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Facts of the Case

M/S S P Metals, a proprietorship registered under the Central Goods and Services Tax Act, 2017 and represented by its proprietor Sri S. Saravanan, challenged an order dated 30.11.2022 passed by the Assistant Commissioner of Commercial Taxes cancelling its GST registration under Rule 22(3) of the CGST Rules. The petitioner's premises had been visited on 11.10.2022 and certain invoices seized under a mahazar; he was subsequently arrested and remained in judicial custody from 16.11.2022 to 08.12.2022. A Show Cause Notice dated 17.11.2022, alleging issuance of invoices without actual supply of goods or services to enable wrongful availment of Input Tax Credit, was purportedly served and "replied to" during this custody period, and the registration was cancelled on 30.11.2022 while the petitioner was still in judicial custody.

Issues Involved

  1. Whether a GST registration could validly be cancelled on the basis of a reply purportedly furnished by a person who was, undisputedly, in judicial custody and could not have responded to the Show Cause Notice.
  2. Whether the cancellation order, recording consideration of a non-existent reply, was arbitrary and violative of principles of natural justice.

Petitioner's Arguments

  • The petitioner's counsel, Ms. Lekha G.D., submitted that since the petitioner was in judicial custody from 16.11.2022 to 08.12.2022, he could not have received the Show Cause Notice dated 17.11.2022 or filed any reply to it.
  • It was argued that the cancellation order recording consideration of the petitioner's "response" was factually impossible and reflected a stereotyped, mechanical opinion.
  • Counsel contended the cancellation was arbitrary and passed without any real opportunity of hearing, warranting interference under Article 226.

Respondent's Arguments

  • The Assistant Commissioner and the Superintendent of Central Tax submitted that penal proceedings had been initiated against the petitioner for issuing invoices without actual supply of goods or services, and that cancellation was consequential to this investigation.
  • However, neither respondent could point to any material in the impugned order itself substantiating this justification.
  • Both respondents ultimately proposed that any revocation of cancellation be conditioned on the petitioner filing pending GST returns.

Court Order / Findings

  • The Court found the cancellation order arbitrary, as it purported to consider a reply the petitioner could not possibly have filed while in judicial custody, reflecting a stereotyped and non-application-of-mind approach by the department.
  • The writ petition was allowed, with the Superintendent of Central Tax permitted to pass suitable orders revoking the cancellation once the petitioner files pending GST returns.
  • The petitioner was granted liberty to file the outstanding returns within four weeks, following which the department was directed to pass revocation orders within a further two weeks.

Important Clarification

  • A cancellation order that records consideration of a reply which the assessee could not have physically or legally filed (here, due to custody) is liable to be set aside as arbitrary and non-speaking.
  • Courts routinely balance such procedural infirmities against revenue interest by conditioning restoration of registration on compliance with pending return-filing obligations, rather than granting an unconditional revocation.

Sections Involved

  • Section 29, CGST Act, 2017 – governs cancellation of GST registration and its grounds.
  • Rule 22(3), CGST Rules, 2017 – prescribes the procedure for passing a cancellation order following a Show Cause Notice.
  • Article 226, Constitution of India – invoked for writ jurisdiction to challenge the cancellation order.

Decision – In Favour of

The decision is in favour of the assessee. The cancellation order was found arbitrary and the petition allowed, though restoration of registration was made conditional on the petitioner filing all pending GST returns within the stipulated time.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: WP No. 1135/2023 (T-RES)
CNR / Citation: Not available in judgment text
Coram: Hon'ble Mr. Justice B M Shyam Prasad
Date of Order: 10 March 2023

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