Facts of the Case

The petitioner, M/s D.M. Traders, approached the Allahabad High Court challenging a show cause notice dated 18.08.2022. Through the said notice, the petitioner was called upon to explain why proceedings for cancellation of its GST registration should not be initiated.

The show cause notice further recorded that the petitioner’s GST registration had been suspended with effect from 18.08.2022.

The petitioner’s principal grievance was that the show cause notice did not provide adequate reasons or material particulars explaining why proceedings for cancellation of registration under the CGST Act were sought to be initiated. According to the petitioner, the notice lacked the material details necessary to enable it to submit a proper and effective reply.

The petitioner relied upon the decision of the Supreme Court in Commissioner of Central Excise, Bangalore vs Brindavan Beverages (P.) Ltd., (2007) 5 SCC 368, to contend that a show cause notice lacking necessary allegations, reasons and supporting material could not be sustained in law.

On behalf of the respondent, attention of the Court was drawn to the order initiating proceedings under Section 129(1)(b) of the CGST Act, pursuant to which penalty under the CGST Act and SGST Act had been imposed upon the petitioner.

The respondent contended that the impugned show cause notice was a consequence or fall out of the proceedings already initiated against the petitioner under the GST law.

The Court also noticed that the show cause notice itself referred to the following reason:

“Issuance of invoice or bill without supply of goods and / or services in violation of the provisions of this Act, or the rules made thereunder leading to wrongful availment or utilization of input tax credit refund of tax.”

The writ petition further disclosed that the petitioner had already instituted an appeal under Section 107 of the CGST/UPGST Act against the order passed under Section 129(1) and was contesting the penalty order before the First Appellate Authority.

Issues Involved

The principal issues before the High Court were:

  1. Whether the show cause notice dated 18.08.2022 proposing cancellation of GST registration was liable to be interfered with on the ground that it lacked sufficient reasons and material particulars.
  2. Whether the petitioner could directly invoke the writ jurisdiction of the High Court without first submitting a reply to the show cause notice.
  3. Whether the stated allegation of issuance of invoice or bill without actual supply of goods and/or services, allegedly resulting in wrongful availment or utilisation of input tax credit or refund of tax, provided sufficient context for requiring the petitioner to respond to the notice.
  4. Whether the proceedings under Section 129(1)(b) of the CGST Act and the related penalty proceedings had a bearing upon the subsequent show cause notice concerning suspension and proposed cancellation of GST registration.
  5. Whether the pendency of the petitioner’s statutory appeal under Section 107 of the CGST/UPGST Act against the penalty order justified interference with the separate show cause notice relating to GST registration.

Petitioner’s Arguments

The petitioner submitted that no proper reason had been provided in the show cause notice explaining why cancellation proceedings under the CGST Act were proposed to be initiated.

It was argued that the show cause notice lacked all material details necessary for the petitioner to understand the precise case against it and submit an effective reply.

The petitioner relied upon the Supreme Court decision in Commissioner of Central Excise, Bangalore vs Brindavan Beverages (P.) Ltd., (2007) 5 SCC 368, and asserted that a show cause notice deficient in necessary particulars could not be sustained in the eye of law.

The petitioner contended that a valid show cause notice should comprise four essential components:

  1. Foundational facts;
  2. Material relied upon to reach such foundational facts;
  3. The allegation or violation of law arising from those foundational facts; and
  4. An opportunity to show cause against the allegation and the proposed consequence.

According to the petitioner, where the allegations themselves were not adequately disclosed, the opportunity to reply became a mere formality because the noticee could not meaningfully respond to an unspecified or insufficiently particularised case.

The petitioner therefore sought interference by the High Court against the show cause notice and the consequential suspension of its GST registration.

Respondent’s Arguments

The respondent drew the Court’s attention to the order initiating proceedings under Section 129(1)(b) of the CGST Act, pursuant to which penalty under the CGST Act and SGST Act had been imposed upon the petitioner.

It was submitted that the impugned show cause notice was not an isolated action but was a fall out of proceedings already initiated against the petitioner under the GST law.

