Facts of the Case

The first writ applicant, Khodiar Export Import, is a proprietary concern engaged in trading tobacco and tobacco products at Borsad, District Anand; the second applicant is its proprietor. The firm was registered under the Goods and Services Tax Act, 2017 but was unable to file certain monthly returns since payment of tax is a pre-requisite for the GST portal to accept returns. A show cause notice dated 10.07.2020 was issued proposing cancellation of registration for non-filing of returns for a continuous period of six months. Despite the proprietor appearing before the authority, an order dated 21.07.2020 was passed cancelling the registration — an order that was, on its face, a non-speaking order without material particulars. The firm's appeal against cancellation was dismissed by the appellate authority on 17.11.2021, relying on a spot-visit report obtained from the Assistant Commissioner of State Tax, which recorded that no business activity or physical stock was found at the declared place of business. Aggrieved, the firm approached the High Court under Article 226.

Issues Involved

  1. Whether the appellate authority could rely on a spot-visit report obtained behind the back of the firm, without disclosing it or affording an opportunity to respond, to dismiss the appeal against cancellation of registration.
  2. Whether such reliance vitiated the appellate order and the underlying cancellation order for violation of principles of natural justice.

Petitioner's Arguments

  • The cancellation order dated 21.07.2020 was a non-speaking order, bereft of any material particulars or reasoning, and could not sustain cancellation of registration.
  • The appellate authority dismissed the appeal on the ground of a spot-visit report that was never put to the firm, denying it any opportunity to explain or rebut the findings recorded therein.
  • The show cause notice had been issued solely on the ground of non-filing of returns for six months, and the appellate authority could not travel beyond that ground to rely on an undisclosed inspection report.

Respondent's Arguments

  • The Assistant Commissioner of State Tax's spot-visit report indicated that the declared place of business showed no physical stock and no verifiable business activity, and that sales of items (bidis) not reflected in the registered HSN details were found.
  • The appellate authority accordingly upheld dismissal of the revocation appeal on the basis of this negative field report.

Court Order/Findings

  • The show cause notice and the cancellation order both proceeded on the specific ground of non-filing of returns for six months; the cancellation order itself was a non-speaking order.
  • The appellate authority could not, behind the back of the firm, rely on a spot-visit report never disclosed to it for the purpose of dismissing the appeal — the firm was never put to notice that such a report would be considered.
  • The entire procedure undertaken by both the original and appellate authorities was held to be in absolute violation of the principles of natural justice.
  • The impugned appellate order dated 17.11.2021 and the original cancellation order were quashed and set aside; the GST registration stood automatically revived. The firm was permitted to file its returns with applicable interest and penalty, failing which within two weeks the authority remained free to initiate fresh cancellation proceedings.

Important Clarification

  • An appellate or adjudicating authority cannot rely on material — such as a field/spot-visit report — gathered outside the record and never disclosed to the affected party, to decide against them; doing so is a violation of natural justice regardless of the merits of that material.
  • Quashing on natural-justice grounds does not amount to a finding on the merits of the underlying non-filing; the authority retains liberty to proceed afresh, in accordance with law, if statutory compliance is not made good.

Sections Involved

  • Goods and Services Tax Act, 2017 – governs registration, cancellation and revocation of GST registration.
  • Section 107, GGST Act, 2017 – provides for appeal against cancellation orders to the Appellate Authority.
  • Form GST REG-17 / Rule 22(1) – prescribes the show cause notice procedure for cancellation of registration.

Decision – In Favour of

Decided in favour of the Assessee: both the cancellation order and the appellate dismissal were quashed for violation of natural justice, and the GST registration was ordered automatically restored, subject to compliance with return-filing requirements.

Related Case Laws

No related case laws are available on this site at present for cross-reference on this specific point.

Case Details

  • Court: High Court of Gujarat at Ahmedabad
  • Case No.: R/Special Civil Application No.5220 of 2022
  • Coram: Justice J.B. Pardiwala and Justice Nisha M. Thakore
  • Date of Order: 16.03.2022

Link to Download the Order

Download the Order

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