SHOW CAUSE NOTICE CANCELLING GST REGISTRATION MUST DISCLOSE REASON: ALLAHABAD HIGH COURT

The Allahabad High Court in the case M/S Ram Krishna Garg Supplier Versus State Of U.P. And 4 Others observed and has held that the show cause notice cancelling registration must indicate the reason and the mere mentioning of violation under the CGST Act is not sufficient.

The Single bench comprising of Justice Saumitra Dayal Singh has observed that cancellation of registration has the most serious civil consequences. As stated in Section 29(1) of the CGST Act, the provision 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. Therefore, on the mere whims and fancies of the proper officer, a registration may be cancelled and 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. If it 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 registration can be cancelled.

It was submitted by the petitioner 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. Further, 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 mute and vague.

It was submitted by the petitioner that 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 and in a way, the harshest penalty contemplated is the cancellation or registration of the assessee. However, the cancellation of the registration has the consequence of bringing the business of an assessee to a complete stand still. It’s a death of his business. It has an adverse impact on his fundamental right to do business.

In the present case, 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 under Section 29(2)(a), were such as may have warranted cancellation of the petitioner’s registration. Since the petitioner did not confront the material that may have formed the basis for such an allegation and the entire exercise would remain an irregular exercise.

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 mute and vague.