The Gujarat High Court, in C/SCA/3596/2022, applied its own recent ruling in Aggarwal Dyeing and Printing Works to quash a registration cancellation triggered after the dealer's goods were detained in transit and an inquiry followed.

Facts of the Case

The Petitioner, Sreejith K., proprietor of M/s Sridev Traders, Rajkot, engaged in trading of Areca Nuts, obtained GST registration No. 24IRSPK1732C1ZT on 06.10.2021. On 08.11.2021 it raised tax invoices for sale of 24,500 kgs of Areca Nuts worth Rs.63,70,000/- to a Karnataka-based buyer, with valid e-way bills. On 13.11.2021, the conveyance was intercepted in transit at Navapura-Songadh Highway, Surat, by the State Mobile Squad, and detained vide FORM GST MOV-06 dated 17.11.2021, prompting a separate writ petition (SCA No.19116 of 2021) for release of the perishable goods. The Petitioner cooperated in the ensuing inquiry, appearing for interrogation on 30.11.2021 and 02.12.2021. On 14.12.2021, without prior notice beyond what appeared on the common portal, the Petitioner was served a show cause notice proposing cancellation of registration and suspending it pending proceedings; on 30.12.2021, an order cancelling the registration was uploaded on the portal. The Petitioner challenged both the show cause notice and the cancellation order before the High Court.

Issues Involved

  1. Whether the show cause notice dated 14.12.2021 and the consequential order dated 30.12.2021 cancelling GST registration are valid in law.
  2. Whether reliance on material (an investigation letter) not disclosed in the show cause notice vitiates the cancellation order.

Petitioner's Arguments

  • The show cause notice was bereft of material details, and the reasons assigned were vague, being a mere restatement of the statutory ground of fraud/wilful misstatement/suppression of facts.
  • The Department ought not to have proceeded to cancel registration on the basis of such a vague notice.

Respondent's Arguments

  • The Department defended the cancellation order, relying on the investigation initiated under Section 67(2) of the GGST Act, 2017 against the Petitioner and material gathered during that inquiry.

Court Order / Findings

  • The Court found the show cause notice not tenable in law, as it merely incorporated the statutory ground without disclosing material particulars showing, even prima facie, how the registration was believed to have been obtained by fraud, wilful misstatement or suppression of facts.
  • The cancellation order, in contrast, relied on the initiation of proceedings under Section 67(2) of the GGST Act and a letter dated 14.12.2021 from the State Tax Officer — material that was never disclosed to the Petitioner either in the show cause notice or otherwise before the order was passed.
  • This was held to be a breach of principles of natural justice, depriving the Petitioner of a reasonable opportunity to respond to allegations that carry both civil and criminal consequences.
  • Following its own decision in Aggarwal Dyeing and Printing Works v. State of Gujarat (SCA No.18860 of 2021 and allied matters), the Court held the Department's action illegal and liable to be interfered with.
  • The show cause notice dated 14.12.2021 and the consequential order dated 30.12.2021 were quashed and set aside, the matter remitted for de novo proceedings, and the Petitioner's GSTIN registration was directed to be restored, with the Department expected to abide by the directions issued in Aggarwal Dyeing.

Important Clarification

  • A registration-cancellation order cannot travel beyond the show cause notice by relying on material — investigation letters, inspection or spot-visit reports — that was never put to the dealer; any such reliance must first be disclosed to allow a response.
  • Even where an independent investigation (e.g., under Section 67(2)) is in progress, that alone does not dispense with the requirement of a particularised show cause notice before cancelling registration.
  • Coordinate benches in Gujarat are applying the Aggarwal Dyeing framework consistently to restore GSTIN registrations cancelled through vague, template-driven notices.

Sections Involved

  • Section 29, GGST Act, 2017 — cancellation of registration by the Proper Officer.
  • Rule 22, CGST Rules, 2017 — procedure for cancellation of registration.
  • Section 67(2), GGST Act, 2017 — power of inspection, search and seizure, under which the parallel investigation was initiated.

Decision – In Favour of

In favour of the Assessee. The show cause notice and cancellation order were quashed, the matter remitted for de novo proceedings, and the Petitioner's GST registration was directed to be restored.

Related Case Laws

Case Details

  • Court: High Court of Gujarat at Ahmedabad
  • Case No.: C/SCA/3596/2022
  • Coram: Justice J.B. Pardiwala and Justice Nisha M. Thakore
  • Date of Judgment: 24.02.2022

Link to Download the Order

https://mytaxexpert.co.in/uploads/1787107361_4672compressed.pdf

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