancellation for alleged bogus/non-existent firms and on the mandatory requirement of a personal hearing before adverse action under Section 29 of the CGST/UPGST Act.

Case Details

  • Court: High Court of Judicature at Allahabad
  • Case No.: WRIT TAX No. 348 of 2021
  • Coram: Hon'ble Saumitra Dayal Singh, J.
  • Order Date: 05.03.2022

Link to Download the Order

https://mytaxexpert.co.in/uploads/1787075382_4604compressed.pdf

Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.