The Hon'ble High Court of Delhi in Prince Garg v. Avato Ward 63 State Goods and Service Tax & Anr. [W.P.(C) 10953/2024 dated August 8, 2024] held that a show cause notice for cancellation of GST registration that fails to provide specific reasons or allegations is invalid and must be set aside.
Facts of the Case:
The Petitioner, Prince Garg, filed a writ petition challenging a show cause notice ("the impugned SCN") dated July 2, 2024, issued by the proper officer of the Respondents. The impugned SCN called upon the Petitioner to show cause as to why his Goods and Services Tax (GST) registration should not be cancelled.
The only reason provided in the impugned SCN for proposing to cancel the Petitioner's GST registration was a verbatim reproduction of Rule 21(b) of the Central Goods and Services Tax Rules, 2017, stating: "Rule 21 (b)- person issues invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made thereunder."
The Petitioner was directed to file a reply to the impugned SCN within seven working days from the date of service and to appear before the proper officer on July 10, 2024. Additionally, the Petitioner's GST registration was suspended with effect from July 2, 2024, the date of the impugned SCN.
The Petitioner submitted a reply to the impugned SCN on July 9, 2024, stating that the notice was cryptic in nature and failed to mention specific allegations regarding which bill or invoice was issued without the supply of goods or services. The Petitioner also objected to the impugned SCN on the ground that it did not mention the name and designation of the issuing officer.
One month after submitting the reply, no decision had been taken on the impugned SCN, while the Petitioner's GST registration remained suspended. The Petitioner filed this writ petition aggrieved by the suspension of his GST registration based on the impugned SCN.
Issue:
Whether a show cause notice for cancellation of GST registration that fails to provide specific reasons or allegations is valid?
Held by the Court:
The Hon'ble High Court of Delhi in W.P.(C) 10953/2024 held that:
The Court observed that the impugned SCN failed to provide any specific reason for proposing to cancel the Petitioner's GST registration. It merely reproduced Rule 21(b) of the Central Goods and Services Tax Rules, 2017, without indicating which bill or transaction was alleged to be in non-compliance with the statutory provisions. The Court held that although Rule 21(b) provides for cancellation of GST registration if a taxpayer issues an invoice or bill without the supply of goods or services, the proper officer failed to specify which invoice/bill was allegedly issued without the corresponding supply.
The Court opined that the purpose of issuing a show cause notice is to enable the noticee to respond to the allegations on the basis of which an adverse action is proposed. Without specific allegations, the issuance of the show cause notice is rendered meaningless. The Court held that the impugned SCN failed to meet the requisite standards of a show cause notice and was therefore liable to be set aside.
In light of these observations, the Court allowed the present petition and set aside the impugned SCN. The Court directed the Respondents to restore the Petitioner's GST registration forthwith, addressing the Petitioner's grievance regarding the continued suspension of his registration.
The Court, however, clarified that this order would not preclude the proper officer from initiating fresh proceedings, if warranted, in accordance with the law. This clarification ensures that the tax authorities retain the right to take appropriate action if they have valid grounds for cancellation of the Petitioner's GST registration.
Lastly, the Court disposed of the pending application along with the main petition, bringing closure to all aspects of the matter before it.
Relevant Sections:
Rule 21(b) of the Central Goods and Services Tax Rules, 2017: "The registration granted to a person is liable to be cancelled, if the said person - issues invoice or bill without supply of goods or services or both in violation of the provisions of the Act, or the rules made thereunder"
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