Facts of the Case

The petitioner, M/s Sakthi Steel Industries India Pvt Ltd, trades in TMT bars, billets and ferrous scrap, purchasing finished goods from its parent company, M/s Sakthi Ferro Alloys (India) Pvt Ltd, and selling to buyers across several States, while also importing scrap iron. It obtained GST registration No.37AAVCS0110M1Z2 on 06.01.2023 for a leased premises of 2.71 acres within its parent company's manufacturing site at Kuppam, Chittoor District, Andhra Pradesh. Following a field visit on 16.03.2023, the second respondent issued a show cause notice dated 20.03.2023 alleging, without particulars, that "registration has been obtained by means of fraud, wilful misstatement or suppression of facts," and suspended the registration. Despite the petitioner's reply dated 24.03.2023 denying fraud or bill trading, the registration was cancelled by order dated 20.04.2023, primarily on the ground that the petitioner and its parent company operated from the same premises, and the cancellation was confirmed on appeal by order dated 07.07.2023.

Issues Involved

  1. Whether a show cause notice merely reciting the statutory language of "fraud, wilful misstatement or suppression of facts," without particulars, satisfies natural justice requirements.
  2. Whether shared business premises with a group/parent company, without more, can support a finding of fraud sufficient to cancel GST registration under Section 29(2) of the APGST Act, 2017.

Petitioner's Arguments

  • The show cause notice was vague and dubious, reciting only the bare statutory language without specifying the particulars of the alleged fraud, wilful misstatement or suppression of facts.
  • The petitioner maintained a genuine business of purchasing TMT bars and billets from its parent company and selling across multiple States, and leasing part of the parent company's premises was a legitimate business decision for supply-chain efficiency, not evidence of fraud.
  • The petitioner never engaged in bill trading or movement of goods without proper invoices, and complete purchase and sale records were available for verification at any time.

Respondent's Arguments

  • A field inspection report by the Deputy Assistant Commissioner found that the registered business was not genuine, that the petitioner lacked an independent place of business, and that the leased premises were unsuitable for the stated business activities involving TMT bars and iron scrap.
  • Since another group entity already held a separate GST registration at the same survey number, the Department concluded the petitioner's registration was not maintainable and that it was suspected of bill trading without actual receipt and supply of goods.

Court Order/Findings

  • The Court held that a show cause notice merely reciting the statutory language of fraud, wilful misstatement or suppression of facts, without disclosing the particulars of the alleged fraud, flagrantly violates natural justice and cannot form a valid foundation for cancellation.
  • Mere commonality of business premises between a subsidiary and its parent/group company, without a thorough examination of account books, e-way bills, transportation records and toll data, cannot by itself establish that registration was obtained by fraud or that the taxpayer engaged in bill trading.
  • Both the cancellation order and the appellate order confirming it committed the same error of relying on the premises-sharing fact alone, without any scrutiny of the petitioner's actual business records despite the petitioner's offer to produce them.
  • The cancellation and appellate orders were set aside, with a direction to restore the petitioner's GST registration within one week, while leaving it open to the Department to issue a fresh, properly particularised show cause notice and conduct a proper inquiry if it chooses to.

Important Clarification

A GST registration cancellation founded on an allegation of fraud under Section 29(2)(e) requires a show cause notice that specifies the particulars of the alleged fraud, wilful misstatement or suppression, and cannot rest merely on the fact that a taxpayer shares business premises with a group or parent company; establishing bill trading or non-genuine business requires actual scrutiny of account books, e-way bills and transport records, not inference from shared premises alone.

Sections Involved

  • Section 29(2), APGST Act, 2017 — enumerates grounds, including fraud, wilful misstatement or suppression of facts, for cancellation of GST registration, with a mandatory opportunity of hearing.
  • Article 14 and Article 19, Constitution of India — invoked against arbitrary and unreasonable cancellation without adequate particulars.

Decision – In Favour of

The decision favours the Assessee. The cancellation and appellate orders were set aside and registration restored, though the Department retains liberty to issue a fresh, properly particularised notice and conduct a genuine inquiry.

Related Case Laws

No directly on-point case notes are currently published on this site.

Case Details

  • Court: High Court of Andhra Pradesh
  • Case No.: WRIT PETITION NO. 17500 of 2023
  • CNR: Not available
  • Coram: Justice U. Durga Prasad Rao and Justice Venkata Jyothirmai Pratapa
  • Decision Date: 29 September 2023
  • Disposal Nature: Allowed; cancellation order set aside

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