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Facts of the Case

Nirakar Ramchandra Pradhan challenged a show-cause notice dated 27.07.2022 issued under the Central Goods and Services Tax Act, 2017, proposing to cancel and suspending his GST registration, along with the consequential cancellation order dated 11.11.2022 passed by the Superintendent, effective retrospectively from 26.11.2020. The petitioner replied on 31.07.2022, contending the notice disclosed no reasons for the serious allegation of fraud, wilful misstatement or suppression of facts. The order that followed also recorded no reasons, merely reproducing the standard cancellation format. In the reply affidavit before the High Court, the department for the first time disclosed that it suspected fake Input Tax Credit availment of over Rs. 13.96 crores from an entity, M/s Sunshine Traders, whose own registration had been cancelled.

Issues Involved

  1. Whether a show-cause notice alleging fraud, wilful misstatement or suppression of facts, but disclosing no supporting material, satisfies the requirements of natural justice.
  2. Whether a cancellation order that itself records no reasons can be sustained, particularly where fresh reasons are furnished only in the reply affidavit before the writ court.
  3. Whether the discretionary relief should be denied given the department's allegation of the petitioner's involvement in a large fake-ITC racket.

Petitioner's Arguments

  • The petitioner argued that the show-cause notice furnished no material regarding the alleged fraud, wilful misstatement or suppression of facts, making an effective reply impossible.
  • It was submitted that the Superintendent proceeded to cancel the registration without recording any reasons and without granting a personal hearing.
  • Counsel contended that the department could not justify the impugned order for the first time through reasons disclosed only in the reply affidavit filed during the writ proceedings.

Respondent's Arguments

  • The respondents relied on their reply affidavit disclosing that the petitioner had allegedly availed fake ITC exceeding Rs. 13.96 crores from a cartel-linked, subsequently-cancelled entity.
  • It was argued that given the scale of revenue involved and the alleged fraud, discretionary relief under Article 226 ought not to be granted in the petitioner's favour.

Court Order / Findings

  • The Division Bench held that a show-cause notice alleging fraud without disclosing supporting material leaves the noticee unable to respond effectively, rendering the notice and any consequential order illegal and a total nullity.
  • The Court found the impugned order compounded the illegality by itself furnishing no reasons for cancellation, reflecting total non-application of mind.
  • The show-cause notice dated 27.07.2022 and the cancellation order dated 11.11.2022 were quashed, with liberty to the department to issue a fresh, properly reasoned notice and adjudicate it after granting a personal hearing, all contentions being kept open.

Important Clarification

  • Reasons justifying a serious allegation such as fraud or fake ITC must be disclosed in the show-cause notice itself; a department cannot cure a defective notice by supplying reasons for the first time in a reply affidavit filed during subsequent litigation.
  • Even where the department may possess strong material against an assessee, failure to follow proper procedure in issuing the show-cause notice benefits the assessee, since the resulting order becomes void for want of due process, independent of the underlying merits.

Sections Involved

  • Central Goods and Services Tax Act, 2017 – governs registration, cancellation and adjudication of GST liabilities.
  • Rule 21/22, CGST Rules, 2017 – prescribe the procedure for cancellation of registration on grounds including fraud.
  • Article 226, Constitution of India – invoked to challenge the show-cause notice and cancellation order.

Decision – In Favour of

The decision is in favour of the assessee. The show-cause notice and the cancellation order were quashed for want of reasons and breach of natural justice, though the department retains liberty to proceed afresh in accordance with law.

Case Details

Court: High Court of Judicature at Bombay
Case No.: Writ Petition No. 2534/2023
CNR / Citation: Not available in judgment text
Coram: Hon'ble Mr. Justice G.S. Kulkarni and Hon'ble Mr. Justice Jitendra Jain
Date of Order: 11 September 2023

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