The Hon’ble Gujarat High Court recently passed a judgment in the case of M/s Devi Products v. State of Gujarat [R/Special Civil Application No. 2288 of 2023 dated February 15, 2023], setting aside the Show Cause Notice (“SCN”) and the consequential order for cancellation of GST Registration issued to the assessee. The court held that the SCN and the order for cancellation of GST Registration were passed without recording any reasons and without determining the tax demand, making them cryptic in nature and thus, not valid or sustainable.
The petitioner, M/s Devi Products, is a sole proprietor engaged in the business of trading brass articles. The petitioner had filed its returns till June 2020. However, due to the prevailing circumstances during the Covid-19 pandemic, the petitioner had no business subsequent to June 2020. The financial hardship suffered by the petitioner led to the belief that there was no requirement to file GST returns.
Subsequently, on March 15, 2021, the Revenue Department issued an Impugned SCN under Rule 22(1) of the Central Goods and Services Tax Rules, 2017 (“the CGST Rules”) read with Section 29 of the Central Goods and Services Tax Act, 2017 (“the CGST Act”) informing the petitioner that its GST Registration was liable to be cancelled for not filing returns for a continuous period of six months. The GST Registration of the petitioner was also suspended on March 15, 2021, under Rule 21A of the CGST Rules without recording any reasons. Thereafter, the GST Registration of the petitioner was cancelled by the Respondent with effect from July 1, 2017, vide an Order dated March 24, 2021, without recording any particulars or the reasons or the grounds for cancellation and without determining the tax demand.
Aggrieved by this action, the petitioner filed a petition.
The issue before the Hon’ble Gujarat High Court was whether the Impugned Show Cause Notice and the Impugned Order, issued without recording the grounds for cancellation of GST Registration and without determining the tax demand, were sustainable.
The court held that recording of reasons is a vital principle in ensuring that justice not only be done but must also appear to be done. It also operates as valid restraint on any possible arbitrary exercise of judicial, quasi-judicial, or even administrative power. The court relied on the judgment of the Hon’ble Supreme Court in Krani Associates vs. Masood Ahmed [(2010) 9 SCC 496] to establish the importance of recording reasons.
The court further noted that the Respondent ought to have incorporated specific details of the contents of the Impugned Show Cause Notice that any prudent person can respond to. Otherwise, it would fail to respond to such Show Cause Notice, which is bereft of details, thereby making the mechanism of issuing Show Cause Notice only a formality. The court stated that the very nature of the Impugned Show Cause Notice and the Impugned Order was cryptic and unsustainable under law, as while cancelling the GST Registration, the Respondent had not even determined the amount payable pursuant to such cancellation.
The court held that cancellation of GST Registration without any determination of the amount payable by the petitioner is hardly sustainable, and such action cannot be ratified in any manner. The court quashed the Impugned Show Cause Notice and the Impugned Order and permitted the Respondent to issue a fresh Show Cause Notice with the particular reasons incorporating the details and directed to provide reasonable opportunity of hearing to the petitioner.
Devi Products v. State of Gujarat [R/Special Civil Application No. 2288 of 2023 dated February 15, 2023]