The respondent’s case was that the background proceedings provided the context for issuance of the impugned show cause notice.

The show cause notice itself recorded an allegation concerning issuance of invoice or bill without supply of goods and/or services in violation of the Act or Rules, allegedly leading to wrongful availment or utilisation of input tax credit or refund of tax.

Court’s Findings and Order

The Allahabad High Court examined the show cause notice and noted that it expressly contained the reason relating to issuance of invoice or bill without supply of goods and/or services in violation of the GST law, allegedly leading to wrongful availment or utilisation of input tax credit or refund of tax.

The Court further took note of the fact that proceedings had been initiated against the petitioner under the GST Act and that the petitioner had faced an order under Section 129(1).

The Court also noticed that, as stated in paragraph 6 of the writ petition, the petitioner had instituted an appeal under Section 107 of the CGST/UPGST Act against the demand arising from the order passed under Section 129(1) and was contesting the penalty order before the First Appellate Authority.

Considering these facts, the High Court found that the show cause notice suspending the petitioner’s GST registration with effect from 18.08.2022 was connected with proceedings initiated against the petitioner under the GST Act for alleged violation of statutory provisions involving issuance of invoice or bill without supply of goods and wrongful availment of benefits under the Act.

The Court formed the view that the petitioner ought to furnish a proper reply to the show cause notice and make out its case as to why action should not be taken against it.

Since the petitioner had approached the High Court without first submitting any reply to the show cause notice, the Court held that it was not a fit case for interference.

Accordingly, the High Court declined to interfere with the show cause notice at that stage.

However, the Court granted liberty to the petitioner to submit a reply to the show cause notice, raising its objections and enclosing a certified copy of the High Court’s order, within a period of two weeks from the date of the order.

The competent authority was directed to consider and decide such reply in accordance with law.

With these observations, the writ petition was disposed of.

Important Clarification

The judgment does not lay down that every GST registration cancellation show cause notice is valid merely because a broad allegation is mentioned in it. The decision turned upon the specific factual context before the Court.

In the present case, the High Court noted that:

  • The show cause notice itself referred to issuance of invoice or bill without supply of goods and/or services;
  • The allegation concerned wrongful availment or utilisation of input tax credit or refund of tax;
  • Proceedings had already been initiated against the petitioner under the GST Act;
  • An order under Section 129(1) had been passed;
  • The petitioner had itself filed an appeal under Section 107 of the CGST/UPGST Act against the demand and was contesting the penalty order before the First Appellate Authority; and
  • The petitioner approached the High Court without first furnishing a reply to the impugned show cause notice.

Therefore, the High Court considered it appropriate that the petitioner should first submit a proper reply before the competent authority rather than seek immediate writ interference at the show cause notice stage.

The Court did not finally adjudicate the merits of the proposed cancellation proceedings. It directed that, if the petitioner submitted its reply with objections and a certified copy of the order within two weeks, the competent authority should consider and decide the same in accordance with law.

Sections Involved

Section 129(1)(b) of the CGST Act

The respondent relied upon the proceedings initiated under Section 129(1)(b) of the CGST Act, under which penalty under the CGST Act and SGST Act had been imposed upon the petitioner. The respondent argued that the impugned show cause notice was a fall out of the GST proceedings already initiated against the petitioner.

Section 107 of the CGST/UPGST Act

The petitioner had instituted a statutory appeal under Section 107 of the CGST/UPGST Act against the demand arising from the order passed under Section 129(1) and was contesting the penalty order before the First Appellate Authority.

GST Registration Cancellation and Suspension Proceedings

The impugned show cause notice dated 18.08.2022 called upon the petitioner to explain why proceedings for cancellation of GST registration should not be initiated. The notice also recorded suspension of the petitioner’s GST registration with effect from 18.08.2022.

The stated basis in the notice concerned alleged issuance of invoice or bill without supply of goods and/or services in violation of the Act or Rules, allegedly leading to wrongful availment or utilisation of input tax credit or refund of tax.

Link to download the order -https://mytaxexpert.co.in/uploads/1783418050_1370compressed.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.